For certain people, it won't matter how many episodes I (or anyone else) releases explaining all the benefits of (and how great it is) being a Landlord. They just don't want anything to do with it. It could be due to fear of "Tenant Troubles". They may have had a prior bad experience. Or maybe it just seems like a lot of work. Whatever the reason, they won't be investing in any Real Estate, if it also requires being a Landlord.

But there's an alternative... You can be a Real Estate Investor, without also being a Landlord. Be the Bank instead!

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Intro...

Welcome to Episode #31 - Private Lending - Be The Bank… You Can Also Invest In Real Estate As The Lender

No Vacancies... No Leases... No Repairs... No Pests... No "Tenant Troubles"... And certainly no 2 AM calls for toilet clogs (not that that happens anyway) - but that's the fear. You can avoid all this and everything else that people fear about being a Landlord, by being the Bank instead. So fine, you don't want to be the Landlord? Be the Lender! The Private Lender, that is... For other investors who seek to become or grow as Landlords themselves.

So you don't have to be the Landlord to be a Real Estate Investor. Like I said, you can be the Private Lender for other Landlords. You see, most of my BRRRR projects (that being Buy, Rehab, Rent, Refinance, Repeat), are funded initially by either Hard Money or Private Lenders - both of which are actually just Private Lenders. Hard Money Lenders are just professional Private Lenders, and you can invest your money in Real Estate indirectly with them. Or you can invest directly as a Private Lender - of which there are pros and cons with both methods.

I tend to use Hard Money Lenders to fund my projects when either the purchase price and/or rehab expense is rather high. For instance, I've got a project just getting started for which the total loan from a Hard Money Lender for their 80% portion of the purchase price and 100% of the rehab expense totaled over $400,000. And since most individual Private Lenders don't have $400K just laying around (or at least not for a single project) - Hard Money Lenders work best for the higher cost projects, as they're able to pool the money of multiple Private Lenders into higher budget projects. You may even find that some Hard Money Lenders won't fund a project below a certain amount, like $100,000.

Whereas, I tend to get funding directly from individual Private Lenders for the lower costs projects, such as those below the typical Hard Money Lender minimum of $100K; and those projects up to as much as let's say $200,000 or so - can be funded for an amount that is more feasible for many Private Lenders on any given project.

So as the Private Lender, you need to determine if you're most comfortable working within the system of a larger established Hard Money Lender (but likely for a lessor interest rate and lower resulting return). Or if you'll be comfortable establishing your own relationship with one or more individuals who are buying rental properties within the price range and rehab level that you're able to fund the complete project.

Now I can't speak to being a Private Lender within the system and processes of any given Hard Money Lender; because, I personally prefer the knowledge and control that comes from funding the projects directly of individuals that are in my local area who I know personally... But hey, that's just me.

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So let's cover some of the benefits of being a Private Lender - and as we move forward with the conversation, I'm going to speak towards being a direct Private Lender, funding individuals you know personally, likely in your local area; versus lending nationwide to people you don't know, through the system of a given Hard Money Lender - like I said, that's what I prefer, but you do you! If you do start funding projects outside of your local area, at lease stay local for the first few - or make sure you're rock solid confident in that individual or organization and how they run their business and handle their projects.

So when a Private Lender funds one of my projects here in North Carolina (the process may be different in other states) - they get a Promissory Note for the amount being loaned, and a Deed of Trust that get's recorded against the property title, linking the debt to the house. No different than any other mortgage held by a bank, this prevents the property from being sold until the Note has been paid in full.

These documents set the terms, like interest rate, payments, due date, and all; and just like any other mortgage against a property held by a bank - it gives the Private Lender full rights and ability to foreclose on the property and take possession if the terms of the arrangement were to be violated.

So let's say I'm buying a house for $100,000 that needs $20,000 of rehab to then be worth $160,000. If I were to seek funding for this project from a Private Lender at 80% LTV (Loan-To-Value), that would be a loan of $128,000. So I'd be getting 100% of both the purchase price and rehab expense + $8,000. And if closing costs were $3,000, I'd walk away from the closing table on such a purchase with a check in hand for $25,000 - of which $20,000 would go towards the rehab as budgeted; and $5,000 goes to me!

I would hold that extra $5K in reserve to handle my initial holding expenses, including the first payment or two on the loan. Yes, that right - in such a scenario, I would be borrowing the very money that will be used to make the first payment or two back to that Private Lender during the rehab before the property has been rented. I want as little money as possible coming out of my pocket - which makes it a great deal for me.

But it can be argued that it is an even better deal for the Private Lender... So on this same hypothetical purchase with a loan of $128,000, let's say I'm giving this Private Lender 10% interest. That would be a monthly interest only payment (rounded up) of $1,067. And if I were to get this property rented a month or two later for $1,500/mo - you can see that the Private Lender is getting a LOT more of the monthly rent than I am. But it's even worse than that for me... I've also got to pay taxes and insurance out of that. Maybe also an HOA, and something like 25% needs to be held in reserve for future repairs and maintenance, capital expenditures (large ticket repairs), vacancy and property management. By the time you account for all that, I'd be losing money each month. So on numbers like this, I may be only able to pay 8% interest to the Private Lender. So at 8%, that would be a monthly interest only payment (rounded) of $853 - which would give me an additional $213 to work with each month, versus 10% interest.

So I don't guarantee any specific rate to my Private Lenders... While its great to be able to pay that double digit rate of 10%, it really just depends on the numbers of the deal. Because if I'm making $100/mo in positive cash-flow after all expenses and reserves, I don't care that my Private Lender is making over $850/mo in the prior example - as I can buy every house I find that creates this amount cash-flow. And I'm playing the long-term game, trying to acquire as many cash-flow positive properties as I can, so that they can be paid off over time by my Tenants - making me wealthy in the process. But if I'm losing $100/mo, then I can only buy as many as I can cover from my personal funds. And that would also create more risk for the Private Lender. So would you rather have 10% on a losing deal with negative cash-flow for your borrower; or 8% on a deal that pays for itself each month - creating a win for you and your borrower?

And then its up to you as to exactly how low you're willing to go... More deals will create positive cash-flow at 7% or 6% than will at 8%, 9% or 10%. And still more at 5%, but at a certain point its no longer worth it, as the reward becomes outweighed by the risk - especially if you can make 5% or 6% easily elsewhere. For that reason, I look for deals that are a win / win at no less than 7% interest, and I pay 8%, 9% or 10% to my Private Lenders wherever the deal supports it, as I want my lenders to benefit as much as possible - so they'll always be available to fund my deals.

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So one of your benefits as a Private Lender is that you're sitting in the seat of the bank. Should the borrower not pay, you can foreclose and ultimately take possession of the property. Yes, that would be a major headache and you'd have some time and legal cost to do so. But if you keep some amount of cushion between what you fund and what the property is worth (like 80% LTV), then you should be safely able to get the property sold to recapture your principle in this (hopefully unlikely) event. And you'd want to make this a highly unlikely outcome by working with local individuals that you know directly and who are highly experienced in successfully rehabbing properties to rentals and being a Landlord.

And another benefit is that also just like the bank, you're getting the vast majority of the monthly rent as the lender. In the example I gave previously of the property rented for $1,500/mo, on a $128,000 loan at 10% interest, the Private Lender is getting over 71% of the monthly rent. And even at 8% interest, you're still getting almost 57% of the rent. That's over 1/2 the rent coming to you each month as the Private Lender, with none of the responsibilities of being the Landlord. That's a sweet deal.

An additional benefit is, again just like the bank, the Private Lender is listed as the loss-payee on the property insurance policy. So if the house were to somehow burn to the ground, you get a check for your full principle amount. That would be your $128,000 in the prior example. And if the borrower failed to pay the insurance or it was about to lapse for any reason, you get notified directly and can continue the coverage and charge the borrower - just like any other bank would.

The biggest / tallest buildings in every city's downtown area aren't banks for no reason. Being a Private Lender puts your money to work for you in the same manner that pays for all those buildings with bank logos. Your completely isolated from any of the responsibility or liability for the property, while putting over 1/2 the rent in your account each month. Again, that's a sweet deal! Yea, you have to pay taxes on that money, but even that is at a lower rate than ordinary income if you were working for the money, instead of the money working for you.

Oh, its such a sweet deal... Investing in Real Estate without having to dump money into marketing (and be ignored or told "NO / Not Interested" by almost everyone); submit a ton of offers (having nearly every one of them rejected); finally getting something under contract (only to then have to get an appraisal, inspection, quotes, and on); handling vendors and contractors during the rehab; marketing for, screening and on-boarding tenants; collecting rent; and on... plus all the stuff I skipped. If you don't want to be a Landlord, you can avoid all of that and so much more - by just being the bank (a Private Lender).

Although you know, I really recommend being a Landlord, I also know that its just not for everyone - so if that's you, you can still be a Real Estate Investor WITHOUT having to be a Landlord - by being a Private Lender. Or like me, you can also be both!

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So not only do I recommend being a Landlord, but I also recommend being a Private Lender... Or even better - be both! Now this may seem odd since as a Landlord using the BRRRR method, I've already said that most of my projects are funded by Hard Money and Private Lenders. And in prior episodes I've mentioned how I stack my money to have the 20% down-payments, closing costs and other expenses related to buying as many properties as I can. I also have to keep cash on hand for reserves, so all of my funds are occupied in my own projects. So a great question to ask is how I can be a Private Lender to others if I'm having to save for down-payments, keep reserves and I'm borrowing from Hard Money and Private Lenders for my own projects.

The answer is a Self-Directed IRA's - which is one of the best means of being a Private Lender yourself. I'll do a show soon just on Self-Directed IRA's, getting an expert on who can speak to these - but in short it's really no different than any other IRA, Roth-IRA or 401K that you're already familiar with and likely have one or more yourself already. But the difference is that where your typical IRA or 401K only allows you to buy stocks and mutual funds, a Self-Directed IRA allows you to buy or fund almost anything short of collectibles and assets that you directly control.

That's where being the bank on Real Estate Investing comes in. You are able to lend money out of your Self-Directed IRA in the form of a mortgage against Real Estate... As long as you don't directly control that Real Estate. You can't fund your own projects or properties from your own Self-Directed IRA. That is called self-dealing, and it would be a prohibited transaction - very bad.

So if you're like me and had money sitting in an old 401K from a former employer (that you no longer work for) - that money may not be doing much for you, and could even be at risk in the stock market. And you don't want to cash it out and pay the penalties and fees. So I transferred it out to a Self-Directed IRA custodian (which was penalty free), so that I could then use that money to lend on Real Estate for others. Remember, I'm prohibited from investing that money in my own projects - that would be self dealing, a prohibited transaction that could get me hit hard in taxes and penalties. But I can invest it in your project, or anyone else's projects that are not my own.

This means I both borrow from others to fund my projects, while also making loans to some to fund their projects - because I can't use my Self-Directed IRA money to fund my own projects. This creates a wonderful situation if you can find someone else doing what you're doing (or trying to do) with BRRRR investing - where you both have about the same amount of money sitting in an IRA or 401K of a former employer. You can fund each others deals! Get a group together who can all fund deals and also need funding for their own deals - and it can be nearly unlimited funding for everyone in the group.

Now one thing to note - the payments on a loan from a Self-Directed IRA go back to the IRA (not to you) - so that money is not going to be available to you TODAY. But if its a Roth-IRA, that money comes into your IRA TAX FREE! And then you access it at retirement age just as would have otherwise been the case. But as your funds grow in the IRA, you're able to fund more and larger deals, and it really does become a snowball effect. The numbers can get pretty large very quickly.

And you don't even have to start out with very much. You can begin with as little as a few thousand dollars in the account, and use it to fund second position mortgages against properties for other established investors. And then when the balance gets large enough, start funding first position purchases and then later purchases and rehab in the first position.

I've heard of people locking up a wholesale deal with $1,000 in earnest money from their Self-Directed IRA, and then selling that contract for $10,000, and now they've got that amount in their account almost overnight. By that and other methods, you can quickly reach an account balance that allows for funding of more and bigger deals - just never your own deals.

Anyway, not only can having a Self-Directed IRA of your own allow you to be a Private Lender for other investors, but helping individuals with IRA or 401K funds to get them over to a Self-Directed custodian can lead to almost unlimited funding for your projects.

And even if you don't have an existing IRA or 401K in place that you can get Self-Directed, the cost to get one setup it cheap and it's pretty easy to do so. And you should read books like [The Richest Man In Babylon], which teach the concept of paying yourself first. As such, setup a Self-Directed Roth-IRA and Solo-401K, and put a percentage of your monthly income into each at whatever level you're able, in addition to saving outside of these accounts for your 20% down-payments, reserves, and on. Then be a Private Lender to others to grow your account balances, while also working to get Private Lender funding for our own deals. And like I said, it's great if you can find another investor who's doing this same thing, so that you can fund each others deals.

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So I think you've got the idea... As a Rehab to Rental (BRRRR) Investor, having your deals funded by Private Lenders is the best it gets - because the terms are often better than you'll ever get from a bank or Hard Money lender. I often have 100% of both my purchase price and rehab funded by Private Lenders, and often even more up to 80%, 85% or maybe even 90% LTV. I don't like to go above 90%, but that's rarely possible anyway and still have positive cash-flow - which should be your requirement for protection of both yourself and your Private Lenders.

And then as the Private Lender, you benefit greatly without having to be a Landlord (but again, you should be both). And you're protected against loss with a Note and Deed of Trust against the property allowing you to take possession of the property through foreclose (or Deed In Lieu of Foreclosure) in the event of breach of the contract. And your the loss-payee on the insurance policy, further protecting you from loss in the event of a covered event, such as fire. Its up to you if you require flood insurance, or just on those properties that are within a flood plain. But I also require coverage for wind damage and named storms, as well as, water / sewer backup and loss of rents. But flood coverage can kill the cash-flow numbers and potentially only allow the deal to work at a lower interest rate to you - so your choice.

In the members area of the Podcast Website that I'll be releasing next year, one of many elements of premium content I'll make available is my Private Lender Credibility Packet, which is a 30 page booklet that I print up for each Private Lender meeting. It goes over how Private Lending works, how the lender is protected, how the funds are provided - such as that they're wired directly to the closing attorney (not directly to me or my company). It also gives details about me, my background and my company. And it gives details about several of my prior projects. This is something that you can customize to fit your business and background to start securing Private Lenders for your projects.

I'll also provide my Note and Deed of Trust used here in North Carolina, that you'll need to get a version created that works in your state - and many other documents, templates, scripts and guides. I think you'll find this all helpful, as the first deal is the hardest to get funded by a Private Lender, but each one gets easier after that.

And for those of you seeking to become Private Lenders who might like to fund one of my future deals, submit the [Get In Touch] form at either andlandlord.com or bluechariot.com - and we can schedule a call to discuss your needs. I don't have anything under contract or in works that needs funding at this moment, but that can change daily - so let's talk! When I do, it will be a single-family home or small-multiple family for which the first position lender would fund the purchase price and maybe some or all of the rehab; and if there's is room for a 2nd position lender, it would be for the rehab.

And I require a minimum term of 18 months, because that gives me enough time to own the property for 1 year of seasoning (often a requirement) before then refinancing into a 30-year fixed rate loan to payoff the original Private Lender. And by then, I normally would have another deal ready to go to keep the funds working for you if that's your goal. I pay monthly interest only payments and the principle is returned or (if you choose) reinvested in another property at refi into the conventional long-term loan.

So I highly recommend being both a Private Lender... and Landlord! But if your not seeking to become a Landlord, you should at least benefit from Real Estate Investing as the Bank, also known as a Private Lender.

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Outro...

Disclaimer

OK, so the full title of this Podcast is "Husband, Father, Entrepreneur, Realtor... and Landlord!" - and in today's episode, I'm going to speak at little about that first aspect of the title - Husband. Or at least in so much as it relates to how my Wife and I work together to achieve our mutual financial goals.

And then that also gets into my being an Entrepreneur, Realtor... and Landlord!" - and how I wouldn't be able to do any of these things if I didn't have the full support of my Wife. Do you have your Spouses full support? Does he or she have yours?

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Intro...

Welcome to Episode #30 - Becoming / Being A Landlord With (Hopefully Not In Spite Of) Your Spouse

So let me start by saying that my Wife, is the Woman! I got what might be the most important decision of a person's life - RIGHT - the FIRST time (and therefore what will be the ONLY time for me)! Let me tell you... The only person who's more blessed in this 19 year marriage than me, is my Wife - because she REALLY got her spousal choice right. I mean... Come on!?

Now of course my Wife and I LOVE each other, but if I were to attempt to sum up our marriage in a single word - it would be TRUST. We TRUST each other implicitly. The amount of TRUST that my wife has placed in me over these nearly 2 decades of marriage almost verges into the level of being FAITH. Which then creates a massive responsibility on my part not to betray or even do anything to stress that FAITH she's placed in me.

I've had the full Support / Trust / Faith - whatever you want to call it - of my Wife, since nearly the very start of our relationship. She believed in, and supported me...

- When I... Would have her packing and dropping off orders for delivery related to my Online Gift Sales Business that I started in 1996 - before meeting her. It was PerfectGifts.com - which I still own that Domain Name, although the site's no longer online. Because she believed in, and supported me...

- When I... Shifted focus away from that Gift Business, over to a new Web Design & Programming Business in 1999 - just before we got married. And she believed in, and supported me...

- When I... Bought an expensive server to add Web Hosting services in 2000 with the server (unbelievably now) being in my 2nd bedroom and a raid alert siren that woke us if it went down

- When I... Quit my job in 2002 to go fully self-employed in the Web Programming and Web Hosting business (with the servers thankfully now being in a local Datacenter) - and just a few months after buying our first house

- When I... Then put that house up as collateral against a $100,000 SBA Loan to grow the Web Hosting Business, along with taking on about $200,000 of additional debt for new servers, software and other equipment the business needed.

And she supported me...

- When I... Started spending money to travel all around the country to attend various trade shows and conferences - networking and investing in my personal education and growth.

- When I... Took on a business partner who eventually became 40% owner of the company - only to later (thankfully amicably) buy him out over a 3 year period to get back to being 100% owner.

And she still supported me...

- When In.... 2009 I lost a large number of my customers who themselves were struggling in the economic state at that time - almost going out of business as a result. There are no tears from an Entrepreneur like those shed when you think the business has failed that you've put nearly a decade of effort into (blood, sweat and tears - as the saying goes).

Yet she still supported me through years more of something like 16 hour days damn near 7 days a week - well into 2011, 12, & 13. Still supported me when I'm certain I'm so close that just one more conference, trade show or seminar, one more software system, one more vendor service, one more marketing campaign, one more website improvement or one more employee - would be that solution to the multi-million dollar business I've been trying to build for over a decade.

No joke... My Wife knows how you can make a Million Dollars in gross revenue for the year - and have almost NOTHING to show for it - because you've got to re-invest in the business... don't you!?

I remember watching a Shark Tank Episode with my wife and whoever the presenter was - they had Millions in sales, but LOST money for the year and had paid themselves little to nothing. Well, my Wife had first hand experience on how that happens. It's not a good feeling and would have brought a lessor woman to a place of outward frustration, if not outright anger or resentment. But not my wife. She still supported me...

- When I tried to sell the business, with the promise of a 6-figure job at the purchasing company - but it fell through.

- And then in 2014, when my business partner buy-out was done, sales were at an all-time high, expenses were the lowest they'd ever been, debt was low, and I was able to pay myself a normalized salary with money still left over in the company - good times! I was also working fewer hours than ever before - everything was great! When I mentioned I'd like to put this money aside to start a new company - buying Rental Properties.

Yep... Just when things were going well, and we were finally starting to see the pay-off of the prior decade of effort - I decided to change industries and start doing something I've never done before. I'm going to be a Real Estate Investor and Landlord! Where's my wife in that? Right beside me, going to look at properties.

Still believing in me and fully supporting me as I...

- Give up listening to music - which I love.
- Gave up watching basketball and football - which I also love.
- Gave up listening to political talk radio and debating matters of politics with friends and family
- Gave up watching TV
- And started going to an whole new type of trade-show, seminars and conferences

... all to learn how to become and excel as a Real Estate Investor and Landlord. I was determined that this time it wouldn't take me over a decade to succeed. I would learn from my prior experiences in business (both good and bad) to accelerate my outcome as a Real Estate Investor.

All the while, there's my wife in full support. And don't get me wrong... "Full Support", and the Trust / Faith I spoke of earlier - doesn't entail her silence. She's far from silent on the actions I take and decisions made. She contributes her insight, guidance and direction - but that is far different than the barriers should could have imposed. That's what I mean by having her full support. She believes in me and that I will be successful in my endeavors and she aids however she can in that outcome. She makes it possible for me to swing for the fences with my entrepreneurial endeavors.

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So as a result of the amazing support from my wife over these past 20 years... Wow, 20 years! I've managed to create an IT company at: ViUX.com (spelled V-I-U-X.com) - offering Web Hosting, Domain Names, SSL Certificates, and everything else a person or small business could need to have an awesome website. That business is going great and has been profitable for nearly the last 10 years. Its hard to know what its worth, but its not like I'm looking to sell it now anyway. And I've got some things in works for ViUX that will make it even more profitable.

But ultimately, ViUX is tech business with a small number of employees, in a world dominated by billion dollar tech companies having many tens of thousands of employees - who are almost giving away the services that I'm trying to sell. So I can't say I'll be able to continue fighting against those odds for another 10+ years - even with the amazing support from my wife. I might have to eventually let it go, so that's why I wanted to get into another business that has more certainty for the future.

And as such, since 2015, I've been able to acquire a few Million in Real Estate and thousands in monthly positive cash-flow after expenses - from the rental income. That's why I wanted to start a Real Estate Business, and that business is Blue Chariot.

And I've gotta tell you - it's pretty cool to see the payoff of our efforts and have two profitable businesses to show for it. And really, both ViUX and Blue Chariot are actually brands that represent many different areas of business, such as how Blue Chariot is Blue Chariot Properties, Blue Chariot Realty, Blue Chariot Management, and this Podcast is by Blue Chariot Media.

So these have been some of the best years of our lives, but its not like we haven't enjoyed ourselves along the way. We're just getting back from a trip to Dubai and Egypt in August, and we've taken multiple nice vacations each year since we got married. It's easier to get that spousal support if you're living a pretty good life along the way.

And I'm not saying any of this to brag... My point is that we've taken some pretty big risks. Made lots of sacrifices, but still managed to enjoy life. And now all these years later, things are starting to pay off big time. But it would not have been possible if my wife and I had not been on the same page. We tend to agree on most things, finances being a critical one - as that's what creates problems in most marriages.

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So if you're entrepreneurial (or maybe that's your spouse) - start the journey on the right foot by getting on the same page with your spouse when it comes to finances. It really is easier to start a business or buy rental properties (whatever) - when you have your spouses full support and you're on the same page when it comes to finances; and other matters, like life / work balance.

Remember, I mentioned that for a span of years I was working something like 16 hour days, almost 7 days per week, often not coming to bed until something like 3 AM. There was a time that even when on vacation (like when we'd go on a cruise) - I had to go to whatever deck the Internet Cafe was on and pay per-minute to use the Internet (this being before cruise-ships had pretty-much ship wide unlimited high-speed Internet access). It was not uncommon for me to spend something like $350 just on Internet access time. How would your spouse react to not just the expense of money, but also the expense of time - when you're supposed to be on vacation?

And there were many things affected by the fact that I was self-employed. I was able to provide health insurance for myself and employees prior to 2009, but when the down-turn hit, that had to go - as did many of the employees. I Just couldn't afford it... But I was able to get my insurance coverage from my wife's job. So swinging for the fences on business risks was made easier in my case knowing that we wouldn't end up homeless if I failed. We had kept our spending and expenses in check such that even though it might not have been pretty, we could live on one salary.

Anyway, being on the same page as your spouse when it comes to finances - spending, savings, investments, bills and household expenses, food, clothing, entertainment, vacations (you name it) - it'll make your entrepreneurial endeavor go much more smoothly. And that assumes you have your spouses confidence in being able to pull it off. If not, you might want to start by addressing that first.

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Now since this is the [... and Landlord!] Rental Real Estate Investing Podcast, and I'm supposed to be speaking on "Becoming / Being A Landlord With (Hopefully Not In Spite Of) Your Spouse" - let's start talking more directly to that.

If confidence is lacking - If you have a bad reputation with your spouse when it comes to business; or maybe they just don't think you're cut out for being a Landlord - start working on that first. Because they likely also have the typical fears that Tenants aren't going to pay the rent on time. That they're going to destroy the property - on top of not paying rent. That your going to have to evict them, and in between now and then, you're going to get calls at 2 AM every other night about a toilet clog or some other matter that get's you out of bed.

Trust me, my wife had all those same concerns about "Tenant Troubles", but thankfully her faith in me overcame them - at least long enough to try it out with one. And that's really all you have to do... get one, only one. And on top of that, read books, attend seminars join associations, and listen to podcasts (like this one) - to gain access to the information you need to succeed at being a Landlord. And along the way, expose your spouse to as much of it as you can.

My wife and I had fun going to look at a lot of properties together - especially once I got my Real Estate License and can enter houses on my own as we went about town. She also attended at least a couple of seminars with me, but even when I went without her, we would discuss in detail all that I had learned. All along the way, this was something we were doing together, even though directly it was my thing - we're a team!

So as early in your journey as possible, get your spouse out to as many properties as possible. Let them see first hand as you go over all the problems with the property and take notes. Then show them your estimate of the needed rehab and repairs, and run your numbers on the property, such that they can see how profitable a purchase it might prove to be - or not. As it's also a great confidence builder to see you eliminate properties from consideration that are too expensive or require too much rehab or won't earn enough rental income - or any combination of the 3 (and much more), that may or may not result in a great rental property.

Seeing you do this, along with attending some of the seminars, watching some webinars, listening to podcasts - it may all build confidence in your spouse that you are really are going to be able to make this work. And if you've failed at prior endeavors - that you are really going to be able to make it work THIS TIME. So even if you've had some past failures or not followed through to completion on some prior endeavors - you can build confidence that THIS time its real. And you may be surprised... It may not only be in your spouse in which confidence needs to be built that you can do this. You might need to convince yourself of it as well. The same process will work for both of you.

I succeed in everything I do - eventually. But until then, I fail and encounter set backs just like everyone else. My goal is to fail fast and often - so that I can get on to success as quickly as possible. If you learn from a failure that didn't kill you or cause permanent bodily harm - then it was likely a needed occurrence on the way to success.

And if you're able to get your spouse thinking along those same lines, it'll make it all that much easier for them to support your efforts. Now I came to think of failure and setbacks in this manner because to a degree its in my nature, but it really came to be my way of thinking as result of books I've read. Something about hearing a point of reasoning expressed in clear, logical and undeniable terms has a way of becoming a part of you, especially if its already there to some extent.

For example, the book [Rich Dad Poor Dad] is not really all that great of a book. But it puts into clear terms and sound reasoning something that most of us just know instinctively already - that you're not going to get rich working 40 hours per week for someone else and following conventional wisdom when it comes to matters of finance. Because if conventional financial teaching were correct, then we'd all be rich!

But you can get rich if your spouse is working that kind of job, to keep things stable in the house-hold, while you swing for the fences for both of you in an entrepreneurial endeavor, like Rental Property Investing and following a financial plan that's actually proven to create millionaires. Or, like me, you can have more than one business. If I had time, I'd start an Amazon business - because I would certainly knock that out of the park, and put every dime of it into more rental properties. When I had PerfectGifts.com all those years ago, most of my sales took place on Amazon anyway.

So now I'm a Realtor with Blue Chariot Realty and a Property Manager with Blue Chariot Management... all to make more money so that I can obtain more Rental Properties with Blue Chariot Properties. And none of it would have happened if my spouse were not in full support and on the same page as me when it comes to finances (what we spend our money on, how much, and what we don't spend it on), savings and investment, life / work balance - and all. Being in-sync with your spouse can open the door to all sorts of mutually beneficial endeavors, a great marriage, and a happy life.

And not just her... It also creates some great bonding opportunities with my son. While I don't do as much rehab work myself as I did early on, I still like to put up blinds and other minor tasks that I enjoy doing and would otherwise have to pay hundreds for someone else to do it on my behalf. So I bring my son along and give him tasks that fit with his age and size. He's helped me replace outlet covers (with the power off). He's even helped me tile a bathroom back-splash. I then occasionally hear him talking about some of the work he's done in "my dad's rental properties". I thought I was going to cry when I recently heard him say something like "if you think you can't do something then you can't do it; but if you think you can do it, then you can!" - hey I'm getting in there, I'm in there somewhere.

And how much more likely is your spouse to be in favor of something that they can see is having a positive impact on your child or children - while also building wealth and a better life for them in the process? So get your spouse excited about what you have planned for the coming year, two or three. Whatever obstacles might be in your way, a year, two or three is certainly enough time to get over them, or around them - or just push them aside long enough to squeeze through.

If credit is your challenge, you can cure that in as little as 6 months (ask me how). If you think you've not got the money to buy a rental property, maybe you don't - or maybe you do and you're just not aware of it. Believe it or not, that is possible. Or maybe you don't even need any money (or as much as you think you do) - listen to last week's episode on Lease-Options, and I'm sure I'll eventually be doing an episode on Seller-Financing.

But get your spouse excited and get them reading certain books along with you, like [Rich Dad Poor Dad], or [Secrets of the Millionaire Mind]. These and many other great books for changing mindset are listed on the Books page at: andlandlord.com/books. And if you and your spouse are not on the same page when it comes to finances, saving and investing - then you've both got to read [The Richest Man in Babylon]. It's an amazing book for changing how you handle your money.

And if getting your spouse to read a book like that would be harder than getting them to try skydiving (something I am going to try one day), then get a subscription to Audible and bookmark specific short sections, just little segments that you'd like for them to hear - and play those sections whenever you have their attention and finances or Real Estate is on your mind.

While my wife is not trying to read [Extreme Ownership] or [How To Win Friends And Influence People] - she will certainly listen to a short outtake that's relevant to something I'm trying to do; or listen to me speaking on a certain point that might relate to something that occurred in her day at work.

And whenever I'm driving, everyone in the car is listening to whatever podcast or book I'm listening to at that time - as I'm always listening to something about business, real estate or just mindset in general.

Show your spouse how serious you are about this endeavor and the changes that it will require. My wife couldn't help but to see that I was serious when I signed up for classes to get my Real Estate License. This after I had already stopped watching TV, including no more sports - which previously consumed my Sunday's and more.

I lead by example on everything I was doing, and made the information about it something that she would come to understand fully - even without her diving in head first along with me to learn it all directly for herself.

Assuming you have a spouse who thinks clearly and has reasonable judgement - how would they not be on-board with something they can clearly see you're passionate about and that they understand the power it will have to transform your financial-life for the better!?

If you said - Hey, we're going to save $20,000 over the next X years; and once we have it, we're going to use that to cover our 20% down-payment ($16,000) and closing costs ($4,000) on an $80,000 investment property purchase. I've learned how to get a lender to give us the other 80% ($64,000) of the purchase price, plus 100% of any needed rehab expense. So let's say the needed rehab is $50,000 to result in a property that's worth $180,000. We'll have $130,000 invested, but we'll create $50,000 of new value!

We then rent this house out for $1,500/mo, before starting the refi process. So we then refi the house at 75% of the new $180,000 value, taking out a new loan for $135,000. This is enough to pay off the original rehab loan of $114,000, and get back our original $20,000 investment. There's even $1,000 left over to reimburse us for interest payments on the original rehab loan prior to getting it rehabbed and rented. So then we own a cash-flow positive rental that has an infinite ROI, since we've gotten all our money back out. A perfect BRRRR deal (Buy, Rehab, Rent, Refinance, Repeat).

But even if such a property is only worth $155,000 after rehab (instead of $180,000) - and you can't get your $20,000 back out, is it really that bad? Let's say you're making $200/mo in positive cash-flow... That's $2,400 per year / $20,000 * 100 = 12% ROI. That's awesome! But what if you're making $300/mo - which is not uncommon. Well that's 18% ROI! So failure to pull off a BRRRR that returns all your initial investment means you are "punished" with a 12% or even 18% ROI. And no joke, I have returns on money I've left in properties that's 3 times that! And that doesn't even consider tax benefits, appreciation, amortization - any of the other ways you make money on rental properties.

Your spouse wouldn't be persuaded by these considerations? They wouldn't want an asset that makes them money, increases their wealth - and someone else (the Tenant) pays all the expenses? You do this once (the right way), and they'll be hooked right along with you. And if not immediately, they certainly will be once they get a tax refund check after having owed taxes in prior years.

Presentation, Execution and Proof... Handle this correctly and you can convert even the most skeptical spouse into a Real Estate Investor... and Landlord!

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Outro...

Disclaimer

Most people rule out Real Estate Investing as something they can do, because they don't have the 20% down-payment that's often required to purchase an investment property.

But did you know...? Alternate methods exist that can get you into a rental property with little to nothing down! On this episode, I tell my story of how I've used Lease-Options to control and later buy 3 rental properties - which will hopefully give you some insight into how you may be able to do the same.

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Intro...

Welcome to Episode #29 - Making Deals With Lease Options - How I've Done It

So how do you get into a rental property with little to nothing down? One method is called Seller Financing - but in full disclosure, I've not yet done a Seller Financed deal directly, so I'll talk about that later - once I've actually done one myself.

But what I HAVE done is a Lease Option deal... In fact, I've done 3! And then I later completed each purchase a year to two after the lease term started.

If you're not aware, a Lease-Option is a two part contract - the LEASE and the OPTION to BUY. And its an OPTION to buy, not a REQUIREMENT - but more on that later.

In a Lease-Option deal, you are leasing the property for a period of time (essentially no different than would be the case for a Tenant of any Rental Property) - but with a few additional provisions and considerations. And you then also have an Option to Buy the property at some later date, for an already established price.

Its a two-part contract, because the Lease portion establishes your right to control the property as if you were the Tenant, but with the additional right to sub-lease to the actual live-in Tenant of your choosing. And the Option portion establishes your right to the property as the future Buyer, and sets your purchase price and other terms of the purchase, such as the date by which it must take place and several other factors. The Option portion of the contract must be notarized and gets recorded against the title or deed of the property at your local Register of Deeds office. This prevents the owner from selling the property to anyone else but you, during the Option period.

So with a valid Lease-Option contract in place against a property, you effectively fully control that property (depending on the specific terms of the arrangement), but you don't actually own it - yet.

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So I've successfully done 3 Lease-Option deals to date. In order, they were my 4th, 5th and 6th properties acquired - and I count the establishment of the Lease-Option as the acquisition date, even though I didn't actually complete the purchases until a year or two later for each.

I got each of these properties under Lease-Option contracts within months of each other in 2016, and completed the purchase of 2 of the 3 in 2017; and the third in late 2018. All 3 of these properties were in the same Townhouse community where my very first rental property is located, that I acquired in July of 2015.

Of course, I liked this community, so I started sending monthly direct mail pieces to every Townhouse owner. But most didn't respond. Some who did respond were completely unreasonable - especially those who were investors, owning the properties as rentals. One investor offered to sell me his rental units in the community for $150,000 each; whereas, I had bought mine for just under $61,000 - and these units aren't even worth that much TODAY, let alone back in 2016. They're worth about $135,000 now.

But over time, some owners started to responded who were not completely unreasonable in what they wanted for their properties. That's when it got interesting.

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One owner called who owed just under $70,000 on their 2BR / 1.5BA Townhouse in the community - but I didn't know what they owed at the time. They wanted to sell it to me for that amount. While today I would jump all over that with a full cash offer and have it closed in a week or two. Back then, cash was tight and I knew that most of these units needed something like $10,000 of rehab and upgrades to be rental ready.

Also, this would have been my 4th investment property purchase. I had done the first 3 in my personal name, along with my wife - but qualifying for each was getting progressively more difficult. I had to put down 25% on the 3rd just to make it work, whereas, I was able to put down 20% on the first two. So I didn't think I could qualify and have sufficient down-payment funds, plus reserves as required to close on this purchase conventionally.

Further, I just didn't want to pay $70,000, when I had bought the first for just under $61,000 - that just happened to be identical and literally right next door. And it was not in as good of condition either. So I offered them $61,000 and I was going to do whatever I needed to complete the purchase at that amount using conventional financing. But they refused the offer. And like I said, I didn't know why at the time, but I later learned that it was because they owed $70,000 (or almost that amount), so accepting my offer at $61,000 would mean that they'd have to come up with about $9,000 at closing - money that they did not have.

So they decided to look into listing it with a Realtor or maybe doing a short-sale. I also tried to speak with them about doing a Lease-Option as a potential solution, but they weren't interested - and then things went silent with them.

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So months went by during which I continued sending direct mail pieces to every house - except that investor who had multiple units and gave me a ridiculous price of $150,000 each. Then I got a call from another prospective seller in the community. This time it was an end-unit, 3 bedroom with 1 full bath and 2 half baths. They were upside-down, owing about $80,000 - but the most I could pay is about $70,000 considering it again needed over $10,000 of rehab and updates to be rental ready.

So I suggested a Lease-Option as a solution right from the start and I scheduled an in-person meeting to go over how everything would work to our mutual benefit.

It was my first in-person seller meeting... I was so nervous, that I had to focus a portion of my attention on making sure my hands weren't shaking, which then resulted in my legs bouncing. Somehow I got through it and gave a creditable enough presentation that they agreed to do a Lease-Option deal with me where I'd buy the Townhouses for $69,900 at some point within the next 2 years - with an optional 3rd year upon payment of an additional $1,000. And between now and then, I'd directly pay only 1/2 of the monthly mortgage payment, which included escrow for taxes and insurances, and I'd pay all of the monthly HOA fee. I couldn't pay the full mortgage + escrow payment and still have the needed monthly positive cash-flow, so it had to be 1/2 + HOA.

I'd also be responsible for paying any other expenses associated with the property - including any needed rehab / updates, repairs / maintenance, everything. So if the HVAC went out, I'd have to pay for it or a replacement. And since the Option portion of the contract must be accompanied by some exchange of value, I paid a $100 Option Fee, which is non-refundable, but does get credited back to me as a pre-payment at purchase closing when that occurs.

I didn't get any credit for my HOA or 1/2 mortgage payments over the Lease term, but my payments towards the mortgage along with the other 1/2 from the seller over that 2 year period resulted in his no longer being upside-down once I completed the purchase years later. In fact, he got some money back at the purchase closing.

So the benefit to the seller was that they started something like $10,000 upside-down with a Townhouse that needed maybe another $10,000 of rehab work. They had just gotten married and his spouse already had a house they were moving into, so they didn't need this second house, but couldn't sell it being upside-down and couldn't rent it out being in need of lots of work - that is if he even wanted to try his hand at being a Landlord (and he didn't).

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Then weeks after I had this first Lease-Option established, that first potential seller who had decided to look into selling with a Realtor or maybe doing a short-sell - and had gone silent on me. They called again and wanted to speak with me further about a Lease-Option. I'm not sure what happened... Maybe they had spoken to the other seller that I had done a deal with a short time earlier. Whatever it was, they were now interested in at least hearing more.

So I scheduled an in-person meeting to discuss it. And an amazing thing happened... I wasn't nervous. I was now experienced at this. I knew that I could do it; I had done it before; and now I knew better what to say and how to say it. We had a great meeting, but they wanted to think about it. They were getting married also, and so just like the first seller, they didn't need two houses, couldn't sell this house due to being upside-down, and didn't have the money needed to rehab it into a rental - nor did they have any desire to become a Landlord. And even more so than the first seller, they really needed to get out from under the mortgage and HOA payments for this unwanted Townhouse.

A few days later they called and said they wanted to proceed. But whereas the first deal had an Option Fee of only $100; this seller wanted $1,000 - but not paid to them. They were way behind on HOA payments, so my $1,000 Option Fee was to be paid directly to the HOA to bring them current - and I would still get credit for this amount at purchase closing.

The mortgage payment here was a lot lower than on the first deal, so I agreed to pay their entire monthly mortgage payment directly, including escrow for taxes and insurances - along with the HOA fee as well - like I said, they needed to be free from all payments towards this house. But this seller didn't want to go out 2 or 3 years on the Option period, so we agreed to 18 months with an optional additional 6 months for another $1,000 - paid to them this time if that occurred.

And that was just a protection for me. I don't know what the economic conditions are going to be 18 months from now; or what my personal financial circumstance would be - so I just like to have an additional cushion, even if it costs me a little extra.

I got everything drawn up by my attorney and ready for notarizing - and then they called and said they had changed their mind (again); and now no longer wanted to proceed. So I said, hey the choice to proceed (or not) is 100% up to you, but I'm happy to have another call or stop by to discuss any concerns. So we had another call and I learned that they had gone to a party or something that prior weekend and mentioned to a family friend (who I think may have also been an attorney) - and they were scared out of proceeding by whatever that person told them. I think their main concern had to do with potentially being sued by my future tenant (their still being the property owner); or me failing to pay the bills as agreed - and just tying up their house with no real intention of buying it. Remember that a confused or scared mind just says no.

So I followed up the call with what must have been a highly persuasive email, because a few days later they called again and wanted to meet with me once more. I scheduled that meeting at one of my other rental properties (the 3rd one that was still vacant at the time) - and they again agreed to proceed. I said great! And I quickly arranged to have the Lease signed and Option contract notarized and recorded.

And note that I purposely had that meeting at one of my other properties, so they could see that I was already doing this and owned properties nicer than what I was potentially buying from them. I don't know if that had any impact, but it's also worth noting that I have nice business cards, a great website, a great company / brand name - and that name is Blue Chariot, and I drive around in a very nice BLUE Ford F-150 with Blue Chariot signs all over it. It may mean nothing, but I think presentation and credibility matters when you're asking someone to trust you. Trust that you will improve their property, that you will pay all the bills on time as agreed, and that you will eventually buy the house - but until then, please give me full access and control over your house for essentially nothing. I don't think that you can pull that off if you don't look and sound like you are legitimate / real, honest / trustworthy and knowledgeable / experienced.

So, long story short... I got the property rehabbed and rented, and around 15 months later, I completed the purchase and the seller got a nice check at closing. They had gone from being upside-down to having a profitable sale. They also gave me a great testimonial, and they are now one of the people I'll have potential Private Lenders and sellers speak with to learn if I'm a person of my word and able to do what I say. They're the perfect reference, because they went in scared and came out whole and happy - with everything happening EXACTLY as I said it would.

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So now at this point I've got 5 rental properties and the last 2 were via Lease-Option - and then I get another call from a relative of an owner in this same community. She knew the sellers of the first Lease-Option deal that I had done, and wanted me to speak with her relative about potentially buying his slightly upside-down Townhouse as well.

So were these people responding to my mailings? Did they see my truck driving through the community with Blue Chariot signs? Or was it all just the result of comments or referrals from that first seller that opened the door to consideration of a Lease-Option deal by the others? Who knows? Who cares!?

I was now sitting in the living room of the third potential seller within this community, and my days of being nervous about speaking with them was long gone. I presented the values and benefits of doing a Lease-Option deal with me, and this seller agreed as well. And unlike the others, he was not significantly upside down (just a little) - and the property was not in all that much need of rehab compared to the others. He had done a nice job at keeping it well maintained an clean. Also, unlike the others, he wasn't getting married to a spouse who already had a house that they were moving into - but I think he was changing jobs and needed to relocate.

So here, I agreed to pay $72,500 for the 3BR / 2BA Townhouse within 18 months, with again an optional 6 months pushing it out to 2 years for another $1,000. And I agreed to pay the full monthly mortgage payment, including escrow for taxes and insurance - plus the monthly HOA fee. But the Options Fees kept getting higher... This time I paid a $3,000 as an Option Fee directly to the seller, which again, I got credited back to me at closing of the purchase about 2 years later as a pre-payment towards the purchase price.

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So there you have it... That is the condensed version of how I took down my 4th, 5th and 6th properties as Lease-Option deals. The first cost me only $100 up-front to the seller as an Option Fee; the second was $1,000 paid to the HOA; and the third Option Fee was $3,000 paid to the seller. Additionally, I had to pay for all needed rehab of the properties as needed to make each rental ready.

This all may sound like a lot, but $1,000 or even $3,000 is nothing compared to 20% down on a $70,000 property - that's $3,000 versus $14,000 or so. And then you'd still have the same additional expenses for rehab either way.

But let's speak on that for a moment... Let's say that my rehab expense for one of the properties was $9,000. And as each Lease-Option went for at least 18 months, that comes out to $500 per month. And without accounting for reserves, each of these properties generated positive cash-flow of at least that amount. This means that by the time I completed each purchase up to 2 years later, I had little to no money remaining in the property. The property (that I did not even own yet) - had produced enough positive cash-flow to pay for itself and pay me back. That essentially makes these FREE houses!

But it got even better... Over the term of the Option period, these properties had increased in value - so I wanted to get a bank loan based upon the current appraised value, and maybe take some cash out myself at purchase. But the problem with that is that most conventional lenders (or at least those that I reached out to) - would not do a cash-out loan based upon 75% of the current appraised value, because I didn't already own the properties for the required 1 year of "seasoning". A Lease-Option is not ownership. And you can't do a cash-out purchase from a Lease-Option - or at least not with a conventional lender.

So what I did instead... I got a Private Lender to fund my purchase of each property at 80% of current appraised value - but it was at 9% interest, which is likely twice what I would have paid to a conventional lender under my personal name. This put some cash in my hand for each property, but it also increased my monthly payments. So monthly cash-flow decreased, but I had gotten all my money back out of each property. So they truly were now FREE properties, and my ROI on the remaining positive monthly cash-flow was essentially infinite, as I no longer had any of my own money invested.

And then a year later I was able to refi the Private Lender out on 2 of the 3, and in those cases, I was able to pull out still more cash - as the properties had continued to increase in value - and since I now had actually owned them for a year, I could do a cash-out refi. I expect to be able to do the same on the 3rd when I refi the Private Lender out on that one within the next few months, And despite the mortgage on the property getting larger, my monthly payments decreased because the interest rates went from 9% to something like 5.5% under my LLC.

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So it was a multi-step process, but I had successfully taken 3 properties from being upside-down for the sellers to being positive cash-flow rentals for me - and now with a ton of equity present in each.

But how or why did this work? And can it still be done today, in the current market condition? Was this something that worked in 2016 or 2017 - but has no chance of working here in 2019 or the coming year of 2020?

In all honestly, I can't answer that question with 100% certainty, as I had shifted my focus (possibly mistakenly) from single-family homes, trying to get multi-family properties and even apartment complexes - so I've not been pursuing opportunities for additional Lease-Options deals this year. But my gut instinct is that now that I'm looking for single-family homes again, I will continue to do Lease-Option deals wherever it makes sense. But it has to make sense! So what are the elements that need to be present for a Lease-Option to be attractive to the seller?

There does need to be a reason for it. If the property owner has a pristine house that's in move-in ready condition, ready to sell at top market price; and less is owed than the value... Then WHY would such an owner not just sell the conventional way? Of course, that's what they'll do! Their certainly not going to be doing any Lease-Option deals - they don't have to!

In 2 of my 3 Lease-Option deals, the sellers had just gotten (or was in the process of getting) married, and their spouses already had a house into which they were planning to move. They didn't need the house I was seeking to buy, but they couldn't sell it conventionally due to being upside-down and not having the money to cover the difference. And then the Plan-B of renting it out was also blocked, because the house needed lots of rehab and updates to make rental ready. And they had no desire to become Landlords anyway. So in other words, there were multiple pain points - all of which were solved by the Lease-Option.

So while it is less common for someone to be upside-down in the current market with home values at or near all-time highs, I recommend targeting pre-foreclosures, tax liens and tax delinquencies. Also not a bad idea to target Landlords of existing rentals, where the property is physically distressed or they just had an eviction or code violation. And there are a high number of vacant properties. You can also target any house that needs significant rehab work to be rental ready or to sell at market price - and you can find them just driving for dollars. Or do what I did - find a neighborhood that you like and send direct mail to everyone in it.

So don't say it can't be done. Don't say it worked then but can't work now. A Lease-Option is a viable solution for the right circumstance of problems. Use it as just as you would any other tool in your belt as a "Transaction Engineer". It can work great when you don't have a lot of money. It can also work great when the rehab actions needed at a property can be paid by credit card - especially if you have access to zero-interest promotions.

And an additional selling point is that the owner continues to get the full tax benefits, mortgage interest deduction and any escrow refunds during the Option period.

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Now if you have additional questions about Lease-Options, or you want access to my contract, terms, provisions, and all... including my phone and email scripts, talking points, checklists and more - I'll be working on some premium content that I'll be making available early next year. I've been reluctant to share these items. For example, I've gotten multiple requests for my lease. But I have a problem sharing someone else's work product - which in that case would be the work of my attorney.

So I'm working towards being able to share everything to that level in a membership section of the site in the near future. But until then, I hope that you found details such that I've shared here and in prior episodes of the Podcast to be helpful. That's my goal... To make this as informative a resource as I can that chronicles my journey and gives access to what I (and others I occasionally bring on the show) have learned along the way - to thereby shorten your journey to the same point and way beyond. Go out and do great things - and hey, let me know how I can help. Right now I'm still conducting FREE 30 minute consultation calls with anyone having questions about Real Estate Investing and being a Landlord that I might be able to answer or provide some direction or insight. Reach out and let's see if I can be of aid... Its Free!

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Outro...

Disclaimer

I've got another announcement about Blue Chariot! But I'm not going to let this episode be completely self-serving - just a little...

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Intro...

Welcome to Special Episode #28 - The Investor's Realtor - Announcing Blue Chariot Realty & Working With Realtors

That's right, I'm announcing another service offering from Blue Chariot - that being Blue Chariot Realty! But before I go there, let's talk about working with Realtors to get your first (or more) Rental Properties.

And while its on my mind, let me go ahead and just speak on one of my pet-peeves - it's REAL-TOR not REAL-IT-TOR. Its REAL (R-E-A-L) TOR (TOR) - where people get the additional sylibles in that I don't know. It is not Relitor - already? Already, that out of the way, now...

Contrary to current appearances, there are still deals to be had on the MLS. But you've got to know how to work with Realtors to get them.

Here's a shocker... Realtors want to get paid for their work (you know of any profession that doesn't?) - and the quicker the better. So they don't want houses sitting on market for even days if they can avoid it, let only weeks or months. And not every house that Realtors list on the MLS is in that ideal condition that will allow it to be posted on Thursday, open house held on Saturday and multiple offers on the table by Sunday night for it to be contingent / under contract by Monday morning.

And so as an investor, the secret to your success is finding properties that have a problem (or two) that you can solve. You're not going to make any money on a pristine house that sells at full market / retail price. If it's nice, pretty and essentially move-in ready for that owner-occupant buyer - you're not going to get it at a discount, or any price near what will result in a cash-flow positive rental for you. That house has no problems - and as an Investor, you get paid for solving problems. And the more complex problems you can solve, the more money you stand to make.

Can you solve foundation issues? Can you fix fire damage? Can you get a house that's falling apart, gut it, and then put it back together? Are you scared away by mold, terminates or potential environmental issues, like an underground fuel tank? How are you at handing title issues? Un-permitted additions? Easements? Variances? Encroachments? Sub-dividing? I could go on and on listing potential house problems, and it would still be an incomplete list of all the many different things that can come up from one house to the next.

So are you equipped to be a resource for that Realtor who just listed a house with a problem? Again, Realtors (like everyone) want to be paid for their work - and the quicker the better. So you've got a Realtor with a problem house - and you specialize in fixing house problems... Seems like a match made in heaven - but does the Realtor know about you? Are you even on their radar?

Ok, not likely when you're just starting out or if you've not done anything yet targeted to that end, but you certainly want to start laying the ground work to change that.

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So there are many things you can do to start working with Realtors to obtain your first (or more) Rental Properties. But at risk of sounding ill-modest; wherever you live in the country, I suggest you start out by finding a Realtor LIKE ME!

No, I'm not referring to finding an extremely smart and good looking Realtor. I mean find a Realtor who is also an Investor / Landlord or even a Flipper. Why?

Yes, I know - you think that a Realtor who is also an Investor is never going to sell you a good deal, because if it was a good deal - they'd buy it themselves. Maybe... But that would assume this greedy Realtor is ready, willing and able to buy every good deal that comes their way. And my experience has been that you can't buy everything - so why not at least make some money on it by selling it to someone else who is ready to move on that property at that time.

If every so-called Investor was ready, willing and able to buy every good deal, then there would be no such thing as Wholesaling. You mean to tell me that there are no active Wholesalers in your market who also flip houses? There are no Wholesalers who also own a Rental Property of few? Of course there are active Wholesalers in every market who can't buy everything they come across. They might keep a deal for themselves here and there as able, but they offload far more for the cash. Well the same is true of Realtors who are also Investors / Landlords or Flippers. They may buy what they can here and there, but they represent the seller to get a commission on many, if not most.

But the reason you as an Investor want to work with a Realtor who is also an Investor - is that they get you. I don't know why, but despite having the keys to the candy store, most Realtors don't buy Real Estate and are certainly not investors. You'd be surprised just how many Realtors are renters - not even home owners. And for those who are, it is almost always just the home they live in - not an investment property. Sure, you have lots of investors who also happen to have their license, but Realtors who actively perform as Real Estate Agents and who also invests in Real Estate themselves... That is far too rare. I'm like a unicorn out here!

So most of the time we as Investors end up working with a Realtor who couldn't recognize a good investment property if their life depended on it. I see listings in the MLS all the time that say "Investor Alert" or "Attention Investors" - and then I see that its a duplex with 1 bedroom / 1 bath units rented for $500/mo each, with a tax value of $100,000 and they have it listed for $195,000. For those wondering... THAT'S NOT LIKELY TO BE A GOOD INVESTMENT! At least not as a straight minor rehab to rental.

Sure, there are plays where you can "pop the top" and go up or out to add square footage and more bedrooms - maybe an additional bath; or you knock it down and build new (essentially buying it for the land) - if it were ideally located in the path of progress with top dollar comps all around. But if you're not interested in anything that advanced or speculative, and you just want a property that you can rehab basically as-is to add another cash-flow positive rental to your portfolio - will the average Realtor know how to estimate rehab expenses? Will they know what rehab is needed to maximize the property value and rent? Will they know what a rehabbed version of the property is likely to rent for? Will they know anything about Rehab / Hard Money Lending; or the post rehab refinance into a conventional or commercial loan? And will they be able to equate any of this to a maximum allowable offer on the property to make it a good investment?

Maybe... But highly unlikely - unless the Realtor in question is also an investor (an experienced investor). One who owns rental property and has done rehabs to rentals of their own. A Realtor like me! But unless you live or seek to invest in the Raleigh / Durham (Triangle) area of North Carolina - regrettably, my excellence is not available to you - so you'll need to find a Realtor just like me - but in your market.

Did I mention how I'm the worlds most modest person? My skills and greatness as a Realtor is only exceeded by my modesty. But jokes aside... You need to find people that have those skills - as an Investor who's also a Realtor.

In fact, find several... Because each relationship you have with a Realtor who really gets investors (who IS an investor) - will be another pipe-line for deals. Sure, they might keep some for themselves; or every opportunity might not be just the right fit for your needs. But there will always be properties with problems (sometimes complex problems) for which the Realtor seeks a quick closing, even if not at the top price it might get weeks or months later. And there you are at the top of that Realtor's mind, known as a person who can solve complex Real Estate problems and who is able to close quickly. And you're known to be someone who always closes - not someone who throws out a ton of low-ball offers until something sticks and who then tries to renegotiate at the last minute on the few you do get under contract.

Your reputation will be critical when dealing with such Realtors. And none of this is to say that Realtors are not out there who are not Investors but who get you well enough that they can still work well with you. It's just more likely to be the case if they are Investors themselves - but make connections with as many Realtors as possible - and train them on what you're seeking. Make your criteria known and that you'll likely close quickly on anything meeting this criteria.

And despite being a Realtor myself, I let other Realtors know that if they bring me a deal, I'm happy to let them represent me as the buyer's agent, and so if they are also the listing agent - they can get paid TWICE. What's better to a Realtor than getting BOTH sides of the commission? And how much more are they going to like working with you knowing this? Having you in their back pocket is money - or as Randy Moss once said "Strait Cash Homey".

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So how do you start building relationships with Realtors - such that they'll think first of you (and give you the opportunity) when they get that next problem property on their hands? Well, there are several methods - and I'll touch briefly on some.

First, I make use of a CRM for Real Estate Investors at: RealeFlow.com (strangely spelled with an E, R-E-A-L-E-Flow.com). It's not cheap, and I wonder if I'll continue using it going forward, as I've also got two other CRM systems - but it has some great features specific to being an Investor and Rehabber that the other's don't have. One feature in particular is an automated follow-up campaign (an auto-responder) with pre-written content that can be easily customized - allowing you to quickly put 6 months or more of engaging emails in a Realtor's inbox on some regular schedule that may both keep them thinking of you and educate them as to why they should want to work with you.

I use this in conjunction with trying to schedule a meeting or call (not always successfully) with 2 or 3 Realtors per week - and then add them into this system to stay top of mind. I'm also working to get into some local agency offices to conduct training of Realtors on how to work with investors - just so happening to let them know (hey) I am one in the process. Think, you can teach Realtors how to estimate rehab expenses accurately - and to then send you those deals before posting to the MLS - that are now hopefully priced correctly accounting for the rehab needed.

Get your name out there... Lookup who the Realtor was on all the properties sold in your area over the last year - that you would have like to buy, and contact that Realtor. Schedule a call or have lunch (YOU buy) - and thereby let them know who you are and what you are seeking that's not unlike that house they sold at 123 Main Street last month. Let them know that the next time they come across anything like that, meeting this basic criteria (that you fully explain) - Hey, contact me, as I'm buying and can close quickly. You can represent me and get both sides of the commission. And then add them to your email auto-responder campaign - and set a reminder to touch base again by phone every few months or maybe even every few weeks! You absolutely CANNOT do this consistently for several months and NOT get a deal eventually. And it will be that snowball, that once it starts rolling, picks up size and speed and continues on to amazing things.

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OK, enough of that - now back to what's most important - ME! I'm officially announcing my Real Estate Agency - Blue Chariot Realty! Now hopefully you found that information on working with Realtors helpful, as like I said, I didn't want this episode to be completely self-serving and only be about my announcement. But in addition to speaking on working with Realtors, I also wanted to make sure that everyone (especially those here in the Triangle area of North Carolina) are aware that I'm also a Realtor.

My announcement is that I've now gotten Blue Chariot Realty established as a Licensed North Carolina Realty Agency - of which I'm the Licensed Broker-In-Charge (also referred to here as being the BIC). To be the BIC of an agency, you must be a full-time Real Estate Agent (full Broker) for at least 2 years (or something like 4,000 hours). There's a 12-hour course and application to become a BIC along with applying for a firm license.

Blue Chariot Realty now has its own firm license and I'm the Broker-in-Charge. Now there is also a ton that goes into setting up a Real Estate Agency, so further to that, I've joined eXp Realty - so it's Blue Chariot Realty, Brokered By eXp Realty. This allows me to hit the ground running with Blue Chariot Realty without having to re-invent the wheel of all the many thousands of things that go into creating a Realty Agency. I just adopt the eXp systems, policies, and procedures, benefit from their training and infrastructure - and then have direct access to all the other eXp agents - whether they be direct with eXp or quasi independent as I am with Blue Chariot Realty.

So if you're a Realtor anywhere in the country and want to learn more about eXp and joining yourself or your firm with eXP - let me know, as I'm happy to discuss. But for me, the best part of this is that I can now perform here as a Realtor in the Triangle area of North Carolina (Raleigh, Durham, Cary, Chapel Hill - and all the nearby cities within the Triangle MLS) - helping individuals buy and sell houses, while further growing the Blue Chariot Brand.

So for anyone lost as to what all Blue Chariot now does, let me recap. There's Blue Chariot, LLC (for short-term holds, flips, wholesaling - sometimes in partnership with others, so let me know if you want to partner with me on a deal).

There's Blue Chariot Properties (for long-term holds / rentals - some of which are held under various other entities or partnerships, themselves owned by Blue Chariot Properties, LLC).

Launched earlier this year, there's Blue Chariot Management (for Property Management of both my own and the Rental Properties of others - so let me know if you have a Rental here in the Triangle for which you need expert Property Management. The website for that is BlueChariot.Management).

There's Blue Chariot Media for this Podcast, Blogs, some book ideas I'm working on, and anything else I decide to get into in the Digital Media or Real Estate and Business Education space. I even seek to become a pubic speaker!

And now there's Blue Chariot Realty - my Triangle North Carolina Real Estate Agency to work with buyers and sellers of houses. So, if you know of anyone seeking to buy or sell a house here who could use the services of a good Realtor, please refer them to me.

Right now the website is BlueChariotRealty.com or jtsmith.exprealty.com - but we're working on a new version of BlueChariot.com to encompass everything that is Blue Chariot, and a heavy part of that focus will be Blue Chariot Realty, so when done, separate sites will no longer be required. Everything will be at BlueChariot.com - although the separate sites will still exist.

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I want to THANK YOU for listening to the [... and Landlord] Podcast. My content to date has been focused mostly on the Landlord aspect of the title, but please note that I named the show: Husband, Father, Entrepreneur, Realtor... and Landlord! Not just because I am all those other things, but also because I plan to be speaking about each of those aspects on some level from time to time on this show. And so today I wanted to touch a bit on my being a Realtor. Hopefully it wasn't completely self-serving, as I also want to provide value.

A Zig Zigler quote is that... "You can get everything in life you want if you will just help enough other people get what they want." - so in part, I'm doing this Podcast for that reason. To help other people get what they want, and I assume for you that is to get into and/or grow in Rental Real Estate Investing. But it goes beyond the Podcast.

Blue Chariot Realty has been established to help other people get what they want as it relates to those who have a house they seek to sell for best price; or those who want a deal on buying a house. So I'm training myself on negotiating and working with people to become as expert as possible to help others in this way. Checkout some of the books I've read in this regard at: andlandlord.com/books.

Blue Chariot Properties was created to buy distressed houses and rehab them into rentals. This helps the seller get what they want - out from under that property. It helps the neighborhood or community get what they want - which is rid of a blighted house and increased property values. It helps the eventual Tenant in that house get what they want - which is a great place to live. And when its a Section 8 Tenant, it also helps the Federal and Local Government get what they want - which is a family in a nice / stable home, avoiding or on the track out of poverty.

I could go on, but I think you get the picture - "You can get everything in life you want if you will just help enough other people get what they want." - and that's what I'm trying to do with Blue Chariot. The last several years of my life, since I got into Real Estate back in 2015 have been the most fulfilling of my life. I've helped a lot of people, both directly and indirectly - and the rewards have been tremendous.

Another quote, this one anonymous... “Someone once told me the definition of Hell: The last day you have on earth, the person you became will meet the person you could have become.” - what if I had been too scared to leap into Real Estate and never became this version of myself? I have a fear of public speaking, yet I started a Podcast and I'm planning on becoming a professional paid speaker. So don't let the person you are now stop you from becoming the person you could be - because that person is great. We all have greatness within us - go for it! Reach beyond what you think you can accomplish... I just purchased the house I've wanted for the last 20 years. I'll tell you more about it soon - but it would never have happened if I had not dared to reach far beyond my comfort level on multiple occasions. And I'll also tell you more about those soon.

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Outro...

Disclaimer

There’s a certain pride of ownership; however, when a new prospective tenant asks that question – “Are You The Owner?” – I always have to catch myself, before saying “Yes, I am!” – Instead, the best answer is “No, I’m the Property Manager.” - Or even better, “No, I work for the Property Management Company”. That answer will position you with the greatest freedom and leverage to handle matters going forward.

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Intro…

Welcome to Episode #27 - Are You The Owner? No, I’m The Property Manager.

Now I always answered this question incorrectly in the past. Hell, I was proud to be the owner (as long as I've wanted to be a Landlord), so when asked, I’d quickly say – Yes! However, I came to realize a few critical problems with that answer.

First, there are many prospective tenants who are actively seeking an independent Landlord who owns and manages their own properties. Ideally, they’d like for this to be your only property, and even better if they are your first ever tenant. They want an inexperienced Landlord who does not know how to properly screen tenants. They want someone who will fail to run a credit check – revealing their sub-500 credit score and credit report with a ton of collections, liens and judgements. They want you to fail to run a background check – showing their long and recent criminal history and prior evictions. They might be on the sex offenders registry. Or they’re likely going through an eviction right now! They don’t want someone who will check their references, contact prior landlords, verify their employment and income, and on.

Experienced Landlords are far more likely to do all these things – and more! So, it's often the case that when you're showing a home yourself, a less than ideal prospective tenant may ask if you’re the owner just to see if you might be a good target for exploitation of your inexperience. You’re a fly headed right towards the spider’s web. The next question is going to be – “Do you have any other homes for rent?” – not because they are not interested in the home you are showing them now, but again, to see how experienced you are - so their hoping the answer will be no.

I can certainly recall some prospective tenants who asked me those questions… “Are you the owner? Do you have any other homes for rent?” – Who were initially very interested in renting the home when I answered – “YES” to the first question; but who quickly lost interest upon hearing my answer also of “YES” to the second question and then being subjected to my application process, which makes it clear that I’m anything but inexperienced. Upon seeing that I would not be an easy mark and all their baggage and skeletons would be revealed, serving only to cost them time and an application fee – they went elsewhere searching for someone else to take advantage of (maybe You!) – because it won’t be me, if I can help it.

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But not everyone asking that question is out to get you. It can be a totally innocent question – but still one you should treat with all seriousness and avoid the urge to claim the Landlord title as you do your Captain Morgan stance. Despite the name of this Podcast being [… and Landlord!] – it's rare that you hear anything good said about Landlords. It’s a largely thankless job and title that comes with hundreds of years of stigma and current news stories seemingly daily that cast the entire profession in a negative light - so don't claim it where you don't have to.

When asked, I'm the Property Manager (not the Landlord and certainly not the owner). Question... "Are You The Owner?" - Answer... "No, I’m The Property Manager". But even thought I know this is the best answer to that question, it's still hard for me, as I'm very proud to be the owner. Hell, not to pat myself on the back, but I own well over a dozen properties when most people don't even own one! That's an accomplishment and something to be proud of. My mother-in-law almost tiers up with pride when she talks about her daughter's husband. She's proud of me and the things I've accomplished, as is my own mother, father, brother, sisters and lots of other family members and friends. So whenever I'm asked that question, it's hard not to let that wave of pride from multiple sources flow right into a big "YES! I am the owner"... Striking my Captain Morgan stance. But, it's said "Pride goeth before the fall" - so I keep it in check, and just say no.

To do otherwise will likely just cause problems later, that could have been avoided as the Property Manager versus being known to be the Landlord or Owner. And It may also prevent you from falling victim to a Professional Tenant looking for an inexperienced owner to exploit.

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Now, is it a lie to say that you're not the owner (instead the Property Manager) when you really are the owner? Well first, how I answer what I consider to be a "none of your damn business" question anyway - is up to me; however, I do feel the need to be honest in everything I say. Always tell the truth and you never have to remember what you said to anyone. For me, honesty is high on the list of things I value in others and especially in myself.

Of my Rental Properties, I currently own 3 in my personal name, along with my wife. They were the first 3 I bought, before I started using Hard Money Lenders and Commercial Loans on more distressed properties that needed a lot of rehab to be rental ready - and Traditional Lenders typically won't fund them, or its hard to get a 203K Rehab Loan from one.

The tenants in these 3 rentals have been there for years. My first tenant from 2015 is still with me, and she's been great. My second tenants are also still with me, and they've been great. The third property has had one tenant turn-over, but they were also great, as has been the tenants who replaced them. I've had great success with my tenant selection, only having problems with 2 of my former Section 8 tenants, and as I've said before about them - those two tenants are to be thanked, because they made me a much better Landlord (I mean Property Manager), and most of my policies, procedures and lease provisions came as result of what I experienced with those two.

So those who have been with me for awhile, or even more recently before I established this habit of identifying myself as the Property Manager - they know that I'm the owner. And if my name is on title for the property, it's easy enough to learn - so I'd not likely say otherwise in those cases, to avoid the appearance of lying. Thankfully, it hasn't come up for those, as like I said, the tenants have been there for years.

But for my other properties that are not owned in my name directly, but instead owned by my entity - technically, I'm not the owner. Blue Chariot Properties, LLC is the owner. Or in the case of some, one of several other entities (that I'll not name here for asset protection reasons) is the owner, and those sub-entities are then owned themselves by Blue Chariot Properties, LLC. I'm just a member of the owning entity, and my ownership percentage of that entity (while likely 100%) is my business - between me, my CPA and the IRS.

A famous quote on that... “The secret to success is to own nothing, but control everything.” - Nelson Rockefeller

So for best asset protection and to give myself the greatest benefits as a Landlord, I seek to control the properties and be known as the Property Manager - while NOT being the owner. Because I'm NOT the owner - I'm the Property Manager. Blue Chariot Properties, LLC is the owner. And Blue Chariot Properties, LLC has hired Blue Chariot Management, LLC - who then employs me as the Property Manager. I even get a paycheck.

And hey - if you are local to the Raleigh / Durham (Triangle) area of North Carolina, you can also have me as the Property Manager for your Rental Properties - by hiring Blue Chariot Management. The website is BlueChariot.Management.

And especially, now that I'm managing properties under Blue Chariot Management on behalf of other Landlords - prospective Tenants have no idea which are mine directly and which I'm managing on behalf of someone else anyway. Because I treat them all exactly the same.

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More than anything else, claiming Property Manager status, instead of being the owner, gives you the greatest Freedom of Speech. It changes you from being perceived as the mean / greedy Landlord who keeps charging late fees; and who charges for fixing all the things the tenant keeps breaking - to the Property Manager who must just follow the rules of the lease between Owner and Tenant (as an impartial third party); also along with following the contract between the Owner and Property Manager. Your hands are tied, and you're just doing your job.

You're not in a position to make exceptions or to let things slide. And it's not you being mean or greedy, but your legal responsibility to follow the lease and contract.

What if you knew that it was the law that every time the police radar showed a speed more than 5 miles over the limit, the police officer was required to pull you over and issue a ticket every time. In that case, the moment you saw the lights, you'd already know the outcome. You wouldn't be happy, but you're less likely to be mad at the officer who was just doing his or her job and had no leeway in the matter.

But in reality, when you get a ticket now, you are pissed and you are mad at one person - the officer. Because you know they didn't have to give you a ticket. Hell, they didn't even have to pull you over in the first place! They had the authority and option of letting it go or just giving you a warning. But they were mean and greedy. You go off thinking, they probably get a cut of each ticket they write or get a Dunkin' Donuts gift certificate when they hit their quota.

When you are known to be the person in authority and the handling of a matter is at your sole discretion - it will always cause anger and resentment if you handle the matter otherwise than someone affected by your handling would have preferred. So don't claim the authority. Place the authority elsewhere... "No, I'm not the Owner. I'm the Property Manager."

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Now, with his said and fully understood by all involved (even referenced in the lease), you don't have to and should not make comments like "Let me check with the owner" - when at some level, you are the owner. That gets into being needlessly deceptive. Once you've established your roll as the Property Manager, act in that role, and speak with the full authority of that role against the lease. It's not Tenant to Property Manager to Owner. It's Tenant to Property Manager to Lease.

In other words, its not let me check with the owner on that matter to see what the owner says... It's what does the lease say.

Once you've established yourself as the Property Manager, your role is to enforce the lease in legal manner on behalf of the owner. So your communication with the Tenant should not reference the owner, it should reference the lease. The owner and the tenant have nothing to do with each other, beyond their mutual responsibilities towards the lease. So don't speak on behalf of the owner (using false statements to sound as if you are checking with someone else / some third party), speak directly on behalf of the lease.

And if you think that's awkward, remember that you shouldn't be speaking on any matters of the lease in person or by phone anyway. EVERYTHING should be done in writing. We use an email bases ticketing system for all communication.

And if a tenant requests something outside of the bounds of the lease, like new carpet in only their second year - that would logically require owner approval. You don't say "I'll have to check with the owner to approve that request". Instead, you say (in email) something like "the rent for each property under management is based upon a specific annual budget for maintenance, repairs and upgrades - so if we exceed that budget during the lease term, it will result in a rent increase upon lease renewal. Having to replace the carpet early could also incur an immediate charge to you per the lease if it has failed to reach its typical useful life due to actions, neglect or abuse on your part." - and for me, all of this would be spelled out in the lease.

My lease even says how long things like carpet and paint should last - so it's not a matter to be determined by the owner... It's all in the lease. And I fully establish myself as the Property Manager in the lease. Blue Chariot Properties, LLC (or related sub-entity on title) is indicated in the lease to be the Owner; while Blue Chariot Management, LLC is indicated to the the Property Management Firm; and good ole Jonathan Taylor Smith is just the Property Manager or Agent of Blue Chariot.

And even in the case of properties I manage for others, it's the same setup, with them or their entity referenced as owner. And even when I do have to check with that owner on how to handle something, my response back to the tenant on that matter references the lease - not the owner.

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So don't be like I was in the beginning - so proud of myself that I couldn't wait to claim owner status. Even if the question "Are you the owner?" isn't a setup for the spider's web of a Professional Tenant, failing to answer "NO, I'm the Property Manager." - will still put you in the position of being the mean / greedy Landlord. Step out of that darkness into the light of being the Property Manager. Your tenant relations will be sooo much better in the process.

And instead of falsely saying "Let me check with the owner". You can say "I have to follow the lease". Because, you know... Failing to follow the lease and thereby treating one tenant differently than another can be called a "Fair Housing Violation" - and that can land you in both court and jail. It's sooo much easier being the Property Manager who's just following the lease; than the perceived mean / greedy owner.

Okay, that’s it for this week. But, before I go, I wanted to make you aware of something new that you’ll see at andlandlord.com. Go there now, and you will see a new button that says “Subscribe to Newsletter”. It’s in the Podcast player at the center of the page, also at the bottom of the page. Click that button to subscribe to the [... and Landlord!] Podcast Newsletter. I would like to be able to communicate with you in another way. So, share with me your name and email address, and you’ll get a newsletter that will give you additional details about each episode of the Podcast, as well as other things that I will be providing mid-week in between episodes.

So, check that out at andlandlord.com. Please, subscribe to the Newsletter. And, if you don't mind, also, wherever you listen to the Podcast, if it’s not at andlandlord.com, subscribe there as well. If it’s Apple Podcast or Stitcher, subscribe, and give me your feedback - hopefully five stars. But I’d like to get your feedback, and the more I get, the higher the Podcast will rank, and I’m trying to get additional listeners like yourself. 

I appreciate you listening, but let other people know as well, and let them know what you think.

You know, there are a LOT of BAD Landlords out there… And unfortunately, they give the rest of us a bad name – those of us who are trying to do things the right way. I used to joke that I wanted to be a “Slum-Lord”, but that was just me trying to be funny. And without even falling to that level, there are many Rental Property owners who fail to run it as a business. And whether you know it or not, owning Rental Properties and being a Landlord is a business!

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Intro…

Welcome to Episode #26 - The Business & Tools of Rental Real Estate Investing & Being A Landlord

So, do you own a Rental Property or two “on the side” – and it is more or less just your side-hustle or maybe even a hobby? Something you just fell into? Maybe you had no intention of owning Rental Properties and becoming a Landlord, but it just sort of happened? You could have inherited a house. Maybe you needed to move in a hurry, such as relocating for a job – and it was just easier to rent out your prior house instead of trying to sell it quickly? Or maybe you got married and your new spouse already owned a house, or you decided to buy a new house together – so you just rented out your old house?

I need to find some official stats on this, but until then I’ll just make one up (hell, I think that's what others are doing most of the time anyway) - so I'll say that 7 out of 10 Landlords came into it by such a means where it was not a thought out plan that was intentionally executed to this end. I have no proof, but that stat sounds about dead on to me.

And for this reason, a person that did not come into being a Landlord with the thought of creating a business in mind, can almost be forgiven (almost) for not treating it as a business. But now that you are one, you owe it to yourself, to your customers (your Tenants) and to other Landlords who you may now be making to look bad – to learn how to be a Landlord and run your Rental Property BUSINESS as just that, a business!

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Now to one extent or another, I’ve spoken on much of this already over several different shows – but it needs specific focus. Owning Rental Properties and being a Landlord is a serious financial endeavor. You’ve got many tens of thousands and potentially a hundred thousand or more locked into a property.

It could represent many years of work and savings on your part. And then on the other side, a real person / a family lives in this home. This is where they cook their meals, lay their head at night… They LIVE here! Likely everything they own in the world is present in this home, along with all that is most precious to them (like their children and maybe also pets) – call your rental property their HOME. There is a lot of responsibility to go around – on both sides of that equation.

For their part, you expect the tenant to pay rent on time, follow your lease, treat the home with care, report any issues promptly, and on. And for your part, the tenant expects you also to follow the lease - and as such, make timely repairs of items for which you are responsible, be knowledgeable of and follow the law, be professional in your dealings and handling of all matters, and on.

And you may not know it, and the tenant certainly won’t see it this way – but a large part of your responsibility as a Landlord is to NOT rent to anyone who can't meet your well established and legal rental criteria. For example, if you put someone into your $1,000/mo rental who only makes $2,000 per month of total income – who’s fault is it really, when they inevitably are unable to pay the rent on time (if at all). Sure, it is their fault for failing to uphold their agreement. But I’d argue (and so might a court) that it is even more your responsibility / your fault for putting the person in a situation where they were almost certain to fail. Having proper business policies established for setting your rental criteria (such as a minimum income of at least 3x the monthly rent) – would have been the professional thing to do, and it would have saved you and the tenant from a costly eviction and all the resulting hostility on both sides.

Not only do you (as a professional Landlord running a Rental Property Business) need to have well established policies and procedures – but you need to put a tenant screening and on-boarding process in place that eliminates those from consideration who would not meet your legally established criteria. And then for those who do qualify and for whom you ultimately decide to rent to – you must have systems in place and handle your on-boarding in a way that makes it crystal clear that you are a professional, running a business. Then there's no confusion as to what you mean by your “No Smoking” Policy; your “No Animal (not no Pet)” Policy; your “Authorized Occupants” Policy, and on, and on - avoiding confusion, also helps to avoid conflict.

Run your business like a professional and magically people will respect and treat you like a professional running a real business – not just someone who has a house for rent.

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I meet a lot of accidental Landlords who HATE IT. I’ve also met a good number of purposeful Landlords who also HATE IT. The one thing both groups always seem to have in common is that they don’t run it as a business. Or in those few instances where they do – it’s a poorly run business at best. But granted, being in a particularly Landlord unfriend state or city can set you up for failure.

If you're going to do a thing - do it well! But unfortunately, if you're listening to this Podcast, you're likely a person who has already adopted that philosophy - or is at least in the process of doing so. How do I reach the person who's never even considered that they might not be handling their rental properties the right way - as a business?

How do I find the offenders out their and politely say, "hey, you suck as a Landlord. Please listen to my Podcast or read this book so that you might learn how to run your business the right way and stop giving the rest of us a bad name"? Or if they're local, I guess I could say "wow, you really suck as a Landlord. It's embarrassing stop it! You're not cut out for this. You should hire me and Blue Chariot Management to do this for you". Is that an effective marketing message? Persuasive? Should I send mailers like that to all rundown rental properties in my area? I'll go pull a listing of all recent eviction filings and code violations and send that mailer out.

No, I'm just joking about that message, but I will be marketing to local Landlords to get more Property Management clients for Blue Chariot Management. So for those listening to learn or improve your skills as a Landlord - THANK YOU! I'm only putting out the information I've learned from people, books and other Podcasts since I started as a Landlord back in 2015. There's nothing new under the Sun - we're all just building upon what we learned from someone else.

So if you've not already done so, listen to Episodes #18 & 19 for "10 Things That Self-Managing Landlords Need To Stop Doing!" - and also checkout the Books page at: andlandlord.com/books - for a listing of many great books that every Landlord or Real Estate Investor should read. Specific to being the best Landlord you can be and running your Rental Property business as a business - read or listen to "The Book On Managing Rental Properties" by Heather & Brandon Turner of BiggerPockets.com. You'll find it referenced on the page at: andlandlord.com/books.

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Now before I end this episode, let's speak a little about the tools, software and systems you'll need to be a Professional Landlord. When you start and as you grow as a Landlord, acquiring more and more properties - you'll hear a lot about App Folio and Buildium - which are two of the larger and more popular Professional Property Management Systems for Landlords. I think neither is free and I believe both have a minimum number of units they require you to have or at which it makes sense.

But there are now several cheap and even FREE alternatives. I'm currently using Cozy.co - which is FREE to me as the Landlord, and can also be FREE to the Tenant if they pay their rent with a linked checking or savings account, versus using a credit or debit card.

Cozy makes their money by charging the Tenant upon applying for your rental for the credit and background check - but that's a reasonable one-time expense. Cozy works great, has great features and even great support - but it does lack some desired features, especially now that I'm managing properties for others, so I'm moving over to a different system (I'll tell you what that system is later once I'm sure it's viable solution for me needs). But for the Self-Managing Landlord of only their own properties, I could not recommend Cozy more highly - it's been great!

Cozy will allow you to list your properties for rent, take applications, run credit and background checks (charging the tenants), collect rent, handle maintenance, track expenses, and on... Almost everything you'll need to handle your rental properties as a Professional Landlord.

But Cozy does currently lack a few needed features... First, it will not syndicate your rentals to all popular online portals, like Zillow, Trulia and Craigslist. You'll still have to list to these manually, outside of Cozy, but Cozy does syndicate to several - just not the most popular.

Cozy also does not allow the application to be customized, so you'll benefit from having a pre-screening questionnaire form on your website that potential applicants complete BEFORE paying to officially apply for your rental at Cozy.co. I think I'll do an entire episode on Tenant pre-screening, but after we complete some website changes that are now underway.

And as of my last check, Cozy also does not handle the lease creation and signing process - but they do allow for document storage of the completed lease that you created and handled signing elsewhere. For this reason, I still make use of EZLandLordForms.com for all of my lease needs, as well as, Tenant notices and other documents.

EZLandLordForms.com charges an annual fee per unit, but its reasonable. The system is easy to use and it is packed with all sorts of state specific leases, notices and documents - all of which can be customized to your exact needs. You can even handle the application process through this site, although I prefer to handle that with Cozy.co.

Another site I've found useful is Stessa.com (Assets spelled backwards) - which is great for tracking the value, income, return, expenses and all the various numbers and metrics related to the financial performance of your Rentals. You've gotta know if you're making any money or not. And this site also helps to be ready at tax time. It can even make direct connections to your bank accounts to record and track all income and expenses in real-time.

And while certainly not a complete list, the last site I'll mention, I've mentioned many times before... BiggerPockets.com. This site is not only great for the education that comes from all the books, webinars, podcasts and community forum with over a million helpful users (including myself) - but it has some very useful lists and tools. Here you'll find lists of lenders, vendors, and on... And also some pretty useful calculators. I still run Rental, BRRRR or Flip calculators on BiggerPockets whenever I'm considering another property acquisition.

Stessa.com is great for knowing if or how your existing rentals are performing, but the calculators on BiggerPockets.com are great for knowing if you should buy a given property as a rental in the first place.

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So that's it for now... You know if you who sucks as a Landlord. If so, stop giving me and other good Landlords a bad name. Improve by educating yourself and systematize with effective (and legal) policies and procedures. Or get out of the business and sell your properties to me!

If its not a dump in a war-zone and the BP calculator says I'm going to make money at your asking price + rehab needed to bring the property up to my standards - I'll buy it! Single-Family Homes, Small Multi-Family, even Apartment Complexes - if its a good deal, I'm on it... email me at jonathan (at) bluechariot.com. Otherwise, PLEASE start running your rental properties as a business.

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Outro...

Disclaimer

Rental Real Estate is the Ideal Investment – With Ideal (I.D.E.A.L) being an acronym that I’ll cover in this episode. It’s all about the many ways you make money from rental properties and what makes it like no other investment.

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Intro…

Welcome to Episode #25 - Rental Real Estate – The I.D.E.A.L Investment

Now first, I try to give credit to the sources for all information I present here – but for this one, I don’t actually know who came up with this acronym. I’ve heard it multiple times from different sources, so let me just be clear that I did NOT create it.

So, with that out of the way – Ideal (I.D.E.A.L) is a great way to remember the many benefits of Rental Real Estate Investing.

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The [I] is for Income.

Its not just first in I.D.E.A.L because it fits perfectly (“Rent” doesn’t)… It’s also first because this is really why you should want to own Rental Properties to begin with – the so-called "Passive" or Rental Income.

We can debate just how “Passive” it is, but I can say for 100% certainty, that if you have a cash-flow positive Rental Property (one that’s still cash-flow positive even after setting aside something like 20% of the rent for reserves, plus paying all debt and expenses) – then it’s hard to go wrong. Cash-flow can solve just about any problem. What’s cool about Rental Properties is that they have the potential to pay for themselves and kick off nice cash-flow on top of that.

Rental Properties are a Business. And just like any Business, they should produce Income. The Tenants are like your Customers, but they could almost be considered employees, because they work on your behalf (to pay the rent). The House or Rental Unit is both your product and your service. And your Customers (Tenants) pay for this in the form of Rent. And when the Rent covers all the debt payments, expenses, reserves and there's still money left over (called positive cash-flow or profit) – it’s an amazing thing to behold. Especially when you only had to put down 20% to purchase it (which I’ll cover later in the IDEAL acronym).

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The [D] is for Depreciation.

This is the greatest tax savings trick of Real Estate Investing. You get to Depreciate (or write off) the value of the land improvements (meaning the building and what’s within) – over some period of time, like 27 ½ years in most cases. But ways exist to accelerate the Depreciation into a much shorter time, including down to the same year the property was purchased. There are scenarios where you could buy a property on December 31^st (owning it for less than a full day), but write off a full year of Depreciation, as if you owned the property for the full year!

However its handled, this becomes a write-off (or offset) of your taxable income. You can actually have a profit, but through depreciation, show a loss on your taxes for that year and owe nothing in taxes. I’ve mentioned before how this and other tax saving factors of Rental Real Estate took me from owing $14,000 in taxes almost every year to getting $6,000 back as a refund – a swing of $20,000 because I had purchased two rental properties that year, and I owe much of that to the magic of the paper loss created by Depreciation.

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The [E] is for Equity.

Equity is created in two ways… First it happens every month when the mortgage payment is made and some amount of that payment goes towards the principle balance of the loan, thus causing you to owe less and therefore have more Equity. Through Amortization, this amount is small in the beginning, but as time goes by and the loan enters year 5, 10 and 15… The amount of each monthly payment that goes towards principle payment gets ever larger and larger. It doesn't take long before hundreds of dollars of principle payment takes place each month, potentially creating an equal amount of Equity growth.

The second way that Equity is created comes from Appreciation, the [A] in IDEAL that I’ll mention next. This is sort of a phantom increase, because its not realized (becoming real) until the property is sold. But it’s nice to update your Net Worth each month and calculate your Equity growth from both mortgage principle pay-down through amortization and property value Appreciation.

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The [A] is for Appreciation.

Yes, Rental Properties can simultaneously Appreciate and Depreciate! Because like I said earlier, the Depreciation isn’t real - it's only on paper. But the Appreciation can be all-to real, and it comes in both the value of the property typically going up over time (sometimes drastically so); and the rental income also tends to increase over time, creating more cash-flow that hopefully exceeds any increase in expenses.

If you buy your properties in the right areas, its hard to go wrong with Appreciation, as good areas of town tend to stay good or get better; whereas bad areas tend to stay bad or get worse. And while there are always the bad areas that get improved, you don't want to be betting on that. You want to buy in areas that are either already good or clearly in the path of progress towards becoming so. And these areas will tend to Appreciate well, taking your Net Worth up right along with them.

So buy in places that people actually want to live. That way tenants will be glad to have a home there. And they'll be willing to pay ever increasing rents to stay there. And if you ever decide you want to sell your property, it'll be worth more than what you paid for it, because again, people want to live there, they'll be willing to pay an increased price to do so.

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The [L] is for Leverage.

IMHO, Leverage is the greatest benefit of Rental Real Estate Properties, in that you can typically get a Bank or other Lender to give you 80% (sometimes more) of the money to purchase the asset – and at what are currently all-time low interest rates! But I’ve spoken about this multiple times already. I just can’t help repeating myself here, as I’m RE-amazed by this each time I buy another Rental.

What other investment can you name outside of Real Estate, where a Bank or other Lender will gladly provide you with $0.80 out of every $1 needed to purchase a property - and then 100% of the dollars needed to rehab it!? But yet you get 100% ownership; and keep 100% of the tax benefits; and keep 100% of the income; and 100% of the Equity and Appreciation? It really is the best deal going for any investment, so start savings your 20% now and get your credit right to get in the game. It's not too late to grab your piece of the IDEAL Investment.

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So that’s it… Nothing all that long or drawn out here on this. I just wanted to give my take on IDEAL. Remember this acronym when you’re trying to explain to your stock market investing friend or family member, why you’re going to run circles around them when it comes to investment return. And why when the stock market crashes and they’re wiped-out, you may be excited as to how this may allow you to make even more money than before.

The great recession happened in 2008 / 2009, but there was never a better time to buy Real Estate than a couple years later in 2010 / 2011. I regret whenever I think about it that I did not get into Real Estate Investing until 2015. When there’s another downturn (there always is), I’ll be ready this time.

Hopefully you won't still be letting your fears of Tenants, Toilets and Termites - stopo you from benefiting from the IDEAL Investment. And if you get a Rental Property in the Raleigh / Durham area that you'd rather not manage yourself - hire me and Blue Chariot Management to handle it all for you. Check me out at BlueChariot.Management.

Also, I've just changed my Real Estate license association over to eXp Realty - so Blue Chariot Realty is now brokered by eXp Realty. This gives me access to tools, systems and training that will allow me and Blue Chariot Realty to excel in the remaining months of 2019, then on into 2020 and beyond. So if you know anyone in the Triangle area of North Carolina who needs to buy or sell a house, please have them visit BlueChariotRealty.com. A new version of this site is coming that will be fully integrated into the eXp system and Triangle MLS.

So I don't know about you, but I'm putting things in place to do big things in the coming months and years. I'm on the verge of achieving life long dreams - some of which I'll be able to tell you about very soon. I'm just back from Egypt and Dubai, so time to start planning our next trip. What do you have in works for the final quarter of 2019? What are you putting in place to make 2020 the best year of your life? And how can I help?

You're helping me by listening to this Podcast, and I hope the same is helpful for you. It's been said that the best way to learn is to teach, so as I discuss these topics, it only serves to strength my own knowledge and understanding of the same. So THANK YOU - and let me know if I can be of any greater aid to you or if there is something specific you wish to hear or learn about.

Outro...

Disclaimer...

Welcome to Episode #24 - Rehab Lending: Down Payments, Appraisals, Reserves & Credit Scores.

What do these things have in common? You'll need to maintain high numbers for each to secure funding from most rehab lenders.

When you start out in investing in Real Estate, you'll likely do your first few deals with a conventional lender under your personal name. I believe you can play that game up to 10, and if you're married and both work (with sufficient income), you can potentially do 10 each in this manner for a total of 20! But at some point, likely much sooner than 20 - you'll need to opt for some sort of commercial or rehab lending.

This will be especially true if you pursue the BRRRR method, which I explained in Episode #14 is Buy, Rehab, Rent, Refinance, Repeat. You see conventional lenders work fine for move-in ready / Turn-Key properties - that do not require any significant rehab to make rental ready. But the best BRRRR deals will have extensive rehab required. And as such, you'll need either substantial Private Lender funding or you'll be working with a Rehab / Hard Money Lender.

That what this episode is about... What you'll need to have a handle on to secure Rehab Lender funding for your BRRRR projects - Down Payments, Appraisals, Reserves & Credit Scores.

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Down Payments... Now you can find and secure Private or Rehab Lender funding that gives you 100% of both the purchase price and rehab budget. But this doesn't normally happen on your first projects. To get Private Lender funding (outside of close friends and family), you often need to be able to show a track record of several successful deals.

And most Rehab Lenders offering 100% funding often charge ridiculous amounts in points and fees to secure such loans; require extensive experience that you're not going to have early-on; or you must find a deal that is so amazingly great, they don't come along often in the current market. So most Rehab Lenders offering 100% funding rarely actually provide it on typical deals.

In the vast majority of cases, you are going to have to come out of pocket with a Down Payment of 10% to 25% (maybe even 30%) of the purchase price, plus all fees and closing costs - and they'll fund 100% of the rehab. So on a $150,000 house, you're looking at about $35,000 out of pocket (depending on the ARV) - if they fund 80% of the purchase price and fees for closing costs come in at about $5,000 (and they can easily be twice that or more).

What most often determines your percentage of the purchase price that must be paid as a down payment, is the After Repair Value (ARV) of the completed rehabbed home. For example, many lenders will not fund above 70% of the ARV for the total project cost. So let's say that a $150,000 house required $50,000 of rehab to then be worth or sell for $250,000. And 70% of $250,000 is $175,000, which may be the most they're willing to pay on the project in total. Well, if your purchase price is $150,000 and the rehab budget is $50,000, that's a total project cost of $200,000. So you're $25,000 over what the lender may be willing to pay with those numbers on a project like that.

So to get this deal funded, you'd need to pay at least $25,000 out of pocket, which is just a little below 17% of the purchase price. If the points are at 2.00% ($3,000), appraisal is $750, attorney fee is $900 and all the other fees and closing costs are less than the remaining $1,350 - you'd be out of pocket for just below $31,000 on this deal.

Once the project is complete, you do a cash-out refi at 25% of the $250,000 ARV ($187,500). After refi closing costs of say another $2,500 and you pay off the $175,000 owed to the rehab lender, that leaves you with something like $5,000 after accounting for interest only payments on the original loan and other holding costs during the project. So no - not the best BRRRR deal in the world... You left something like $26,000 locked in the property; but you've got $5,000 or so in-hand to put towards the next one.

This sort of BRRRR deal is tighter than one I would target, as I seek to get ALL my money back (plus profit) at refi. But depending on what it can be rented for, you may still be getting a nice return on the money left in the property, so you don't always have to get it all back out.

Even if you got nothing back out but can put aside an extra $2,600 per month in savings, you'd be able to do one deal like this per year. And after only 10 years, you'd have 10 properties likely worth over $2.5 Million - your a millionaire! Now sure, putting aside $2,600/mo may be easier said than done - but if you do better deals and get most or all your money back from each, then it's less that you'd need to save. You may literally only need to save the money once, and each property can then fund the next. I've gotten all my money back plus profit larger than what I put in multiple times - so that was my next two or 3 deals funded from one.

Also, each property will lower your tax burden, so you may find you start getting refund checks that make saving for the next purchase even easier - plus the cash-flow that gets larger with each property. Its a snow-ball effect that gets easier and easier. It was much harder for me to get my 1st and 2nd properties than it was my 10th or 11th. By whatever means you'll need to plan for having 20% plus closing costs ready to take down each new property. And this is also a protection, because as much as I love debt (see Episode #21) - you don't want to get over leverage by putting little to nothing down.

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Appraisals... This all of course assumes that the property appraises for both the as-is purchase price and the after repair value (ARV). If it fails to appraise for what you're buying it for and/or the appraisal does not agree with your target ARV - it changes everything. You may not be able to get the deal funded. You might have to pay more out of pocket; or you might end up with more money locked in the property. You could even end up having to put in additional cash at refi (this has happened to me twice) - thankfully not early on, or it could have been catastrophic.

You live and die by the appraisal, which is why a lot of investors go for 5 unit properties and above, as they're valued based upon net income instead of comparable sales. You more fully control the valuation of 5 units and above (lower expenses / raise rents = increased value); whereas its somewhat out of your control on 1 to 4 units that just looks primarily at what similar nearby properties have sold for recently.

Multiple times I have been hampered with appraisals that came back low on the as-is value or ARV - or both. Thankfully my being a Realtor and now having extensive experience makes this less frequent - as I've largely been able to get the appraisers to consider and accept my suggested comps. But you have to be realistic going in - with an eye to what an appraisers is likely to come back with as a value for a given property.

Once I even forced a second and third appraisal to be preformed on the same property and got the value increased by $60,000 (very rare for a lender to allow that) - but I'm a Realtor and had done several prior deals with them, so they valued my knowledge and experience. The first appraisal was ridiculously low (demonstrably so); and the same appraiser then did another to correct his mistake - which even though a little higher, was still obviously low. So I got a 3rd clean appraisal from a different appraiser, that was $60,000 above the first - and even it was still $10,000 lower than it should have been (in my opinion), but it was good enough.

A bad appraisal can easily kill a great deal, so you have to be up on this. Know your comps. Be realistic. Don't compare properties that are not really alike, too far apart, crossing major highways or tracks, with different amenities and level of finishes, and on... It will come back to bite you.

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Reserves... Most Rehab Lenders are not only going to require that you put down a certain amount into the deal as a down payment. They are also going to want to see a certain amount of cash on-hand in reserve. So most often you'll need to be able to show cash in the bank totaling your down payment, closing costs and something like 6 months of interest payments on the loan.

So that $31,000 you needed to have to take down the example deal I gave earlier, could easily now be $40,000 or more. I've done deals where I needed to show $75,000 in the bank.

Now thankfully, some lenders will allow reserves to be in the form of retirement funds (401K / IRA), giving you credit for some percentage of the amount present within these accounts. Some will consider cash-value life insurance. Some will allow for a percentage of business account funds - which is great for a self-employed business owner like myself.

And since you often need to be able to provide a few months of bank statements to validate these funds - and they ask questions about any large deposits or withdrawals on those statements. I've setup separate bank accounts with sufficient reserve funds present to do almost any deal - and I just keep it there with little to no activity on those accounts. This makes it easy for me to show reserves without having to answer lender questions about transactions on the account.

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Credit Scores... Credit and Reserves are a balancing act for me.

I'll even carry a credit card balance (most are zero interest promotions anyway) - instead of using reserve funds to pay the card off. As I need to be able to show reserves on-hand more than I need to show zero balance on my credit cards - especially when the balance is at zero interest.

But this is always a concern, because Rehab Lenders often require a certain credit score (typically between 680 and 720). Above 740 you can almost walk into any bank and put your foot on their desk while you tell them how much money you need to fund your next deal. My scores were all above 820 - before I started using my credit on BRRRR deals.

You see, whenever I buy an HVAC system, flooring, appliances, cabinets, counters, foundation repair, and on... I'm likely to put it on a credit card with a zero interest promotion of 12, 18, even 24 or 36 months. It's literally FREE money. And each time I successfully pay off a promotion, they increase my limits and give me another promotion for a longer term! I just divide the total by the number of months for the promotion, and put that amount aside in a reserve account each month.

I then setup an automatic payment of the minimum amount due for that card. This means I never miss a payment, and it means my reserve account grows and can be used to show cash on-hand for the next project I seek to fund. If the system for that card allows it, I setup a final payment in advance from the reserve account for one month before the promotion ends. if it does not, I set a reminder in my calendar. Either way, I get FREE use of that money for X number of months - while building both business and personal credit.

The drawback is that those zero interest promotional balances often reflect on my personal credit if the card is in my name or if I'm the guarantor for a business account. Since I'm self-employed and pay myself the minimum, and since I'm often using 100% of the credit line - this has a negative impact on my credit score.

So the days of an 820 score are long gone for me. Despite having zero late payments, no liens, no judgements and no collections on my credit reports - I must manage my card balances and utilization percentages, as well as the number of credit inquires - to make sure that my scores remain above 680 (with my target being above 720).

Now I know that Dave Ramsey and other credit / debt adverse people will cringe at hearing how I use credit. However, your credit scores are either an asset or a detriment. If your scores are above 800 - then you are allowing an asset to go to waste. Some time ago, I wrote a blog post on Bigger Pockets about how ironic it was that I own millions of dollars of Real Estate and have multiple profitable businesses also potentially worth millions - yet my credit scores are often lower than some of the tenants who live in my properties. That should tell you the credit reporting and scoring system is majorly flawed.

And I'm not trying to brag or be condescending, but how can a person who has never had a late payment, no collections, no liens or judgements in over something like 25 years (with a net worth in the millions) - have a credit score lower than his Section 8 tenant with a part time minimum wage job?

The system doesn't like people who leverage their credit. But if you learn how to do so, it is a source of great amounts of FREE money - that will accelerate your growth as a BRRRR investor. Just make sure to learn how to do it right, because YES - it can also ruin you if done improperly - Dave Ramsey and others are not entirely wrong. They're just not speaking to a person like me. I wouldn't recommend jumping out of a plane either, but we can all agree that it can be done safely - if you know what you're doing. And that's far more risky than leveraging your credit. Are you going to tell me that can't be done safely?

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So that's it for today... I just wanted to provide some insight into what you'll encounter when using Rehab Lender funding on your BRRRR projects. Beyond what I've stated here, you'll also need to know how to estimate your rehab budget - as it's most often required to get funding, and you cannot change it later in many cases.

So go out and find an amazing BRRRR deal, and if you're looking for funding, go to: andlandlord.com/contact - I'd be happy to connect you with one of my lenders.

Outro...

Disclaimer...

If you've not already done so, go to andlandlord.com/books - and even if you've already, go there again! I've read each and every one of the books on this page, most of them multiple times - and just note that whenever I say read, I most often mean listen. I love Audio Books - listening mostly while driving. I've "read" more books since starting with Real Estate Investing 4 years ago in 2015 than I had in the prior 40 some years of my life.

A Quote from Jim Rohn – “Reading is essential for those who seek to rise above the ordinary.”

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Intro...

Welcome to Episode #23 - Do You Have The Right: Mindset; Attitude; Vision; Passion?

And so how does this relate to reading books?

More than anything else, reading all these books at andlandlord.com/books has served to change my MINDSET (how I look at things, people, the world). They've changed my ATTITUDE, which is how I let the things around me, things said to me, things that happen to me - affect my thoughts and feelings. They've changed my VISION, which is what I see for my future and how I see myself achieving my goals - even what those goals are. And they've served to focus my PASSION - making me a better Husband and Father (more successful as a man and person in general), as I'm now fully engaged for and towards those things I care most about. With the freedom to pursue my dreams without regrets or fear of judgement.

So do you read books like these? You should, as I was just treading water (so to speak) before I started reading books. I really thought it would be a waste of time, especially for the so-called "Self Help" variety of books - yet now I like those best! There is really some amazing, life changing content available on the page at: andlandlord.com/books.

Each of these affected me in some specific way, some more profoundly than others, and some not until I had read them for a second or third time. But it's my experience that you cannot just pickup a good book (or even a great book) and take from it some profound life changing lesson, unless you're actively seeking that exact information at the time it comes to you.

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I've met people at various networking events and heard from individuals on various podcasts - who each reported to have had their life changed by reading the book Rich Dad Poor Dad. More Real Estate Investors state that book as their eye opening moment that lead them into Real Estate Investing than any other (myself as well). But I've also met and heard from many people who've read that book and took NOTHING from it - and have actually hated it, and wondered why so many people recommend such a poorly written book.

How can two people read the same book and one person have their life forever changed, change how they view money and debt, change their career - and the other person is completely unaffected by the read and consider it to have been a waste of time? From what I can see, the first person is hungry and searching for something specific. They have the question, they almost even have the answer - but they just need help putting the pieces together into a clear thought and course of action. And then along comes the perfect book (for them at that time), which puts words to their existing thoughts and paints a clear picture for them of the answer.

Whereas the other person has no question in mind and therefore certainly has no answer in works. There is nothing for the book to aid with, as that person is not in a place where the book's information can fill in the gaps - there's nothing there on the subject to create gaps, so there's nothing to fill. And hence they think its the worse book they've ever read, and are likely frustrated by having taken nothing from a book that reports to change lives for countless others. I'd be angry at that also, and human nature is then to resent the book and those who recommended it - as certainly there's no fault or blame to be placed with you... Right?

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Mindset... It all stems from your Mindset. How and what you think will limit what you can and will become throughout your life. If you were a tree, your mindset is your roots - what everything else depends upon for growth. If you have a limited mindset, you will have limited (if any) growth. Whereas if you have an abundance mindset, pretty much nothing is long outside of your reach - and for that type of person, the only thing worse than setting low goals is no goals.

The book, Secrets of the Millionaire Mind by T. Harv Eker really expanded my mindset by introducing the idea of programming. That we as humans and individuals can be programmed to think a certain way; see things a certain way and be limited in both our expectations and outcomes - by our childhood experiences and the example of our parents and those around us. Another book along this same line of thought was Think & Grow Rich by Napoleon Hill. These lead to me seeing some of my own mindset programming experiences and influences - and learning that children often fail to (or only slightly) exceed the level of success of their parents.

For example, my father was a Black Man who earned 6 figures as a Truck Driver and bought a $100,000 house (along with my mother) in what was an all-white neighborhood across from a lake and a golf course - at a time (in the late 70's) when most Black people were lucky to be earning in the low 5 figures; and certainly weren't buying houses in such locations (even at 1/4th the cost). I didn't realize it until much later, but I was programmed by this experience. Once I had reached an income of 6 figures and bought an equivalent house (by age 30), I hit a self-imposed ceiling and struggled for many years to reach another level beyond what my mindset programming would allow. Now after learning of this association and changing some of my thoughts and related actions - I again began to excel.

I actually came across much of the information on Real Estate Investing that I use now to great success back when I was something like 24. I bought a course from Carlton Sheets after watching a late night infomercial. When it arrived, I read the first few chapters, at which point my mindset at the time told me that this stuff (I used a different S word) would never work (at least not for ME). I set it aside and have no idea what eventually became of it. And then going on 20 years later, I started using Internet modernized version of the same techniques to acquire Rental Real Estate with NO & LOW MONEY DOWN.

It works fine for the person with the mindset I have now... The mindset I had back then wouldn't even allow me to try. Your limited mindset can hold you back from greater success for decades - if you let it.

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And once you start working on your Mindset, you'll find that your Attitude changes about nearly everything. Your Attitude is critical to how you're affected by and react to things that happen to and around you. We all know of negative and positive attitudes... Pessimist / Optimist. Glass Half-Full / Glass Half-Empty.

The books, How to Win Friends & Influence People; as well as Extreme Ownership - both had a profound affect on my attitude on just about everything. With the insight gained from reading these books, when conflicts arouse (and often before), I'd be triggered to think about the matter from the other person's prospective. That if I were in their shoes, with their experiences, upbringing, influences, mindset, and on... I'd likely feel or do exactly as they do on whatever matter of potential conflict is present (or about to be). Imagine how much easier it is to prevent or resolve a conflict if you truly attempt to see the matter from the other side (as long as the person isn't crazy, drugged or delusional).

It makes any conflict easier to manage. One of the bigger conflicts of the day... You hate Trump, but can you also see why a person wouldn't want Hillary as president - having nothing to do with sexism or racism? I can... And if you put a small amount of effort into seeing the matter from the other side, so could you. That doesn't mean the other side is right, but it also doesn't automatically make them evil or racist. Now that could be the reason, or not - but assuming the negative speaks to an attitude bias on your part, that I've learned to limit (not eliminate, but limit)

And Extreme Ownership is an amazing attitude to adopt, in that everything that is even partially within your power - is your responsibility. Something didn't go right... It's your fault. A task wasn't completed by someone as you directed... You must have provided inaccurate or incomplete directions? You dislike your boss or co-working... Maybe you've not endeavored adequately to get to know there good qualities. I could go on and on stating examples of how the fault lies with yourself - but imagine how much of a conflict avoiding and conflict resolving Ninja you'll become if you both look to see things from the other person's prospective and seek to place burden / blame and the need for a solution onto yourself.

Wouldn't people be attracted to someone with such an attitude about things? You'd have no end of friends, dates, job offers, promotions, raises, business opportunities, and on.. If you can successfully pull off that attitude shift. Easier said than done - and practice won't make perfect... But you will get better! And in this regard, better is miles ahead of almost everyone else.

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Vision... Have you any? Can you put together a plan and follow it to a destination - successfully? If you encounter obstacles along the way, can you re-route and get back on track? Or do you need GPS (a plan provided by someone else) to get anywhere? Can you see what is not yet present and make it a reality through efficient execution of a plan?

Like I mentioned in last week's Episode #22 (What's Your Why?) - I'm only just now realizing goals that I put into place over 20 years earlier. And my WHY was big enough and my Vision clear enough to see me through every unexpected thing that happened along the way.

Your Vision is an exercise in planning, goal setting, time management and execution. Books like The One Thing and The 4-Hour Work Week can aid greatly here. Also The E-Myth.

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Passion... Here most people think sex, food or maybe sports (their favorite team) - as things they have a passion for or are passionate about. But imagine how much of a blessing you can be to those you know and love or your favorite charity or organization - if you were passionate about being an aid to others. I started this podcast in part because I want to aid others in doing what I'm doing - especially those who think they can't.

What do you have a passion for? Mine is to be successful, but I came to understand from reading books (some of which I've already mentioned) - that this word (successful) is actually a way for me to avoid saying what I really mean... I WANT TO BE RICH!

But my upbringing, religious beliefs and society - would have me to believe that this is a wrong desire. "Money is the root of all evil"; "It is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God." - Wow really!? I know a camel can't go through the eye of a needle, so that leads to the unavoidable conclusion that a rich person can't enter the Kingdom of God - Right? But wait, some of the most beloved Biblical figures (who certainly had God's favor) were VERY rich - so it can't be that cut and dry.

My passion is to be rich - but why? Because as a rich person, I can be so much more of an aid to those I know and love - and to everyone for that matter. Is anyone benefited by my being poor? Of course not, but I was hampered in my "success" for a decade because I was ashamed of my true passion to be rich, which you could also be stated as financial freedom - but that's just another "success" word substitute for what you really mean - Rich / Wealthy.

But books like The Richest Man In Babylon and the Rich Dad series of books aided me to a clearer understanding - that I was born for a better purpose than to become a lessor version of what I'm capable - because I'm fearful of judgement as to my motivation. No more... I want to be RICH. I want to be $10,000,000 RICH. And after reading The 10X Rule, by Grant Cardone, I want to be $100,000,000 RICH. And I will be! How about you?

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Its a basic but critically important question, the answer for which is often not a point of focus... "What's Your Why?

If you're like most people, you get up and go to work every day (with prep and travel time), devoting over 1/3rd of your day to your job - which is likely benefiting someone else more than yourself (your boss or the company or the government). Why do you do it? Sure, to pay your bills, to provide for your family - but is there nothing more?

A quote from Simon Sinek...

“If we want to feel an undying passion for our work, if we want to feel we are contributing to something bigger than ourselves, we all need to know our WHY.”

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Intro...

Welcome to Episode #22 - What's Your Why?

This will be one of my shorter episodes, as I just want to get you thinking along the lines of WHY. Or if not WHY, then maybe WHO? WHAT? WHERE? WHEN? HOW?

If you have no critical reason behind what you do, then you won't likely do it; or you certainly won't do it well and stick with it until you succeed. What even is success? Where is the finish line if you've not even defined the race? Instead, your likely to quit as soon as it gets hard - when you don't know WHY your even doing it.

Having a big why is a MUST, because most overnight successes take decades - and occur only after multiple failures. Why would you keep going through all that and for that long, unless you have a WHY that is strong. And / or your WHO is worth it. The WHAT is amazing. The WHERE is breath taking. The WHEN is before you give up. And the HOW is something you can envision. So what's your WHY?

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I started my first company back in 1996. It changed and morphed into many things before it became something that could sustain my financial needs by 2002 - when I quit my job and went full force into entrepreneurship. Back then my WHY was because I HATED BEING AN EMPLOYEE (checkout my blog post on that). I was single with no children, so the WHO was ME, and there was no consideration of WHAT, WHERE or WHEN. I just knew that it could not happen soon enough that I would become self-employed. And I knew the HOW was to be some sort of business that I would own.

I later got married and later still became a father, so my WHY and WHO changed. And I had come to realize that for me, life was all about experiences. So I did a lot of traveling with my wife and later with my son. My son has been on something like 5 or 6 cruises and he's only 11 (I didn't go on my first cruise until I was an adult) - and my wife and I had been on so many prior to his being born, that we cannot even recall the total number. And when not cruising, we'd fly directly to a desired destination.

We've gone somewhere on a trip every 3 to 6 months from the start of our 19 year marriage. So one aspect of my WHY I work so hard is to go every WHERE we can to have great experiences. And I'm glad we've done this all along, instead of waiting until we were more financially secure and thus older - as my wife and I already can't do some things we could easily do when we were younger. Wait too long to start enjoying life and you may find its over before you've had any fun.

In fact, if you are listening to this episode within a week or two of when it was posted, my wife and I are in either Dubai or Egypt right now (in the hot desert in the middle of Summer - so i'll let you know upon return if that was a good idea or not). But it was a largely FREE trip! I'll also let you know how I pulled that off in another episode about how to stack credit card points. So travel and experiences are one of the things I work hard to be able to afford. Frequent travel to all the beautiful places in this world (often with good friends and family) and amazing experiences are a major part of my WHY.

And just before we left on this trip, I got an unfinished Lake House under contract for purchase. For as long as I can remember thinking about where I'd ideally like to live - it has always been on a large lake with an acre or two of land right on the water. I've always wanted a waterfront house on a lake with amazing views, a boat house / dock for my boat and jet ski - maybe a pool and hot-tub. And my wife and son want the same. Well, it has taken me 23 years (maybe 24 by the time I close on it, get it completed and we're moved in). Living in my ideal house at my desired location, with the lifestyle that I want, has been for a long time a major part of my WHY, also WHAT and WHERE for that matter. What's yours?

Most people don’t get everything they want out of life as a teenager. You’re not usually going to have it in your twenties, or thirties. You might have to be forty or fifty years old before you really get the things that you’ve always wanted for your entire life. But you need to be able to identify those things so that you can put a plan in place to make it happen as soon as possible. And then, if you’re anything like me, you can be a twenty four year overnight success. But you need to know what your ‘WHY’ is, and you need to know how you’re going to make that ‘WHY’ a reality, and you have to put a plan in place to make it happen.

Is there a WHO, a WHAT, a WHERE - that makes up your WHY? Do you know HOW? And if it takes you 24 years as it has in part for me, can you preserver until that WHEN?

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Can you preserver? While I still work very hard today, its far different than it was 10 years ago, when 16 hour days were normal for me - (before I got into Real Estate) as I struggled to survive in a B2B (Web Hosting Service) business during the "Great Recession" where many of my biggest customers themselves went out of business. Those were some hard years. Is your WHY strong enough to get you through that sort of thing? And like I said, because of how I view life, I still traveled even during those 2 years (2009 - 2010) where business was very tight.

But it actually turned out to be a good thing for me and for the business (you know, "whatever doesn't kill you") - as 2011 was my best year by far up to that point. The prior two years forced me to greatly lowered my expenses. So when the income increased again, I was more profitable than ever. I also learned things that allowed me to increase income, which is why that business (ViUX.com) is still around making money for me today. But if your WHY is not big enough, would you even be able to take anything positive from a major setback in your plan?

And speaking of ViUX... If you're in need of a new Website or Hosting of your existing Business Website - visit V-i-U-X.com - and see what we can do for you and your business. Domain Names, SSL Certificates, Websites, Website and Email Hosting. All the services you need to have a highly successful business Website - that's what ViUX provides at the Website ViUX.com.

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And so going forward into my future, as I complete more interesting travels with my wife and son - returning to what will soon be our waterfront lake house after each. That won't be the end of my big WHY. I want to help others achieve their WHY in less time than it took me, so that is in part why I started the [... and Landlord] Podcast.

I got into Real Estate Investing because I don't want to have to work forever. I'll want to have a large portfolio of cash-flow positive rental properties and cash generating businesses that I don't have to work in myself - and I want to help others do the same. I've also got lots of business experience and advice I can share to make that possible.

To that end, I'll soon make myself available for a few FREE 30 minutes calls each week; where you can get on my schedule to discuss anything I might have insight into that can help you to achieve your WHY in record time.

With going on 5 years of Real Estate Investing experience... I'm a Licensed Real Estate Broker / Realtor; Property Manager; I've done wholesale deals and flips; I'm an experienced rehabber even up to serious foundation and fire damage - turning distressed properties into great rental homes. I'm even starting with new build construction. I know how to raise money and get deals funded. I've got over 23 years of general business experience; and I've got a tech business that can aid with just about the most important tool for anything today - the Internet. So not to go on about myself, but I think I've got the background, experience and knowledge to be of aid to just about anyone seeking to achieve their goals in Business and Real Estate - and I want to help you do so (starting as soon as I get back from Dubai and Egypt).

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Anyway, that's it for now... I'm likely floating down the Nile river at the time this episode posts, and I'll let you know how it went. But since I'm several episodes ahead, that will not likely be until next month. Until then, if you don't already know your BIG WHY, come up with something that you can be passionate about. And write it down. Make sure that you see and read it each day. Keep it on the forefront of your mind and the focus of your actions both short and long term. You'll get there, and if I can be of any aid in that process, its a part of my BIG WHY to do so.

I'll continue further into this on next week's Episode - #23 - Do You Have The Right: Mindset; Attitude; Vision; Passion?

Would you be surprised to hear that my goal is to rack up an additional $4,000,000 of debt within the next few years? Yes, Debt... I want MORE DEBT. Not Credit Card Debt, or Student Loan Debt (it's been awhile since I've been in school). Not Medical Bills or anything of Collections, Liens or Judgements. No, none of that BAD DEBT. I seek to hold all of my debt against cash-flow producing Real Estate... Lots of GOOD DEBT - as much as I can get!

"Debts are like children: the smaller they are the more noise they make." - Spanish Proverb

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Intro...

Welcome to Episode #21 - Give Me A Mountain Of Debt - With Rental Properties Going All The Way To The Top

So, going back to what I was saying in the lead-in... It's good debt, because with over $4,000,000 in mortgage loans at the typical requirement to put down 20% to 30% (or to maintain that level of equity in a refi) - this would mean that I'd own over $5,000,000 of Real Estate! At an average price of $125,000 per property (let's say), that would be approximately 40 rental properties, and possibly even more rental units if some of the properties are multi-family - duplexes, triplexes, quads.

But I know how you likely feel about debt. Let me read a few anonymously quotes that likely sum up your thoughts on the matter...

"A mortgage casts a shadow on the sunniest field." - Robert G. Ingersoll

"Debt is a great source of inner unhappiness." - Debasish Mridha

,"Debt is like any other trap, easy enough to get into, but hard enough to get out of." - Josh Billings

Or even more provocative…

"Debt is an ingenious substitute for the chain and whip of the slave-driver." - Ambrose Bierce

And I could have found a hundred more quotes like these, each seemingly better than the last (or worse, depending on your prospective). And unfortunately for me (and likely for you too) - I previously thought this way about debt as well - all debt - so I'm not going to say these are wrong. And I still do think this way when it comes to things like Credit Cards, Car Loans, and for somewhat different reasons (see last week's episode), Student Loans.

So don't get me wrong... Quotes like these are not far off when it comes to almost every type of loan or debt. But Rental Real Estate is an exception. It's a great / amazing exception for multiple reasons. There's absolutely nothing like Rental Real Estate and the unbelievable deal that we get here in America of being able to lock in a fixed rate / low interest loan for 30 years! That (in the case of Rental Real Estate) will be paid back from the rent you earn from Tenants over that period of time.

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Let's say I want to buy a $100,000 house... Banks and other lenders will actually line up and fight to give me $0.80 on every dollar of that purchase. So I only have to come up with $20,000 (maybe $25,000 when accounting for closing costs and other expenses). And at today's low interest rates, my fixed rate 30 year loan may have a payment of less than $500/mo. Add in taxes and insurance, and let's say my payment (PITI - Principle, Interest, Taxes & Insurance) is $625/mo - and there is no HOA.

Now let's say that I'm able to rent this home for $1,000/mo. Then I take out reserves totaling 20% for: Vacancy; Repairs & Maintenance; CapEx (Capital Expenditures - large ticket repairs that have some longevity and may increase property value like a new roof or HVAC system); and Property Management (and I know that some withhold more for reserves), but far too many Landlords don't even consider it. So I'm left with $800/mo, of which $625/mo goes to PITI (the mortgage payment, taxes and insurance). This leaves me with a remaining positive monthly cha-ching of $175/mo.

Now I know that doesn't sound like much, but it totals $2,100/year, which is a return of 8.4% on your $25,000 investment. And this is not even counting the $2,400/year you're putting aside for reserves - that may eventually get high enough that you can safely lower it and boost your cash-flow and return further. Now I would have preferred to be able to rent such a home for something like $1,280/mo and then be near to $400/mo of positive cash-flow (after reserves). That would be over 19% ROI.

And with Rental Real Estate,you make money in at least 4 ways... You don't just make money from the cash-flow. You also have tax benefits (mortgage interest, expense write-offs, depreciation); and mortgage pay-down through amortization - eventually you end up with a fully paid-off house from your tenant's rent payments covering your mortgage! That's called a FREE HOUSE! And while you cannot count on it - you should also be buying in locations that have the potential for value appreciation. So I won't go into it here, but in a coming episode specific to this topic, I'll break down the math of how these multiple ways of profiting from Rental Real Estate often total a combined ROI (Return of or on Investment) of over 50%! Where else are you going to get that!?

And it’s the leverage of debt that makes it all possible. You only get that return on investment because you borrowed 80 % of the money, and only had to put in 20 %. If you put all the money in as cash, your rate of return is going to be garbage. It’s the leverage of debt that accelerates your growth in multiple ways. First of all, you’re putting in less money, so your return is based on the amount that you put in. You’re putting in 20 % in the deal instead of 100 %, but also because you only put in 20 %, you’ve now got extra money that you can go buy another house.

When I got into this, I had $100,000 that I wanted to invest. Instead of buying one house and being done for years, I bought five houses with that money, or four if you want to count the closing and holding cost that I had to come up with. But the point is, I took what Dave Ramsey and others, who are against debt, would have had me buy one house with, and I bought four or five houses with the same amount of money, accelerating my growth. And in the process, I learned things that allowed me to start using other people’s money in various creative financing techniques in order to accelerate my growth even further.

If I felt the way most people feel about debt, I would be sitting here with one house, wondering how am I going to make any money in real estate? And would you be listening to a podcast of a guy who has one house trying to tell you how to be successful in real estate? I don’t think so.

So why would I NOT want to buy this $100,000 house that makes me money in multiple ways, and get $80,000 from a lender at what are currently all-time low interest rates - locked in for 30 years! OMG - what a deal!

At some point in the future when interest rates are at or near 10% again like they were 30 years ago (or worse), you're going to wonder what the H you were thinking by not stacking up on all this cheap to FREE money. And YES, you can make a mathematical case that when accounting for inflation and other benefits, that Rental Property Mortgages obtained today is essentially FREE money. So I want ALL OF IT that I can get. And my goal is at least $4,000,000 more over the next 2 to 3 years.

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As long as each property is cash-flow positive, then I'm good. And the amount of cash-flow that I target for each property even gives me room to lower rents in an economic downturn to avoid vacancy - and still have positive monthly cash-flow. In the prior example, I could lower that $1,280/mo rent to $980 and still have $100/mo in positive cha-ching (cash-flow is king). Or if it were only rented for $1,000/mo, I could lower to $900 and still have $75/mo in my pocket (not as much cha-ching but its still positive cash-flow - KING). I could even go lower if needed, and assuming a crash doesn't happen right after I buy the property, I'd have plenty of reserves on-hand (after awhile) - and could lower future withholding of reserves to ride out the downturn.

People who lost their shirts in the last downturn where vastly over-leverage and were not withholding sufficient reserves. Don't make those mistakes! And certainly don't let the mistakes of others poison your mind to the amazing opportunity that exists for Rental Real Estate Investors today - to lock in all-time low interest rates for 30 years! Its the best thing ever! Give me millions of it and more. And hey, if you don't want it - Great! More for me!

The bottomline is that poor people have debt, but surprise, surprise…rich people have debt also. The difference between the two is knowing how to leverage debt to make money; making money with other people’s money, and in the case of debt, the lender, which is typically a bank. You’re making money with their money. You're buying an asset that appreciates in value, that gives you tax benefits, that gives you cash-flow, I really don’t see what’s better than that. It’s all about knowing how to manage debt, how to leverage debt, and how to utilize debt to your own betterment.

Now, if you’re going to go out and use your credit cards to go on a cruise, you probably should stay out of debt. That’s not a proper use of credit or debt. But if you're going to go buy a cash-flow producing asset that’s almost certain to be worth more than what you're buying it for years later, will put money in your pocket every month, and also make it so that when tax time rolls around, you likely don’t owe anything and will probably get money back, I told you before on a prior episode that the years before I got into real estate, I always owed in taxes – $14,000, typically – but the year after I bought two houses, I got $6000 back as a refund, which was unheard of for me.

But the bigger point is that that’s a $20,000 swing. I went from owing $14,000 every year to getting $6000 back, and I actually made more money that year that I got that refund. $20,000 was my tax benefit, resulting from having bought two houses in 2015. Those houses are now worth, both of them, actually, are worth tens of thousands, and in the case of one, over $100,000 more than it was worth when I bought it, or more than what I paid for it. And they’ve been putting positive monthly cash-flow in my pocket every month since I bought them in 2015.

Do you think I care that there’s a mortgage on that property? And that mortgage, principle, interest, taxes, and insurance has to be paid every month? I don’t, because guess what? I'm not the one paying it.

The tenant who lives in that property pays the mortgage on my behalf indirectly. They pay their rent. I use that rent to pay the mortgage, to pay the principle, interest, taxes and insurance, to pay the HOA. And then I pocket the difference, which is hundreds of dollars per month. And the properties have gone up in value, so I have hundreds of thousands of dollars’ worth of equity in those properties. And when you factor in the other properties, there are massive amounts of equity. They’re positive, monthly cash-flow generating assets, and I bought them with 80 % debt from a lender. I couldn’t have done that if I had to pay cash for them, because I would have been done after one, maybe two, properties.

Change the way you look at debt. Dave Ramsey is correct; if you can’t manage your finances, if you can't pay your bills on time, if your cell phone bill is late, your cable bill is late, if you have collections, leans, judgments on your credit, then you have some work to do before you're able to play with the fire that can be debt. But if you have those things figured out – if you know how to pay your bills on time – and if you know how to leverage borrowed money to your betterment, there’s no better way to do it than with rental real estate.

So, that’s what this episode has been about; change the way you look at debt. Like the title of the episode says, I want a mountain of it! I want millions more in debt over the next several years. But what that means, the underlying message of that, is that I will be buying a lot of cash-flow producing real estate over that period of time, and I'll be using debt from lenders to do it. Many cases, it’s banks and traditional lenders.

But as I grow this business, I have opportunities to leverage private lender funds, and sometimes private lenders with funds in self-directed IRA’s. so, you’re someone who has money that you’d like to invest, and you’d like to get a good, consistent rate of return on it, give me a call. Go to andlandlord.com, submit the form on the site, the ‘Get in Touch’ form, and we’ll schedule a call and we’ll talk about your needs and what you might be able to do as an investor with me and Blue Chariot.

Beyond that, if you're someone who has cash, and you would like to buy rental properties in the Raleigh/Durham area, again, get in touch with me. I'm a realtor, and I'm a property manager, so I can help you.

But, remember, the underlying point of this episode; debt is nothing to be scared of. It’s something that you have to respect, especially if you're using private lender funds, because you don’t want to be the person who messes up someone’s retirement. You don’t want that on your conscience. But if you're a debt adverse person, I would just advice you to change your outlook on it.

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Let’s say you do have rental properties, and they’re fully paid for – no mortgage – and all that cash-flow, other than taxes and insurance and maybe an HOA payment, or any other expenses, goes in your pocket. There’s no principle, there’s no interest, there’s no mortgage, it’s all your cash-flow. But the problem is that this property, or these properties, are likely worth hundreds of thousands of dollars, maybe millions, and you’ve got all of that equity sitting on the table.

There are two critical things wrong with that.

No.1, you’ve made yourself a target. If someone were to sue you, they now have a very big treasure chest to go after; all of that equity, hundreds of thousands, maybe millions sitting in those properties in equity, that they can now capture through a judgement. You don’t want to just let the properties sit there as targets for someone to go after. Take that equity out in the form of a mortgage, at an all-time low interest rate, and use it to buy more properties. Again, what is better than that?

But the other reason is related to what I just said. By having fully paid-for properties, no leverage, no mortgage, you basically have equity that is, for a lack of a better word, dead money. You might as well put it under your mattress because it will do just as much for you under your mattress as equity locked in a property. Pull that cash out, and go buy some more properties, to increase your wealth, to accelerate what you’re doing, with debt.

I could not even sleep at night if I had equity in fully paid-for properties, just sitting there collecting dust, doing absolutely nothing for me. That’s a financial crime.

Now, maybe if I was 80 years old, I would feel differently about it. Talk to me when I'm 80, I'll let you know, but right now, I am all about debt! Good debt, cash-flow positive rental properties, on top of that, debt, and as high as I can stack it, I will.

Outro...

Disclaimer...

“Landlords grow rich in their sleep, without working, risking or economizing.”
-John Stuart Mill – Political Economist

That quote relates well to the motivation of today’s guest, Chad Kastel – stock day trader… and landlord.

Intro

Welcome to Episode #20, and my second interview. Chad Kastel is my guest today. He is a stock day trader and landlord. He’s also a realtor in Hollywood, Florida, in addition to his more important titles of “husband” and “father”.

I had the pleasure of meeting Chad earlier in the year at a multi-family real estate investing event in Denver, Colorado, and we’ve maintained pretty much weekly contact since then, to see where we might be able to do business together. I highly recommend attending networking events, whether they be local, or you have to travel, where you can come into contact with like-minded individuals, who may be doing greater things than you, or maybe just doing different things than you, either way, from which you can learn. Not only will you meet colleagues, but potential business partners, and maybe your next private lender. But you can also come across someone who will be a mentor to you, or it might be the start of a mastermind, or just an accountability partner.

Meeting people and making connections, at networking events, can be very valuable to your growth – both business, and personal. Which is why I was especially intrigued to have met Chad – a stock day trader, who later got into real estate investing and became a landlord, because I was considering getting into stock day trading before becoming a real estate investor, literally within weeks of each other.

So, let’s get into the show, and hear what Chad has to say about stock day trading and real estate investing, and being a landlord and a realtor, all of it. And please, excuse some of the audio quality issues. I will improve that going forward.

Jonathan

So, my guest today, on the [ …and Landlord] Podcast, is Chad Kastel, an individual that I met at a real estate investing summit in Denver, Colorado. Great guy, has amazing information about what he’s done in real estate investing and, most interesting to me, he’s a stock day trader – something that I wanted to get in. So, Chad, welcome to the show, and thank you for being here.

Chad

Hey, J.T, thanks for having me on.

Jonathan

So, tell me a little bit about yourself and what do you got going on?

Chad

So, my background is in day trading, like you said. I've been doing that for 8 years. The way I got into that was through a collectible trading card game called Magic: The Gathering, which skillsets directly correlated to me getting into day trading. And in November, I got into real estate investing as a part-time, I'm not going to call it a hobby, but way more into it than a hobby, and hopefully will get into that full-time in the next couple of years.

Jonathan

So, tell me, how did Magic: The Gathering, I've heard of that game, and my son plays it, I haven’t, how does that lead into day trading?

Chad

So, Magic is a game of skill and chance, and limited information. So, you develop strategies to beat your opponents. Sometimes you develop the correct strategy, and you lose. And sometimes you develop an incorrect strategy and you win, and you have to be able to tell the difference between both of those, and not be result-oriented with those strategies. And those skillsets directly correlate to trading, because sometimes I've had trades in the past that have won, and they have been the wrong trades and they’ve been the wrong reasons to do them. And you have to correctly analyze that, so you don’t make a mistake again. Even though I won in that particular trade, it’s a long term losing trade, and vice versa. Sometimes you lose in a trade, but it’s a long term winning trade, and you have to just keep doing it. That’s how I was able to sell myself onto getting into trading.

Jonathan

And so, how does the day trading work? You’re not holding onto these stocks past one day literally, correct?

Chad

Me, most of my trades are minutes, seconds. It depends on how volatile they are, but yeah, I rarely keep positions over night.

Jonathan

Can you tell me how that works out as far as your best and worst days, or no?

Chad

Can’t really go into that, but what I can tell you is that I've made a nice living out of it. I've had, besides getting help getting into it, I haven’t had any financial assistance, and I've been able to provide for my family and buy a house, and get into real estate and buy a property in cash. It’s been okay for me.

Jonathan

More good days than bad, certainly.

Chad

Yeah.

Jonathan

So, I was considering becoming a day trader before I got into real estate investing. Are there any special knowledge or skills, or should you have a certain aptitude to be a day trader?

Chad

Well, the numbers don’t like. So, you have to be honest with yourself, and you have to be able to critically think things through. You have to be able to evolve because the strategies that you might use, at least in the way that I trade, two years ago, aren’t particularly applicable now, or don’t come as often. You have to be okay with, generally speaking, being alone. So, if you're an extrovert, like I'm an extrovert, so that’s kind of draining on me being alone all day. And those skillsets, being honest with yourself, critical thinking, they’re not something that everybody can have. Which is okay, but if you're going to get involved into a game where you could lose money, you don’t want to do that if you don’t have those skillsets.

Jonathan

Okay, so, how did you add “rental real estate investing” to being a stock day trader?

Chad

Well, I was just, over the course of last 4-5 years, looking at multiple revenue streams. And I knew I had an active revenue stream in day trading, even though I don’t know what I'm going to make every month, it’s been very consistent. And I was looking for a passive revenue stream.

So, in November, I finally just hopped into Google, and typed “How to invest in real estate?” and found Bigger Pockets, and started absorbing as many podcasts and articles and webinars and everything I could do. Once I figured out the basic formula to purchase a rental property, I just started to look in Florida, and didn’t find any cash-flow deals here, and ended up finding a cash-flow deal in Upstate New York.

Jonathan

Okay, well, I want to know more about that, but is your long term goal to move completely into rental real estate investing, or will you continue to do stock day trading, or do both?

Chad

So, my long term goal is to slowly move out of trading. It’s a five day a week job for the most part. Maybe a few years from now, I'm doing it two to three days a week, and five years from now, I'm doing it zero. So, to answer your question, yes, my long term goal is to get out of stock trading.
Jonathan

So, you said that your rental properties are in New York?

Chad

Yeah, I have one full-time rental property in Upstate New York.

Jonathan

Okay, well, tell me about that. Why in New York, and how is that going for you?

Chad

Just kind of the right place at the right time. I had a former business partner who recommended that area because he owns rental properties in the area. I just started researching it and found that the cash-on-cash returns were excellent, and just started making wholesale type offers on the properties, and waited till I got the right deal. The property I was buying, they were asking for $90,000. I offered $73,500 in cash, and $83,500 with the mortgage. We ended up meeting at $78,800 in cash. I ended up putting $10,000 into it, and now it’s renting. It’s fully rented for $2300.

Jonathan

How many bedrooms?

Chad

So, it’s a two-structure property. The first structure is a four bedroom house, and the second structure is a commercial unit occupied by a dog grooming place.

Jonathan

Oh, so, mixed use? Commercial and residential.

Chad

Mixed use, yeah.

Jonathan

And that was your first deal? Wow.

Chad

Yeah

Jonathan

Okay, so, how has that gone? Have there been any hiccups, headaches, hassles, or is it the best thing that has ever happened to you?

Chad

So, both. A $2300 rental unit on a, let’s just call it, $90,000 place is a great return on your investment. The reason it’s not unbelievable at the moment is, one, I'm having trouble cashing out. My plan was to buy it in cash, and then cash out, but my amateurish, or novice-ness, where I did not know that banks would not cash out commercial properties. They just don’t want to deal with mixed use properties. So, I've been having trouble getting anybody to re-fy me out. If they are willing to, they don’t want to do anything less than $100,000, or they don’t do Upstate New York. So, that was a mistake that, had I know, I might not have done

Jonathan

Okay, so, the aspect of it being a mixed use property, that commercial element, prevents you from going to a regular lender, and getting a thirty year fix?

Chad

Yeah, I've spoken to a lot of different lenders. It’s just one of those categories where it’s either not expensive enough, or they don’t want to do New York, or they don’t want to do mixed use. So, I've been having trouble getting a decent rate. I've had family that’s willing to do it, but I kind of just want to do this first one on my own. So, worst case scenario, I'll have a family member cash out re-fy, and they’ll give me the $70,000, or whatever the 70 % of LTV is.

Jonathan

Is there something specific about New York that makes them not want to lend on it?

Chad

The lenders?

Jonathan

Yeah, what’s their concern about New York?

Chad

I’m not sure. Just a bunch of lenders I've called have said “Oh, we do every State, but New York and Alaska”, or something. And New York just seems to be on the States that lenders just say that “Oh, we don’t do New York”. So, the conversation never went any further.

Jonathan

Well, see, a lot of people getting into real estate investing for the first time, their fear is the unknown, and they let that stop them from getting started. So, the fact that you got started is great. Other than having your cash locked in the property, have there been any other unforeseen occurrences, or things that you wish you had known going in?

Chad

Well, not the latter of your question, but the former is, well, you know, I've tried to work with a recommended construction guy. He has a construction company, and I was going to hire him to do the construction work, and I was going to hire him to oversee the property and give him some equity in the property to do so. Figuring if he owned some of the property, he would take care of it like its own. But it didn’t work out particularly well, and he didn’t do his job, so I ended up having to let him go. I was lied to, but some of it was my fault. I could have done a better job to oversee him.

Jonathan

Right

Chad

And, you know, the old adage, “trust but verify?”

Jonathan

Certainly.

Chad

I trusted, but only like three-quarter verified. So, I could have lost less money than I did. But you have to take responsibility when you mess up. It was my fault, and I lost out into it, so I got punished.

Jonathan

Do you think it would have been different if you were local, or the distance between New York and Florida play into it?

Chad

Maybe I would have driven over there. I think it more, I just was a little too trusting, and lazy or, I'm going to call it incompetent in some spots. But, yeah, maybe it would have worked out, so it wouldn’t have happened. But, I really just have to take the blame that I just needed to keep it a little bit more of an eye on him.

Jonathan

Mistakes are some of the best learning experiences, and if you’re taking that on yourself and saying that you’re to blame, you'll certainly be better for it going forward. How are you going to move forward? What are you doing in real estate investing now? Is it still going to be New York, or are you looking at other property types in other locations?

Chad

Yes, so, I will consider expanding on New York. I would want to get that particular place rented and see how it did for four months, and make sure that it was what I thought it was, and so we’re on the way to that. I had hired a new property manager, who I'm happy with, but not ecstatic about. He’s doing a pretty good job. I can get in touch with him, which I care about. Moving forward, I've started to flip properties in South Florida. Mostly my wife – I met a flipper down here, who wanted to expand his market. he wanted to teach me, I didn’t have any time, but my wife was interested, so he taught her, and we have already wholesaled and are midway through a rehab down here.

Jonathan

Oh, so you’re a husband and wife team in real estate investing?

Chad

Yeah, I would say it’s more like I bridged the gap from the flipper, whose name is Brandon, and that went to her. I'm not really that involved. I learned how to do it just because I wanted to be able to comp properties and learn that skillset, but she’s really doing most of the looking-and-finding for the properties.

Jonathan

So, with regard to things like comping properties, do you have your real estate license in Florida?

Chad

I do.

Jonathan

So, do you perform as a realtor in addition to real estate investor and stock day trader? Or did you just get it to be a better investor?

Chad

Well, I got it to be a better investor, and then I had somebody ask me to sell their house. It was the right opportunity, and we just wanted our contract for my first house sale.

Jonathan

So, is that something you’re going to pursue going forward?

Chad

If it’s the right opportunity, yeah. I'm not going to take someone’s house. If I'm going to take your listing, you’re going to get 100 % of me, so I'm not going to take the listing if I don’t feel that A) It’s worth it for me, B) I won’t do a good enough job, or C) if I think you’re going to be a problem to work with. I want people that are easy to work with, and understand that I understand the markets, and what prices things should be sold or bought for. And if someone’s going to tell me how to do my job, then they should get another realtor. That’s how I look at it.

Jonathan

Certainly, certainly. Well, that’s often one of the questions that those investing in real estate have, is should they get their license, and there are some pros and cons to it. Do you think it has been betterment, or has it hampered you in any way being licensed?

Chad

It’s hampered me in no way. If I just sell a property, and do nothing else with it every three years, I mean that’s just adding money into your revenue stream that wouldn’t have otherwise been there. I'm very, very big on having, on making a revenue stream, as I possibly can.

Jonathan

Yeah, I feel the same way. And then, with regard to the property manager on your other property, have you ever considered self-managing?

Chad

I've considered it. I don’t think the money that I'll save with one property is worth it to me at this time. Speaking with you, and a couple of other people who own multiple homes, the systems in place are phenomenal, and the time invested to get those systems in place, probably isn’t there for me right now. But once I stack up the properties, and have four, five, six, maybe ten properties, then yeah, of course I’ll very strongly consider self-managing.

Jonathan

So, as I mentioned, you and I met at Joe Fairless event, the best ever real estate investing advice conference, in Denver Colorado, what brought you to that event, and what did you take away from it?

Chad

So, there were a couple meetings down here, and I went to one and I met a really nice lady named Rita Medeiros. She is twenty something, single family home, in Ohio, and she just recommended some meetings, and she recommended some conferences. The meetings I went to worked out very well, and she recommended Joe’s conference, so I said all right, let me just fly there.

It’s the best conference I've been to so far. I got a lot out of it. I learned a lot. It gave me some ideas, and seed thoughts that I've expanded upon since going. I met you there. I met a bunch of other people there. It was a very positive experience. It taught me about partnering, and the one negative thing I'll say about the conference, is that I thought that people were a little deceptive with how they pitched me. So, they would say things like “Oh, I have 500 doors outright”, and when I actually delved into it, they owned four properties outright, and they owned 5 % of the other 496.

Jonathan

Yeah.

Chad

Which is totally fine, but they made it seem like they owned 500 doors outright themselves, or with a partner, or something.

Jonathan

Yeah, they don’t tell you that they’re a limited partner, and they’ve got a very small percentage in the deal.

Chad

And I didn’t know if it was a sales pitch, or if it was an ego thing, but I'm not a fan of that. I think owning a piece of 500 doors is already enough of a line in your resume, because it shows that you made the right investment types, and you’re expanding and hedging instead of owning one single-family home. It’s a great thing, but that’s just something I wasn’t a fan of, and something I look out for more now.

Jonathan

Yeah, I encountered some individuals speaking along those same lines, and it sounds like I thought it was more of an ego play. But yeah, it could have been a sales pitch as well.
Now, you’ve been on Joe Fairless’s show. Do you recall what episode that was?

Chad

You know, I don’t recall. It was in early May.

Jonathan

I’ll put it in the show notes in case people want to see what you had to say on that show. You mentioned that when you were at the event, you gained some knowledge about partnerships, and that’s something that I've been struggling with how about best to partner with individuals, how to build a team. With regard to your flipping business, or flipping activity, in Florida, are you starting that process of building a team so then that could become an on-going business for you and your wife?

Chad

Yes, so, the team is small, and know what the flipper taught us. We’re both realtors; my wife, and now we’re beginning to teach people from other areas in Northern Florida, and Central Florida, things that are just a little out of our grasp; to developing relationships with contractors there.

The most important thing is just to find the properties. If we find the deals, everything else will fall into place. So, it’s teaching people that will sit there and look at what’s on the wholesaler lists, and we’ll spend a few hours a day grinding through the properties to find one, to find a gem in the rocks. And so, I'm teaching somebody who lives in Wellington, which is about an hour and a half North of me, and I'm looking to maybe get into the Jacksonville area. It’s slow and steady. You know how it is.

Jonathan

Yeah, I'm hearing lots of things about Jacksonville. So, that’s one of the areas that I've considered expanding into, and I'm originally from Florida myself. So, your future goals for real estate investing, I know that you want to build a portfolio of rental properties. You’ve mentioned that you’ve done some wholesaling, and that you’re working with your wife to accomplish some flips. My purpose for going to Joe’s event in Denver was to learn more about getting into larger, multi-family properties. What do you think your focus is going to be going forward?

Chad

We’ve both kind of had that same goal, but I'm having trouble competing and finding decent deals in the larger multi-family units.

Jonathan

Me too.

Chad

So, that’s always in play. I'd rather scale up with multi-families, but I'm not going to force where I'm pegging into a square hole. If I can go out and find a single family home that can do cash-on-cash returns for 30 %, I'm not going to not do it because I want to get the multi-family. So, my goal is to have passive income on my own, and have some single-family homes, and have some active income with flipping and wholesaling, and then maybe long-term do some syndication with apartments. But the syndication, I can't force it. I'm not going to take peoples’ money and go and get a sub-prime deal, or a deal that’s not super-great. I'll wait until the market shifts, and then I'll get into that.

Jonathan

And so, speaking of that, do you think that there will be a change in the market, a downturn in the economy, or something of that nature coming along soon?

Chad

Statistically, yes. We’re on more of a ten-year upswing, and generally speaking, every ten years, you have some sort of downswing. I personally have a decent chunk of my portfolio in gold and in silver, to prepare for that. Does that mean it’s going to happen? Of course not, and I don’t have a crystal ball, but if history repeats itself at all, it should be coming in the next couple of years.

Jonathan

Okay, I agree with that. I didn’t know you were a gold bug. I wanted to get into that too. So, I have to ask you about that at a later date in another conversation. I want to learn more about gold myself.

Chad

I'm happy to discuss.

Jonathan

So, I want to thank you for your time, Chad. I know that you're a husband, father, entrepreneur, realtor, stock day trader, and you’re a landlord. What advice would you give the listeners of this podcast to also seek to add [ …and Landlord] to their personal list of titles and descriptions?

Chad

You’ve kind of touched on it earlier, is that you just have to take the dive in. There’s a lot of information on the internet. There are a lot of meanings. It’s very easy to learn how to be profitable as a landlord, so don’t be scared of the unknown. Pump yourself as much information as possible. Take the dive knowing full-well you’re going to make mistakes. Maybe search for a thicker deal with a lot of room for error, like I did. So, when you make mistakes, it’s not nearly as costly.

And don’t be results-oriented. As soon as I had a partnership go back, and let go of that person in April, by May I had another partnership in which we’ve already made more money than the one I lost. And I think a lot of people would have said “Oh, this one thing went bad”, like everything’s going to go bad. You just can't think like that. You have to make an analysis and move forward, and just jump in.

Jonathan

Thank you, I really liked that advice. I appreciate that. I have one additional question. What books are you reading right now?

Chad

I'm actually reading a book on Land Trusts by Randy, can’t remember his last name, Hughes maybe? I'm just looking how to put my property in Upstate New York, and the one that I own in Florida, which we really didn’t touch on, into a Trust, to make myself a little bit more insulated from liability and lawsuits.

Jonathan

You’re right, I did not go back to your Florida property. Tell me about it, please.

Chad

So, I bought that property in 2016, and this is what I knew about real estate. These are my thoughts; real estate, good. Renting, bad. That was all I knew. This is also a two-structure property. It’s a studio apartment in the back, about 600 sq., and a two-bedroom house in the front, about 1900 sq., and my wife and I lived in the studio and rented out the two-bedroom house with a pool on Airbnb. We live about a five minute drive to the beach and about a ten minute drive to the Ft. Lauderdale airport. Originally, we were going to buy a house for about $350,000, live in it until we’re ready for our next step, and I found this property for $50,200, and I said “Oh”, we can pay for our mortgage and plus by living in the studio.

And it took a little while to talk her into it, but she eventually agreed, and the money that we made and saved over that three year period, is about what I bought the property in New York for cash for. So, that’s snowball living in this 600 sq. apartment. That $70,000 we made is now going to make another $10,000 a year on top of that.

Jonathan

So, you sacrificed a little delayed gratification, and it resulted in yet another property.

Chad

It did, and my friends thought I was nuts, because for the money I was making, they just couldn’t understand why I was living in this 600 sq. apartment. It was livable, but I moved from a two-bedroom apartment on Las Olas, which is a very nice district in Ft. Lauderdale, into the studio apartment, and they just didn’t understand. But, I had a plan, and my plan is to be able to develop enough passive income to not have to work and not do my trading job.

Jonathan

How did you come to that realization? That’s something that most people never even figure out that you’re better off doing your own thing, and building residual passive income than being someone’s employee? I commend you for figuring that out at such a young age.

Chad

Well, a lot of people learn from their parents, like how to act. I learned from my parents’ mistakes, and they made pretty much every mistake financially they could in the book.

They were very irresponsible, and my father unfortunately passed away and had a tremendous amount of stress on himself in the later part of his life and his late 50s. So then my mom, because they had no money, and they didn’t have a retirement plan, they didn’t save, and didn’t invest, I didn’t want to be like that! I decided I didn’t want to be someone who had to work in their 50s. That’s the going rate. That’s what everyone does. They save up enough from their pay, they work very hard, and they retire for a totally sweet life in their 50s and 60s, which there’s nothing wrong with. I just decided that I didn’t want that. I did not like that status quo that everyone seems to do. I wanted to do the things I loved to do, and I thought that I could do those things from age 40 on, which is way earlier than most.

Jonathan

Yeah, unfortunately it is. Well, Chad, you’ve been a great guest. I thank you. You’re only the second interview I have done on the podcast, and I know that you and I will eventually be doing some deals together as well. We just have to get to that point, but I thank you so much for your time, and for the information that you’ve provided to those who listen to the [… and Landlord] Podcast.

Chad

Thanks so much for having me, J.T. It was a big pleasure.

Outro

Okay, that was my interview with Chad Kastel – husband, father, stock day trader, realtor, and landlord. What did you think? Let me know. I'd appreciate the feedback. And also, if you are beyond your first deal in real estate investing, let me know. Let everyone know. Come on the show and talk about your experience – good, bad or ugly. I want to hear about it. Everyone will benefit from learning from the experiences of others, especially others that are just starting out. Everyone can go on the Bigger Pockets podcast than listen to someone who has 200 units, but are you really going to learn from that person who has 200 units what you need to know in order to get your first unit?

So, go to andlandlord.com, scroll to the bottom of the page, and click “Get in Touch” if you’d like to be on the show. Or if you know someone who is an entrepreneur, or has a landlord story, or even a landlord horror story, that might benefit others to hear, I'm interested. I want to hear it. I'd like to get those individuals on the show. And if you don’t have any rental properties yet, and you’re looking to get started and become a landlord, but you think you can’t, you think maybe your day job prevents you from doing it, look at Chad. He’s a stock day trader, five days a week. His day is occupied, but yet he still became a landlord. So, you can do it, and property management may be the thing that will help you do it. And like I've said before, if your rental property, or if you’re looking to get a rental property in the Raleigh/Durham, area, feel free to contact me, and hire me and Blue Chariot Management, to take care of your property management needs in the Raleigh/Durham Triangle area of North Carolina.

In last week's Episode (#18) we covered #1 thru #5 of the 10 Things That Self-Managing Landlords Need To Stop Doing. But due to time, I decided to split the list into 2 episodes. So if you've not already listened to the prior episode, please check that one out first and then continue here with Part 2, featuring #6 to #10 on the list. I get a little political here at points and go on a brief tangent, so please forgive me...

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Intro......

Welcome to Episode #19, Part 2 of "Self-Managing Landlords - 10 Things You Need To Stop Doing!"

So with #1 to #5 having been covered in last week's Episode #18, let's complete the list here with #6 thru #10.

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#6. Stop being ignorant of the law.

Landlord / Tenant Laws in your state and city or county set the rules of the game. You cannot play the game to win if you do not know and have a clear understanding of the rules.

Anything I do, I believe in doing it well. So in part, I decided to get my Real Estate Broker's License and become a Realtor for the education. It covers aspects of Property Management, Financials, Equal Housing Rights, and more. And while practicing law should be left to lawyers, knowing the law will go a long way towards keeping you out of court and situations where you need a lawyer.

Do you know what you can and cannot say in a rental listing? Do you know what are legitimate reasons for denying a certain applicant? What you can and cannot ask on an application or in a prospective tenant interview? What you can ask of references and prior landlords; or how you should respond to inquiries when you're the prior landlord?

Do you know how security deposits must be handled; how much they can be; how long you have to return them; what you can and cannot deduct from them; and how deductions must be reported? Do you know your responsibility for handling documents and private information of applicants and tenants?

It really does go on-and-on as to the various aspects of law you need to be familiar with as a Landlord - or you could easily end up in court facing a judgement against your assets.

Have you read your state Landlord / Tenant law? For North Carolina it's Chapter 42 (or 42A for Vacation Rentals) and you can find it by searching Google for keywords like "North Carolina General Assembly Landlord / Tenant Law" - or go to ncleg.gov - select [Bills & Laws], then [General Statutes]...

They provide HTML: https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/ByChapter/Chapter_42.html

And PDF versions: https://www.ncleg.gov/EnactedLegislation/Statutes/PDF/ByChapter/Chapter_42.pdf

Read it! All of it... at least twice - and then seek legal counsel for anything you don't understand or have questions about. For those in other (less Landlord Friendly) markets, one area of North Carolina law that you may find compelling is 42-14.1 (Rent Control) - that says "No county or city may enact, maintain, or enforce any ordinance or resolution which regulates the amount of rent to be charged for privately owned, single-family or multiple unit residential or commercial rental property." - in other words, no rent control anywhere in North Carolina. North Carolina is a fairly Landlord friendly state.

So contact me and Blue Chariot if you need assistance getting investment properties here or need property management for your existing rentals.

But that's not to say that there are not many restrictions against Landlords in the law - so read it! Learn it! Know it completely. It's the law upon which your entire livelihood is based, so I (and you should) seek to get to the point of being able to site specific chapter and verse, like it were a Bible. You think someone will be foolish enough to take me or one of my Property Management client's to court when I can state off the top of my head exactly which chapter and verse of the law they should read to learn why they're going to lose any such dispute - and then have to pay my court costs as well, because I do everything according to the law? Sure, its possible and may happen someday, but this makes it unlikely and if so, it certainly won't be due to my having been ignorant of the law.

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#7. Stop using leases you got from Office Depot, Staples or just found somewhere on the Internet.

Listen to Episode #11 - Make Sure Your Lease Protects Your ASSets - for details on how you should be handling your lease. As I state in that episode, your lease can be both your sword and your shield in dealing with tenant issues.

And if you do take the time to read your state Landlord / Tenant Law, and if its anything like North Carolina - you'll find certain references to things the Tenant is NOT responsible for "unless he so contracts" (or similar language). This means that unless your lease (the contract) states otherwise, the Tenant is not responsible for that item or element or matter. So if you end up there, you may be in court thinking the Tenant will clearly be held liable for something, only to find out that the default position of the law is NOT. But your lease, if it says that they are, then they are - but only if it's covered in the lease to place the burden on the Tenant, as the law's default position may be to place the burden on YOU (the Landlord).

Some template lease you got from some random website or store is unlikely to address all potential matters properly and in your favor. You not only want a state specific lease drawn up by a lawyer in your state or from a site or service that keeps current with your state law - but you also want it customized to your specific situation, best practices, policies and procedures.

And then you want to be able to explain it and reference it properly at tenant on-boarding and in all tenant communication that may speak on an issue or matter covered by the lease. Doing so can save you many issues and headaches.

Anything's possible, but you're far less likely to end up being taken to court someday because a tenant was upset that you deducted a cleaning fee or some other damage done from their security deposit at exit. Or that you charge them as additional rent due in the following month for a plumbing bill from clearing a clog that they caused.

Such matters are much more easily resolved when you can point to the specific page and paragraph of the lease that they signed at tenancy start which explains the policy and this exact handling. And when you refer to the same in each communication with the tenant. And when you went over the critical elements of the lease with the tenant during the on-boarding (preferably on video) where they confirmed to have read the lease TWICE. All this contributes to making it hard to dispute the lease later.

But that really only applies if you have a state specific lease that has been customized to your exact policies and procedures.

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#8. Stop using cheap finishes in your rentals.

This weekend I was in a partially furnished rental home that was certainly valued at over $300,000 - with WHITE appliances in the kitchen. I put stainless steel appliances in my rental homes that are 1/3 the value. Now if it already had white appliances when I bought it, and they are in perfectly fine condition and good working order, then sure - but if I'm buying new appliances anyway, pay the extra few hundred dollars to put in stainless steel. It will make your pictures pop and make the home more desirable even at a slightly higher rent. And the new appliances are a tax deduction anyway! And likely to be fanciable at 0% interest for like a year or year and a half or more!

So you may be able to pay for the monthly cost of the upgraded appliances with the additional rent you can get by having the better appliances in your rental. And its hard to know and quantify, but your tenant may stay longer (saving on tenant turnover expenses) because of the feeling your upgraded appliances and other improvements give them for the home.

So go ahead and improve your rentals, increase your tax deductible expenses, while increasing the desirability and likely rent for the home, thereby potentially increasing income. And like I said, when a tenant really loves a home, they are likely to remain longer - thereby lowering your vacancy and tenant turn-over expenses.

So upgrade! Put in granite counters, tile floors, resurface kitchen cabinets and bath vanities. Improve the vanity tops. Put in upgraded light fixtures. And while I don't do hardwood flooring in rentals, I love the so called "luxury" vinyl plank flooring that is durable, waterproof and looks great. Whenever I'm replacing flooring anyway, I go with that over carpet every time. It last for years potentially spanning multiple tenants, and so any increased cost upfront is quickly recaptured - and again, it's a tax deductible expense to begin with and likely able to be financed at 0% interest for a year or more.

So while not over-improving for the location, property class and rent range - make your rentals really nice and durable (tenant proof), put in decent tenants, and inspect regularly. Which brings me to the next item on my list...

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#9. Stop failing to conduct rental property inspections.

So you put a tenant into your rental home that may be valued at $150,000 (granted maybe yours is worth a lot less than that, but possibly a lot more) - but regardless, it's your Real Estate asset upon which your present day passive income and future retirement dreams are based, and you never step foot in the home again during the tenancy!?

Stop putting tenants into your rentals and going ghost - never showing your face again for months and years. I inspect each of my rental homes as often as quarterly in the beginning. Then depending on how those first inspections went, I may drop back to semi-annual - which goes even for those tenants I've had for years. Even if every inspection has been passed without issue, I still inspect each rental at least twice per year - NO EXCEPTIONS!

Yet most Landlords (even those with so called Professional Property Management in place), rarely (if ever) step foot into their rental homes (or have someone do so on their behalf) after a tenant is in place. And then you wonder how your home got trashed so badly. It likely didn't happen over night.

Had you stopped by from time to time for an inspection and made it known to the tenant that you'd be doing so on a regular basis - just that knowledge is often enough to effect tenant behavior to the benefit of the Landlord and your property. It also turns away potentially problem tenants who don't want to deal with inspections, as they know they won't pass. And I'm not talking about surprise visits (that's likely illegal in your state, as it is in mine, other than for legitimate emergencies like flood or fire) - see #6 earlier about knowing the laws. I'm talking about scheduled and announced visits, so the tenant knows well in advance exactly when you are coming and why (for an inspection, as should be detailed in your lease) - see #7 about your lease.

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#10. Stop denying potentially great tenants based upon their credit score - (political opinion alert).

Some of my best tenants had horrible credit scores. And if you look closely at their credit report, you'll see that the reason for many applicants having poor credit scores is often due to student loans and medical bills. Well if politics were the focus of this Podcast, I could do an entire episode on the financial crime that is being committed against a generation of young people - charging them all-time high amounts for tuition and text books to often obtain worthless degrees. Having them take out loans to pay for it all that cannot be discharged through bankruptcy, so they follow them around for life and ruin their credit. Which then means they cannot get decent housing (because you and other Landlords deny them over credit) - and even if their degree wasn't worthless (which it often is), they likely can't get a decent job either (also due to their poor credit).

Now I'll try to avoid my tendency to speak on matters of politics (that's not the focus of this show), but I'll just say that if the government wasn't guaranteeing student loans, and students had to pay for their own education directly - it would cost a fraction of what it does now to get an education. And then far more people could afford it, without killing their credit by taking out loans that far exceed what they can ever hope to repay with the job their degree may qualify them to obtain if it wasn't worthless.

And then medical bills also becomes a political discussion, because just like with education, when the person receiving the benefit is not likely the person paying the bill, then prices skyrocket (EVERY TIME). If you placed a claim against your car insurance each time you needed an oil change, or a new battery or tires - auto insurance would cost over $1,000/mo and an oil change would cost like $500 or more. Likewise, every time we go to the doctor for any reason, it's paid by insurance most often, which is one of many reasons why medical anything cost so much. And if you or your child is sick or injured, you're going to the hospital regardless of what it costs. And if you don't have great insurance, you're going to end up with a medical bill that you cannot pay - and your credit is going to be ruined as a result. so now that should prevent you from having decent housing or getting a job!? I'm a pretty conservative guy in my political views, but I just don't think so.

So, sorry for the tangent - I stopped debating matters of politics when I needed to focus on learning the business of Real Estate - but I do have some pretty well established political beliefs - maybe I'll run for congress in 10 years or so. But my point is that low credit scores due to past due student loans or delinquent medical bills are irrelevant to me... Don't care! What I do care about are collections for utilities (electric and water), phone, cable - and other things that are daily household bills that are not a government price inflated trap that anyone of us could fall into - as in many cases you have no choice. I care about liens, judgments, repossessions, and collections - that are non-medial or student loan related.

I'm not going to deny someone housing because they got treatment for their sick or injured child and the hospital charged them $800 or a bandage (thinking it would be paid by insurance, but it wasn't). I'm also not going to deny someone housing because they tried to better themselves with education and a corrupt system dumped $200,000 of student loans on them for a degree that might earn them $50,000 per year if they're lucky.

You can't likely buy a $200,000 house on $50,000 per year of income, but you can get student loans that are even worse. As with the house you can at least file bankruptcy or let it be foreclosed upon - but you're stuck with the student loans for life! And many times you don't even obtain the degree, because you're tapped out on loans before you get there. Shameful what's being done right now to young people. There should be a student loan revolt where everyone just stops paying. But here I go again speaking on politics. And I'm sure someone will argue that they knew what they were getting into and agreed to take the loan.

Yea, sure setup a system where you're almost required to have a degree to be employable; make that degree like 4 times more expensive than it should be (and was just 30 years or so ago); and then blame the person for agreeing to pay the inflated price for the often worthless degree (like they had much of a choice) - who then can't get a job paying enough to afford to pay the bills. And then Landlords and employers use their now poor credit as an excuse to deny housing and employment. That's fowl and it cannot continue - and I won't participate by being one of those Landlords denying prospective tenants based upon credit score. I need to see something else of concern on their credit report besides student loans and medical bill related collections. I care far more about a $50 cell phone bill or cable bill collection than I do about a $50,000 delinquent student loan or $5,000 of unpaid medical bills. I don't care about those at all! And I don't think you should either if you're a Landlord.

So stop setting blanket credit score requirements. I see all the time where Landlords refuse to accept anyone with a credit score lower than X, with X being 600 or maybe 620. And at least some go lower, like 580, but any blanket number is just lazy in my opinion. Look at the report and see WHY the score is low, and if its student loans or medical bills, then ignore that... I feel like cussing.

And if it makes you feel better, you can always use the score and other factors as justification for charging a higher security deposit. I advertise my rentals at 1.5x rent as the security deposit amount, and I may lower it to 1x rent for better quantified applicants; or increase it to 2x for those with more significant credit challenges - where nothing else is a disqualifying factor.

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OK, now I'm thinking about politics... I could continue this list with #11 and beyond, but now I'm on my soap box (as the expression goes) - so everything I say from here on will likely have a heavy political bent. For that reason, I'll stop it here... 10 is a nice round number, and if you implement these changes into your Landlord business, it will be greatly improved and you're much more likely to be successful. And as I've mentioned before... If you don't want to have to deal with any of this and you're in the Raleigh / Durham area of North Carolina - hire me and my team at Blue Chariot Management to take over your Rental Property Management duties on your behalf. Checkout the website at: BlueChariot.Management (not .COM / .Management and no need to start it with www) - because its not 1996 and we no longer call it the World Wide Web.

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Outro...

Disclaimer...

Intro...

Okay, okay, okay, today’s episode is not just about my first new build, but this is also the first episode of the Podcast with a guest. I know I've been saying that I will have guests on this show for a long time – since the first episode – However, forgive me, I've had a lot to say. My guest today will be my business partner in our first new build endeavor together, and he is a real-estate investor himself. His name is Garrett White.

Welcome to Episode No. 17 – My First New Build House (Ground Up Construction On An Existing Lot) In Partnership With Garrett White.

As you know, Blue Chariot is many things; Blue Chariot Properties, Management, Realty. This Podcast is brought to you by Blue Chariot Media, where there’s also Blue Chariot Homes, which is a partnership between me and my guest today, Garrett White. Blue Chariot Homes focuses on wholesaling, flips, and now new builds; basically aspects of real-estate investing where you typically buy and sell the property in under one year, which is considered a short-term investment.

Now, you know, I'm a buy-and-hold guy. I like rental properties, so, flips and pretty much selling anything is against my nature. But I'm not a fool. I fully realize there’s money to be made in wholesaling deals that are not right for long-term hold as a rental. And I know that it makes perfect sense to sell a home when pretty much it’s certain to sell quickly for top dollar, thereby creating more cash to buy more rentals, like sell one, buy three. But my primary focus is, and always will be long-term rental properties. So, I partnered with Garrett so that he can focus on short-term properties. This is great, as it allows us to leverage the same tools, systems and processes to acquire the properties, and then only what happens post acquisition is different.

Blue Chariot Homes is our partnership for short-term hold properties. And we’ll certainly come to own long-term rental properties together, eventually, as well. Garrett is also working with me on my latest endeavor – Blue Chariot Management – that I announced in Episode 12.

So, joining me on the show now is Garrett White. And like myself, Garrett has a business outside of real estate. Mine being Websites and Web-Hosting, and his is called Cryo NC. So, first, Garrett, introduce yourself, please, and then tell us about your business.

Garrett

Thanks for having me on. I'm really excited to be here today, and I've been listening to the previous Podcasts you’ve been putting out with great content, so, hopefully I can contribute a little bit.
But, a real quick background, I'm originally from Philly, went to school in D.C at Howard University. I met my now-wife there. Moved down here about five to six years ago, and I'm loving it down here. Up until then I was working HR for Bed, Bath and Beyond. I was miserable as J.T knows very well. I couldn’t wait to expand my wings a little bit, and take on my own personal ventures, one of which I wanted always to be real-estate. And so, now Cryo NC is starting to really get off the ground, and if you’re not familiar, it’s when you expose your body to sub-zero temperatures. J.T has been in there, once or twice, and felt the chill a little bit, but it’s about holistic wellness, and we’ll be expanding over the next year or two, and opening up a few more locations. So, if you’re in the Triangle, we’d love to have you come up.

Jonathan

Okay, so I’ll want you to mention later how those who are local to the Raleigh/Durham area can find you and stop by for a session at Cryo NC. And yes, I've done it. It is cold, but very relaxing, especially after a workout. But now, tell us, how did you get started in real-estate?

Garrett

Yeah, so, I got started with wholesale deals, and I would definitely say it was far more education than action. And so, I spent a lot of time Youtubing. There were some free DVD’s out there that certain investors have put out, so I was just learning a lot as I went. And in D.C, I kind of started at an ideal time where there was a lot of inventory, and also the economy was going up, so there were people to wholesale to.

Moving to Durham, I'm trying to re-create that. It was much more difficult when I first moved down here, because it’s a hot market, and there are a lot of seasoned investors who have been investing in this area for a long time. Coming into that from a completely different area, and not knowing the layout, it was very hard to re-create the same model in Durham that I did in D.C. I went to learn something else again, and wanted to find something of a mentor in real-estate, and that’s when I reached out and met you.

Jonathan

Okay, so we came to meet each other through Bigger Pockets, when I was about two years into my real-estate investing journey. How did you find me on the site? Or what brought me to your attention?

Garrett

Yeah, honestly, we probably started around the same time. It’s just that we went into different methods, with you, the buy-and-hold, and me, wholesaling. But during that time, I learned about Bigger Pockets, which is a huge forum. I could ask a million different people a million different questions, and you get honest feedback from a lot of different perspectives.

So, when I went on there around the time I reached out to you, I was looking for something specific in terms of a new way to approach real-estate; not just wholesale, but find people who have different resources and different perspectives. When I saw that you had posted about, I believe it was lease options that caught my attention, I reached out to you and probably about four to five other people who were local to Durham, just to meet over coffee. Out of all those people, we had by far the best initial view of long-term growth and goals to set, and when you told me about your vision for Blue Chariot, I knew I wanted to be a part of it.

Jonathan

Okay, yeah, I remember our first meeting well, and we’ve done a lot of learning together since then. Our partnership has evolved slowly, and it’s included additional education, attending events in Vegas and Atlanta, and other locations, to which we’ve travelled together for training. We’ve started marketing for deals, motivated sellers, and we’ve had some good opportunities come our way, but for one reason or another, nothing major materialized initially for the first couple of years that we tried to work together. Things are moving along now, but what would you say about relationship building and starting relationships with other investors or potential business partners?

Garrett

You said it perfectly. It’s about the relationship. You can’t focus on the transaction or just the deals that you’ve done previously. It’s about getting to know that person. You typically work with people that you like that you can get along with and have clear communication with. I think the number one sustainer of our relationship is that even if these deals that didn’t go the way we wanted them to, we had clear communication and understanding going into them. So, any problems that arose, there wasn’t a problem between you and I.

And so, I recommend that for anybody who’s looking to do business with other people. Make sure you’re honest, and make sure you’re very crystal clear on what you’re looking to get out of the deal, and try to predict any downfalls that can happen, and already have that language in place, so there’s no confusion or issues moving forward.

Jonathan

So, you think it’s a good idea to develop a friendship with a potential partner before you become involved in business with them?

Garrett

It’s not 100 % necessary, but I think it does add to the comfort-ability of the conversation. We’ve done racquetball, we’ve travelled for these conferences, we’ve been to different family outings, and I think that just helps to be able to build the business portion as well to the point where we’re now successfully moving forward with the project.

Jonathan

So, would you say that having been beaten down in racquetball multiple times by me made our friendship better for business proposition?

Garrett

I think your memory is a little fuzzy on those competitions, but competitive competition has always helped team bonding, and all that good stuff, so I do think it has helped and we’re better for it.

Jonathan

Okay, I see what you’re saying. But yeah, I do think that the relationship that we developed was initially based upon friendship, and a mutual respect for what the other person was doing and was capable of doing.

Garrett

Absolutely.

Jonathan

And then everything just kind of fit together, but there were some difficulties getting going on which venture to move forward on.

Garrett

And I think that was from our backgrounds. You have a buy-and-hold background, and I was more of the upfront-money with the wholesaling. And so, while I was pushing for short-term deals, you were looking at long-term, and so, again, building the relationship and understanding why you were looking at it one way, while I was looking at it a certain way and trying to make the best out of every situation. I think that’s why we had a learning curve to get to this deal now.

Jonathan

Do you think our age difference might have factored in there as well?

Garrett

Yeah, we’re in two different spaces, financially. And as I'm trying to build up my war chest, so to speak, you’ve been on the path that’s already gotten you to a point where buy-and-hold made more sense, and I just wasn’t ready for that.

Jonathan

So, now, we’re doing a new build house which I'm just completely proud of every time I drive by it. But let’s talk a little bit about some of the prior projects that we tried to do. One of our first attempted flip projects together died due to black mold being present in the property, and not being able to get the lender required insurance for that reason. I'm going to talk more about that specific project in a coming episode.

Garrett

So, the same reason that the new build project is able to take flight and that black mold property wasn’t, is that we don’t have the same team in place. We have a great GC working on the new build, but at that time we just didn’t have the right people to take on that size of a project. Everything is relative. I think right now, if we put our minds to it, we will be more than comfortable to take on a six figure plus rehab. But at the time, that just wasn’t the case.

Jonathan

And then another of our attempted flip homes, it was actually after we got further into it that it became obvious that we had greatly underestimated the required rehab. So, we ended up selling that house to someone who had more extensive rehab experience than we had at that point. It was something we, or maybe just I, wasn’t comfortable with at the time, and it was basically a knocked-down new build, something that at that time we had never done, nor had we done a six figure rehab at that time.

Garrett

Yeah, you’re right. I don’t think either one of us was fully comfortable with that project at the time, and getting out of it unscathed was the best way to go. And now we’re doing a new build, and if that same project came along today, we would be just fine. Yeah, it was just timing.

Jonathan

But then in the year following those failures, I took on some personal projects that did involve six figure rehabs. So, I gained that experience, and then we built our connections of lenders and contractors and subs, giving us the confidence and connections to take on some more aggressive projects, which brings us to where we are now; doing a ground-up construction, new-build house for sale, together.

Jonathan

So, now we’re doing a new build on Carver Street, in Durham. This is our first new build, of which I expect there will be many more. It’s a spec home on a vacant lot next door to a duplex that I own.
So, one day, Garrett calls me, and he’s looking at a home listed for sale, and puts me on the phone with the listing agent. I don’t recall why, but that specific home did not work out. But I asked if he had anything else available, and he mentioned an unfinished potential duplex on Carver Street for $155,000. It was a three bedroom, one bath house, with a potential fourth bedroom if a closet was added. And it had an unfinished attic that had started to be converted into an additional two bedroom unit, but what little had been done, it really needed to just be all ripped out and done over again professionally.

I went back and forth with the seller of this property for months, but ended up buying it for $130,000, including the adjoining vacant lot. I completed a six figure rehab on the property to make it a four bedroom lower, and a two bedroom upper duplex. And now we’ve started our first new build project on that vacant lot, which was essentially free because it was thrown in as a part of the prior purchase, and so this is the start for the joint venture on our first new build together with Garrett and myself.

So, Garrett, tell me about the new build process. What’s been going on so far?

Garrett

So far it’s been great. I’m loving the process so far. I can't remember the exact connection, but we had come across a general contractor, and he made us extremely comfortable out of the gate. He had the floor plan, every expense down to the nail, and just made it very easy for us to get started. Straight-forward again, communication is key, and it’s been awesome.

We’ve had one little hiccup in terms of a well that needed to be remediated, so we had an outside company coming in and doing that. There’s a little bit of junk left over on the property that the current tenants are responsible for, and that should be cleared up as we speak. Other than that, the construction’s been going as scheduled as promised, so I'm extremely happy.
My role has been as a project manager. I stay in constant communication with our GC, and relay that information, so we’re good on our side.

Jonathan

So, what kind of house are we building?

Garrett

It’s going to be a spec home; three bedrooms, two and a half bath, just shy of 2,000 sq. ft. And so, it’s a nice open floor plan, and I'm just really excited to get it on the market, which is plan A, with your need for dual exit strategy, which I respect. It will also be a good rental home if we decide to keep it as a buy-and-hold.

Jonathan

And so, this project is basically a no-brainer. Everything fell into place to make this an ideal scenario, but how are we going to continue this? How are we going to repeat it? What’s our next project going to look like?

Garrett

So, it comes down to, I think, relationships again; keeping a good relationship with our current GC, and expanding our network, so to speak, with different lenders who might be able to come in on those deals. We’ll be targeting several different pipelines to acquire more lots, and hopefully we can get lucky again with a purchase of a property that includes a lot again. But using probates, motivating sellers, and any means that we can come across a sweet, hard deal that we got on this lot, and just continue to repeat the process, it looks like. It’s going to be a great win for us.

Jonathan

So, we still do pretty extensive marketing in the area to find motivated sellers through direct mail and online means, but do you see us ramping that up and being successful with getting those types of deals even in this aggressive market we’re in now?

Garrett

Of course. Again, it’s a really hot market, and a lot of investors are here, so, you have to find a way to stand out. But in general, with this project under our belt, it opens up the budget for more marketing as well. It allows us to do on a private, and joint, venture together to advertise for different types of deals. I definitely want to get into more buy-and-holds after this, but I'm loving this process so far. We’ll see where it goes.

Jonathan

So, Garrett and I will continue our partnership on short-term hold properties, be they rehab, to flip, or new builds, and we’ll certainly get into long-term buy-and-hold properties as well. Garrett’s also a part of my property management company; Blue Chariot Management, where we’re not only managing my own properties, and will become his properties eventually as he adds to his portfolio, but also providing property management for third-party landlords. And we’ll also continue working to bring on investor funds. I'll be doing a show soon on working with private lenders.
So, I see great things coming for not just myself, but for Garrett White, and for Blue Chariot in general. And I'm proud to have Garrett be a part of Blue Chariot and what we’re trying to do here. So, Garrett, is there anything else you wish to state about your personal business, Cryo NC? And how should we reach out to you if we want to get frozen?

Garrett

I’m excited to grow Blue Chariot as well. Property management, I think will be a great opportunity for the both of us. I'm excited to continue to grow that.

When it comes to getting frozen, though, whole-body cryo therapy is definitely our focal point, but we will be having a grand opening of our first full office space, which will include a couple of other modalities, such as infra-red sauna, Normatec massage therapy, as well as localized cryo therapy, which allows us to give cryo facials, spot-treatment for any achy backs, knees, elbows, anything like that. But also, body contouring is going to be our next big draw, which will allow us to be able to take off some inches off of the waist, reduce celluloid, and it’s really good to get those beach bodies back together for you. So, I'm definitely excited to open up and have that come this fall. But in the meantime, if you just want to get a whole-body cryo therapy session, we do have a satellite office in North Raleigh, off of Falls of Neuse Road. Feel free to check out our website at http://www.cryonc.com.

I’m just excited for everything that’s come this year. It’s going to be pretty fun.

Jonathan

Thank you, Garrett. Thank you for being on the show, and I can't say enough about the fact that you went out and started your own business. I commend you for that. It’s a risky endeavor, and a lot of people can't do it. But the fact that you did, I hope everyone goes out and supports the business. It’s a great service that you provide. It’s certainly something that you should try out if you’ve never done it before. Cryo therapy is really cool.

Okay, well, that’s it for this episode, and we’ll certainly let you know how the new build endeavor, on Carver Street, in Durham, turns out. I also expect a lot more from the partnership of Jonathan Taylor Smith and Garrett White.

We’re always open to partnering on a deal. So, let us know if you have a property that you’d like to sell, or something you’d like to run by us as far as what we might be interested in buying, or partnering with you on.

I love entrepreneurs, especially young individuals who, instead of going out and getting a job and working for someone else, like most people do, they actually take that big risk of starting their own thing. That’s why I've always recommended that everyone have some business. It’s just the best way of supplementing your income, and it gives you the money that you need to be able to do other things like invest in real estate. It’s not the easiest route, but it’s the most rewarding. So, go out and get yours. Garrett is certainly getting his, and he’s an example of what you can do if you really put your mind to getting out there and taking a risk and trying to do something else.

Outro...

This is Part 2 from last week's episode, so if you've not yet listened to Part 1, please go back and listen to Episode #15 first. So now let's continue our conversation on Where To Get The Money!

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Intro...

Welcome back to Part 2 of Where To Get The Money? Using Other Peoples Money (OPM) For Real Estate Investing Success - Ep. #16.

So let's continue the discussion, moving on to Private Lenders. This is where you really want to be as a Real Estate Investor. You'll often get the best terms, lowest rates, low to no points, and funding for 100% of your deals, including both the purchase price and rehab budget. You could literally buy and rehab a house through sale or refi and never have to come out of pocket with any of your own money - a deal done from start to finish with 100% Other Peoples Money.

But this way of doing business brings with it immense responsibility of ethics and character. You absolutely CANNOT do anything to cause the loss of your investor's money. As such there'a certain ways you must handle things to protect your investors even above projecting yourself. YOU should be the one taking any risk - NOT your Private Lenders. But then this gets into an entirely separate topic for which I can do a show of its own - "How To Protect Your Private Lenders From Risk".

So now for THIS episode, let's just stipulate that you'll be doing everything properly, and in another episode to come (maybe also some later in this episode if I have time), I'll lay out for you how exactly to go about protecting your Private Lenders. So now until then, I'll just speak to where and how to get the money - NOT how to handle the money after you get it.

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In most cases, excluding maybe close friends and family, you'll likely have to be able to show some sort of track record to get Private Lender funding. But if you're fortunate enough to have friends and family with enough money and they trust you enough to lend on one of your initial (or even first) project - Congrats! But please proceed with extreme caution. Make sure it's a slam dunk / no brainer project on which you can make several mistakes and still turn out well. I'll speak more on this later and in that coming episode on how to protect your Private Lenders.

One of the first skills you'll need as a Real Estate Investor is the ability to analyze potential deals. Not just that you need to be able to know for yourself what is and is not a good deal - that is likely to result in profit. But you also need to be able to relate the strength of your deal to your Private Lender. You'll need to be able to show them how this deal allows you to pay them back, WITH INTEREST - and still make a profit for yourself. Just be careful about that, as some greedy Private Lenders will then focus on what you stand to make, and will get caught up in counting your money.

If so, this is good indication that the person will not lend you any money, and even if they would, you still may be better of finding someone else to work with. Because you are the investor. You're the one with the knowledge and skills to find great deals on distressed property and rehab them into rentals or for sale as flips. If the potential Private Lender had these skills, then they should be doing what you are doing. So if they do not value your role enough to not begrudge your profit in the deal, then it may not be the makings of a great partnership. But there's an exception to this I'll explain in a moment.

What you want is that doctor, dentist, lawyer, executive or any typically highly paid individual - who is also typically too busy with their own profession to become a Professional Rental Property Investor / Landlord or Flipper. But they know that you've done the work to become capable (even if not yet expert) at one or more of these. They are then thus happy for you to do your job, while they continue to do theirs. And they'll be happy to earn a nice return on their otherwise idle funds. Or even if the funds are not idle, maybe you are able to bring a higher rate of return or a more secure and/or consistent return.

These are the type of Private Lenders you want, but at risk of contradicting my prior comment, they need not be debt lenders only. Greed can creep in on both sides... You might be able to create some of your best partnerships by not being greedy yourself and giving up some equity in the deal if it truly is the case that you'll be making a killing, which is why the potential Private Lender might not be able to help themselves counting your money. Imagine how willing to partner with you the right dentist or doctor might be, if she or he not only gets a great return on their money, but also builds wealth by obtaining a reasonable equity stake in your growing rental property empire.

I've not given any equity to Private Lenders who funded some of my single-family and small "plex" rental properties; however, as I move into acquiring larger properties through syndication, I will be giving both a return on the debt loaned to the project and some percentage of equity in the deal. But in such a case, the amount invested may be higher, as may be the length of the investment longer, and the security to the investor is different (but more on that later, or in a different episode on protecting your private lenders or maybe on deal structuring.).

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Before I started seeking Private Lenders, I created what can be referred to as a Private Lender Credibility Packet. Among other things, this contained a 25 or so page booklet about me, my company, my partners and team members and my prior projects. It also spoke a great deal on the process and benefits of being a Private Lender.

Upon a potential Private Lender showing interest in learning more, I would arrange a meeting with the person (if married trying to get BOTH husband and wife to attend this meeting) - and I'd leave the booklet with them for review on their own time if it appeared as if they might be interested in moving forward. I really would not even mention the book at the meeting - it would be just something sitting off to the side. The meeting would be all about getting to know them, learning their needs, and allowing them to meet and learn more about me.

Not every potential Private Lender will be a good fit, as they may not be seeking to lend for a long enough period of time (I require 18 months with an option to extend to 24). Or maybe they don't have enough to lend, as a 1st position lender must be able to fund the entire purchase price, which may be $100,000 (or more), but not likely less than $50,000 or so.

And a 2nd position lender must be able to at least fund the rehab, which is most often at least $10,000. It can be harder to work with smaller amounts in a secured position. And since these booklets are full-color / double sided printing (they're expensive to print and bind), so I don't leave them with a person if it's obvious they're not ready and able to proceed. Although I will still add them to my CRM with automated follow-up forever, as circumstances can change at any time.

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My Private Lender Credibility Packet and the booklet is meant to answer common questions that every person will have before lending their hard earned money. The person needs to know who you are, what you do, how you do it, how / when and where you learned to do it, and on / and on / and on. They will and should have a ton of questions and you'll need to have confidence building answers. This is why outside of close friends and family, you may be best served to fund your initial deals with Bank or Hard Money Loans, as I mentioned on Part 1 in Episode #15.

But in my case I must also confess to a certain mental block when it comes to friends and family. I know many family members and friends with the money to invest in my deals, but for some reason I never feel comfortable asking them to be a part of what I'm doing. I was listening to one of the older episodes of the BiggerPockets Podcast and the guest on that show mentioned that this was of thinking is actually doing a disservice to my friends and family by denying them the wealth building opportunity created by my efforts, that I apparently have no problem making available to strangers. And I can see that as true, but I've always just had the thought that business is business and that friends and family should NOT be mixed with business. Like I'd never rent one of my homes to a family member.

But then it occurred to me the reason that I would not want to rent to a friend or family member (Landlord / Tenant relationship) is unrelated to the dynamic that's at play between me and a Private Lender. I wouldn't want to be Landlord to one of my friends or family members as Tenant, because they're going to expect me to be lack on my lease and rules I apply to all other Tenants (like imposing a 5% late fee and posting a 10 day pay or vacate notice on the 6th when late on rent). They're not going to want me to treat them the same as I treat all other Tenants in a strictly business relationship.

But in the case of my relationship with Private Lenders, there's nothing for them to do after funding the project. There are no rules for them to follow. No expectations for them to meet. No favoritism they could want or expect from me. It's not like they would expect me to pay them EXTRA or HIGHER interest just because we are friends or family. When it comes to Private Lenders, all the expectations to follow rules is on ME. I'm the one that has to perform. And since I know for certain that I'm going to do what and all that I say - being reluctant to work with friends and family members as my Private Lenders makes no sense unless I doubt myself. And with the possible exception of my wife and son, no one has more confidence in me than I do. So far as it depends upon me or what's within my control, I know that I'm always going to do the right thing - so why wouldn't I make this opportunity available to my friends and family.

So, likewise, if you know that you're going to go about things the right way, with un-failing ethics and morals (protecting your Private Lenders over even yourself) - then let the world know what you're doing! You may be surprised who might just want to be a part of it - and earlier in your journey than you might otherwise think. But I'd still recommend extreme caution if considering starting out funding your initial or first project with a Private Lender - unless they're someone like myself, who is acting as both the Private Lender and Mentor or Coach to guide you through this project. Which then brings me to another aspect of Where to get the money - other Investors as your Private Lenders!

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Have you ever heard of a Self-Directed IRA?

It's one of the best ways to work with Private Lenders in general, but its especially effective when the other party is also in the business of rehabbing distressed properties .

Self-Directed IRA's can be a show in and to itself, so I'll work to get a guest on the show who can speak to this topic as an expert (I'm not). But one of the critical limits of using a Self-Directed IRA is that you cannot fund your own projects. That's called self-dealing and it creates what is called a prohibited transaction.

So if you're a person like me in the business of rehabbing distressed properties into rentals or to flip, and you've got money in a Self-Directed IRA - I can't use that money to fund my own projects. Instead, I must find some other person (like you) and use this money to fund their project. And then hopefully in return they can use the money in their Self-Directed IRA to fund my projects.

As a result of this limitation on Self-Directed IRA's, you may find that some of your best Private Lenders are people you may have previously looked at just as your competition. They may be in your same area, marketing to the same property owners looking for deals on the same houses, bidding on the same properties at auction as you. But you want to get to know them for a variety of reasons, not the least of which is they may become your next Private Lender. But even more so, they may become your FIRST Private Lender, as they're experienced in the business, know if you've got a good deal on your hands, and can likely help you through it safely - while making some tax-free profit in their Self-Directed IRA in the process.

But even if not a fellow Rehab Investor, learning about Self-Directed IRA's is important for you as a funding option from anyone with money in an IRA or 401K from a former employer. In the current economic state, many people are expecting a downturn that could easily take half or more of what they now have that's invested in the stock market within their IRA or 401k. You can educate them on Self-Directed IRA's and connect them with a custodian who can aid them in making a tax-free transfer of those funds out of the volatile stock market and into one of your projects at a fixed interest rate that's competitive to what they had been getting in the stock market (if not better) - but that is now secured by the property that's worth far more than what they've loaned. In this way, you could literally be saving someone's life savings from a coming loss by getting it out of the stock market - maybe just in time.

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So while I will be doing a complete show soon on how to protect your Private Lenders from loss, I do want to briefly mention here a few critical things... When someone lends on one of my projects as a Private Lender in the 1st position (meaning they have a 1st position mortgage against the property). They are typically funding 100% of the purchase price for the property and potentially some amount (if not all) of the rehab budget.

But this money is not coming directly into my hands. Everything is handled by the closing attorney. Just as would be the case with a Bank or Hard Money Lender. The Private Lender wires the money directly into the closing attorney's escrow account. That attorney then uses those funds to complete the purchase of the property, giving the Private Lender a Deed of Trust (North Carolina is a Deed of Trust State) and a Promissory Note. Both documents get recorded with the Registry of Deeds Office of the County, such as Durham County.

The Promissory Note details all of the loan and payment terms, such as interest rate, due date and amount, loan / term length, and everything. This gets attached to the property via the Deed of Trust, which creates a lien against the property on behalf of the Private lender - again, no different than would be the case for a Bank providing a Home Mortgage. The Private Lender is now essentially the Bank who really owns this property, as they have the right to foreclose if any of the Promissory Note terms are violated, such as not paying on time or failing to repay the full loan amount by the end date.

This protects the Private Lender, as the home cannot be sold without paying them back in full. If it were to burn down to the ground, they are set as the loss payee on the insurance policy - so another form of protection. And if I got hit by a bus or caught scumbag disease and failed to uphold my commits as detailed in the Promissory Note for any reason - the Private Lender can foreclose on the property by just employing the services of an attorney or deed in lieu of foreclosure. First, I would NEVER let such a thing happen, but if it did - Yes, there would be a cost to the Private Lender of both time and money. But another form of protection is that they have only loaned up to (say) 70% Loan to Value (LTV). Once you're further along with many successful projects under your belt, you might feel safe to raise this to 75% or 80% - but not higher.

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Now keeping your Private Lenders protected in this manner, and working with them to ideally get 100% funding of both the purchase and rehab (and having it still be less than 70% LTV) requires that you get a great deal on a distressed property. You need to get a deal so great that your purchase price and worst case proposed rehab budget are less than 70% of the likely After Repair Value (ARV). Otherwise, you'll likely have to fund the rehab out of pocket.

For example, if you were seeking Private Lender funding for a purchase of $120,000 with another $20,000 needed for rehab, this property would need to have an After Repair Value (ARV) of no less than $200,000, of which 70% of this amount is the $140,000 your Private Lender would be funding for the deal.

And in this scenario, when the job is done, if you're keeping it as a rental or otherwise wish to avoid paying increased taxes for a short-term hold, you may have to own it for a full year first - because of the seasoning requirement. But then you can refinance this property at up to 75% of the ARV. So you refinance for $150,000, pay back the $140,000 you borrowed, along with interest. And let's say your borrowed at a rate of 6%, your interest owed would be $8,400 for the year. So you'd repay $148,400.

So that's a lowly profit of only $1,600 on the job (I've done much better), and technically you're not even making that much, because excluding any rental income made during the year (let's say it took you 2 months to get it rehabbed and rented, and so you have 10 months of rental income) - well, excluding that, in this example you've really not profited on the rehab to refi, because your closing and holding costs would almost certainly be 3 times the $1,600. But in my opinion, even this low profit (if you want to call it that) is a win, as now you own a cash-flow positive rental asset that will likely appreciate in value, it will benefit you greatly in taxes and has 25% equity present. I'll do a show coming up on all the ways you profit from owning Rental Real Estate, as most people only consider the cash-flow and appreciation - but there are other benefits that can be just as great, if not more so.

As I mentioned in Episode #14, even when I've been required to put in more cash out of pocket at the time of refi, it still turned out to be a great deal. But all of this was to tell you that you need to get an amazing deal if you want to both profit upfront from the deal and protect your Private Lender (the latter being by far the most critical requirement). Because if something goes wrong, such as your getting hit by that bus I mentioned - before the project is done. In a worst case scenario, your Private Lender has the property as their collateral (just as any Bank would) and they can either take over or foreclose on the property and sell it as-is with a Realtor to get their money back - since they're only in for 70% LTV ($140,000 on a house that is potentially worth $200,000). Surely in that scenario, with that spread - they can still come out whole or better.

There would be no shortage of flippers that would be willing to buy this house for $140,000 (or more) if it has an ARV of $200,000 - so your Private Lender is protected in the deal by never lending over 70% of the ARV. If it required more than that amount to complete the rehab, then you must be prepared to fund the shortage out of pocket. So a hard rule of working with Private Lenders should always be that you never allow them to over-fund the deal. Always protect your Private Lenders - but I'll go more into this on another show.

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I'm going to end it here, as I could talk a LOT more on this subject of Where to Get the Money. And just in talking about it up to this point, I've got several more ideas for additional shows on this and related topics. I could easily continue this show with a Part 3, but instead I'll just do new subjects for those additional shows.

I've only scratched the surface of Where To Get The Money. My point for these last two episodes was not to provide an exhaustive list anyway, but more to get you thinking along the lines of using Other Peoples Money in general, so that you'll not just dismiss the thought entirely of becoming a Real Estate Investor just because YOU don't have the money sitting in your bank account - Most investors don't. Real Estate Investing is a Team Sport.

For much more on this topic, please checkout the book from Brandon Turner of BiggerPockets.com called "The Book On Investing In Real Estate With No (and low) Money Down" - which you can find among other great Business and Real Estate books on the Podcast Website: andlandlord.com/books. Chapter 3 on Partnerships and Chapter 6 speak to what I've been saying here about working with Private Lenders. Chapter 5 on Hard Money Lenders and Chapter 4 on Home Equity speaks to what I said about these in Part 1 (Ep. #15). And Chapter 7 talks about Lease-Options, which I'll detail a few Lease-Options deals I've done in a coming episode on that topic. This was one of the first books I read when I started out, so I highly recommend it!

Closing...

Disclaimer...

When a person considers getting into Real Estate Investing, especially Rental Properties, as opposed to flipping - one of the first questions (if the thought is not dismissed before even asking it) is "Where do I get the money?". And unfortunately, most people don't even ask the question. They just make the blanket statement that "I don't have the money" or "I can't afford it" - whether it be out-loud, to someone else or just in their head.

In the book Rich Dad Poor Dad, Robert Kiyosaki mentions that his Rich Dad taught him that poor and middle class people often think in terms of "I can't afford it". While the Rich unleash the most powerful force available to man to solve a problem (their brain) by asking the question "How can I afford it" - thereby presenting a problem to their brain that it must now work to solve. Whereas just saying "I can't afford it" required no further thought on the matter. Your done, game over.

There's a way just about everyone can afford to invest in Real Estate. It may take some time and work, but are you just going to dismiss the thought or ask yourself the question and put your mind to work on a solution?

So today's Podcast is asking the question "How can I afford it". Where To Get The Money to invest in Real Estate!

Intro…

Welcome to Ep. #15 - Where To Get The Money? Using Other Peoples Money (OPM) For Real Estate Investing Success
"If you can't afford to pay cash, you can't afford it." - We've all heard these types of life lessons. I'm a Dave Ramsey listener, and he often advises that Real Estate should only be purchased with ALL CASH.

When I decided to get into Real Estate I had all these thoughts in my head and I had access to approximately $100,000. I could have listened to Dave Ramsey and others who are against any and all forms of debt - and bought one property. Maybe by my second or third year I'd have been up to 2. But instead, I used that $100,000 that was available to me to buy 4 properties within about a year and a half - and still had money left over.

I did this by using Bank loans to get 75% to 80% funding, leaving me to come up with the other 20% to 25% plus closing costs - out of my $100,000. I further funded the rehab of each property using a combination of personal funds and zero percent interest credit card promotions spanning 12 to 18 months (more on using credit cards later).

Now for the debt adverse person who follows the teachings of Dave Ramsey, this certainly sounds insane. And Robert Kiyosaki, his books speak of something he calls Financial IQ, with IQ being a measure of your ability to figure out and solve problems and Financial IQ being a measure of your ability to solve financial or money problems.

And so not to be harsh, but if you have a low Financial IQ and are not willing to do anything to increase it (I suspect you wouldn't be listening to this Podcast if that were you) - but if so, then you should do exactly as Dave Ramsey teaches and avoid all forms of debt and buy everything (including Real Estate) only with 100% cash. Putting money to work for yourself (especially other peoples money) requires a higher Financial IQ.

Now don't get me wrong… Dave Ramsey and his like teach great information (that's why I listen to them) as it relates to MOST things. But they are just flat out WRONG when it comes to Real Estate. And its easily demonstrable that they're wrong.

I shortened the intro to this podcast, as the original was too long, but listen to Episode #1 and I also used the long version in Episode #12 - where it goes on to state the many benefits of Real Estate Investing… Where someone else (the Bank) provided 80% or more of the money. And someone else (the Tenant) pays all the bills.

Real Estate is the only asset that I'm aware of where you can purchase for 20 cents on the dollar, with the other 80 cents being loaned to you at what is currently all-time low interest rates that we have today (and really for more than the last decade), that can be paid back (by your Tenants) over 30 years. You're not even the one who pays back the loan! And over those 30 years, you get positive monthly cash-flow in your pocket month after month, and the asset increases in value on average year over year. Plus you get many different tax benefits of owning the asset.

Why you would let fear of debt prevent you from getting all those benefits is just completely beyond me - so we need to understand that there is a such thing as GOOD debt… Its not all bad. Good debt puts money into your pocket, bad debt takes money out. Good debt increases your wealth, bad debt makes you poorer. Good debt (including the interest) is paid back by someone else, bad debt is paid back by you.

And with this debt, better still, as time goes on and inflation takes place, you are paying back (or actually your tenants are paying back) the money you borrowed today with dollars worth less and less over time. Imagine you borrowed $100,000 (30 years ago), back in 1989 to buy a house worth $125,000 back then. The $100,000 you borrowed back then was able to buy a lot more than that same $100,000 could buy today.

As proof, Search Google for the price of gas in 1989, and you'll see that it had just reached $1.00 per gallon. Here in North Carolina the current price of gas is like $2.55 per gallon 30 years later. So what this means is that you are paying back your loan with progressively weaker dollars than you borrowed, as those dollar buy MUCH LESS today, than they did 30 years ago. Compare the cost of food. I just went to Red Lobster (I love my seasfood) and their Ultimate Feast is now like $29.99; but when I moved to North Carolina back in 1996, it was only $19.99 - for the exact same thing. How much do you think the price of gas and food and everything else will have increased over the next 30 years?

So now I know I'm off topic here going into so much detail on debt (good versus bad) instead of WHERE to get the money, but I'm going into all this to make sure we're on the same page - that borrowing money to buy Real Estate is a GOOD use of debt. Because really, if you disagree with that, then you can stop listening, as you are certain to disagree with all of my suggestions as to where to get the money to invest in Real Estate. Because I'm going to tell you to borrow money (from a variety of sources) so that you can buy today and lock in the buying power of the dollar, but then pay back with weaker dollars from your tenants over as much as 30 years.

Because if you take out a 30 year loan TODAY, and YOUR TENANTS pay it back over the following 30 years, it is almost certain you'll be borrowing much stronger dollars than those being paid back over time. Jason Hartman (a long time Investor and Podcast host with over 1,200 episodes to his credit) calls this "Inflation Induced Debt Destruction".

In other words, inflation works towards your benefit over time, destroying your debt. He even argues that with today's low rates and the many other benefits of owning Rental Real Estate, that you are actually being PAID to borrow the money. So listen to Dave Ramsey if you want to, while I (and others who believe as I do), get rich borrowing money to buy Real Estate at all-time low rates - that is not even paid back by me (my tenants pay it back on my behalf), while I create monthly positive cash-flow and pay no taxes, because of all the tax benefits that Real Estate provides.

So of course I would consider it a financial crime to NOT leverage the benefit of what is essentially FREE MONEY to acquire a cash-flow producing asset that will likely increase in value, and provide tax benefits (why do you think Trump doesn't pay taxes on billions made - he owns Real Estate… don't get mad, get in the game! You can do that also) - it may not be a skyscraper or hotel, but a single family home or two, duplex, triplex or quad will lower (if not eliminate) your Federal and State Taxes. Then if you have a W2 job, everything taken out of your check for taxes is coming back to you - or you can lower your withholding and instantly create a raise for yourself - just by buying a rental property or two. And of course, the more you get, the greater the effect. Especially if you're following the BRRRR method that I detailed in last week's Episode #14, which is Buy, Rehab, Rent, Refinance, Repeat. Because everything you spend on the rehab is a tax deduction.

So this was all just a long-winded way of saying that the all cash (no debt) method of handling finances just does not apply to Real Estate. In fact, with Real Estate its just the opposite. Your returns are maximized by using leverage, which is just another way of saying to use borrowed funds to create a cash-flow producing asset for yourself. So hopefully with any objections to using debt to invest in Real Estate overcome, let's get back to the original question… "Where to get the money." - Hint… It involves using debt.

So Plan-A of "Where to get the money" is always the Bank. That's how I got my first few properties and it works great getting 75% to 80% of your funds from a conventional lender (or Bank), but this assumes you have the other 20% to 25%, plus closing costs, and any needed rehab expense and whatever reserves on hand the Bank wants you to be able to show. It also assumes you have a decent credit. As the bank is likely to want to see a 680 or higher credit score. And if you're 720 or 740 or above, even better to get the best rates. And if you have some credit challenges, I'll be doing a coming episode on how to solve that problem as well.

The Bank method certainly works great if you can continually come up with your share and other portions, but eventually (if you want to keep growing your portfolio), you'll need to move on to other methods of funding your purchases. And even if coming up with your portion is no problem for you, you can only get a certain number of conventional loans (potentially per person if you're a married couple) - before your tapped out of the conventional loan options. I've heard this can be up to 10 or as few as 4 per person at various times - but I'm not sure what the current limit is.

So once that happens (if not before), you have no choice but to pursue other methods. For me, especially since I use the BRRRR method that I discussed last weeks Episode #14 (where extensive rehab may be needed) - my Plan-B (with the Bank being Plan A) was a Harm Money Lender.

A Hard Money Lender offers funding of 75% to as much as 100% of the purchase price for a property, and then up to 100% of the rehab cost as well. But its NOT cheap! Interest rates may be double what you'd pay at a Bank, and points (pre-paid interest) is also likely to be high in the realm of 2 to 4 points (sometimes even higher). This means you could easily end up paying 12% to 16% (or more) for the money, but for the right project it may certainly be worth it.

I believe I paid 11% and 3 points on my first Hard Money Loan, so I was at 14% combined. Now this came down bit by bit upon each subsequent project and now I'm at about 9.5% total on my Hard Money Loans. And the more that I put down, the better rate I get, so I often end up putting down 20%, sometimes even 25% - to get the lowest rate. And while I hate the idea of points, in this scenario I'm often working with a broker, and the points are how he gets paid. Knowing that, the points become less painful when I know that he has gotten me decent funding on multiple projects - including a new build project I'll talk about in a coming episode.

But now, Hard Money Lenders (just like Banks) want you to maintain some level of reserves. And closing costs are often inflated on top of the higher rates and points. They may also have minimum credit score requirements. So you may ask why anyone would want to use a Hard Money Lender. Well, it has to be on the right project. One that has the potential for sufficient profit to make it all worth it. But the main benefit is that a Hard Money lender will lend on a project (providing 100% of the rehab funding) that a Bank would never touch.

Banks want the home to be in near livable condition (only needs new paint, flooring and appliances maybe at most). But a Hard Money Lender will lend on properties with foundation issues and fire damage and so much more. I've gotten funding from a Hard Money Lender where two different Banks had previously refused to lend to other potential buyers of the home, so I got it at a great price - due to the upper level floor being near to collapsing into the lower level at a spot, making the home unsafe to inhabit at the time of purchase (something Banks don't like).

Further, Hard Money Lenders not only tend to be expensive, but it is always short-term funding, so you may have as little as 6 months to repay the loan in full. However, I personally would not accept a loan with a term of less than 13 months. This provides sufficient time to finish the project and refinance into conventional long-term funding after having owned (called seasoning) the property for the sometimes required 12 months to be able to then refinance at 75% of the new appraised value. All of my largest rehab projects were funded by Hard Money Lenders.

And as professional rehab lenders, it's not a bad idea to work with a Hard Money Lender - as its a second set of critical eyes to make sure that your investing in what will become a profitable deal for you. As your experience grows and you take on more complex projects, it's also not a bad idea to have multiple Hard Money Lenders on your team to compete for your business. Just note that even with that, the cost will still be higher than working with a Bank, but they will also open up the door for projects with increased profit potential. But you'll likely still need to have reserves and put some amount (like 20% to 25% of the purchase price). But I'm sure you're thinking that I don't have the 20% down, so Banks and Hard Money lenders are out!

So we've got Banks and Hard Money Lenders covered so far, but both may require you to put 20% or 25% down, plus cover closing costs and show reserves - while having a certain credit score. Now when I started that was not a problem for me, as I mentioned having access to $100,000 and I had pretty good credit. You may therefore think you do not have access to the 20% down or reserves… But you may.

Do you have an existing home with equity present? Maybe you can get a home equity loan (or even better) line of credit. I've used a HELOC multiple times to cover my down payment and/or reserve requirement. Do you have an IRA or 401K? My wife has the military version of a 401K called a TSP for Thrift Savings Plan. Twice I've used her TSP to provide the 20% down because Banks require sourcing of funds, and it was easier to make a TSP withdrawal as the source of the down payment funds, and then pay back that loan with my business funds - then to try to source the business funds directly. Banks won't typically allow down payment funds to come from a business if making a purchase in your personal name, so if you have an alternate source of funding that you can use until the transaction closes, that makes things much easier if you're self-employed and have non-W2 income like me.

And I know when you think OPM (Other Peoples Money) that you are most likely thinking Private Lenders. And sure, that is certainly where we want to get as Real Estate Investors - where we have a number of Private Lenders who stand ready to fund our details (100% purchase and rehab) with low or lower interest rates. But with the possible exception of close friends and family, it is unlikely that a Private Lender will give you a dime until you have a proven track records. I had completed several deals prior to getting my first Private Lender funding in place. Just know that OPM means ANY money leveraged to take down a deal from any source. Banks, Hard Money Lenders, HELOC, IRA/401K/TSP, and even cash value life insurance and credit cards are all forms of Other Peoples Money.

The thing you must get out of your head is that being a Real Estate Investor requires YOU to have money. It Doesn't! You see, if you want to buy $100,000 of previous metals, such as Gold, you need to have $100,000. No one is going to loan you any money to buy Gold. If you want to buy $100,000 in Stocks (unless you already own a sufficient amount of stocks that you can margin / barrow against), you need to have $100,000. No one is going to loan you any money to buy stocks unless you already own a great amount in stocks. But Real Estate is the only asset (like I said before) where you can borrow 80 cents for every dollar. So you can buy that $100,000 house with $20,000 ($25,000 counting typical costs). And I think we can all agree that it's a lot easier to figure out how to come up with $20,000 or $25,000 than it is to get $100,000. And nothing says your first house has to be that expensive. My first rental property was about $61,000 and I had to come up with $18,000 to take it down.

And I hear you - "well I don't have $18,000"… Well I didn't either when I first started talking about owning Rental Properties and being a Landlord like 20 years ago. But how are you ever going to have it - 1, 2, 3, 5 or even 10 years from now, if you do not start planning for it and taking action to that end - NOW? Hopefully you won't waste something like 15 years thinking about it like I did before I finally decided to take action. But at least I wasn't sitting around doing nothing all those years. I was already self-employed and was building my Web Hosting business, ViUX Systems, which you can find online at ViUX.com. But I wish that I had gotten started with Real Estate Investing sooner.

Now before I move on to focus on Private Lenders, let me say a bit on using credit cards for Real Estate Investing. Its risky… It dangerous… So don't just jump right out there and try this method. You need to have a HIGH Financial IQ to make it work. I have every major card you can think of, and my balance sits at ZERO for most of them, most of the time. But that fact causes them to send me 0% promotional offers all the time, in an effort to get me to use the card. Many times, it is completely FREE MONEY for 12 or even 18 months. I've had some offers go 24 or 36 months occasionally.

But sometimes there is an upfront "Convenience Fee" of 3% or maybe 5%. But even with that… 3% or 5% is not a lot to pay for access to large sums of money that are then being put to work to earn 30% or even 50% or more on a project. And since I often have to show cash reserves on-hand when working with Banks and Hard Money Lenders, using money from credit cards allows my money to remain idle in my accounts as reserves. I've even taken money from a card at 3% and then loaned it out at 12% to another investor. Why not make 9% on OPM? This is putting Other Peoples Money to work for you by profiting on the arbitrage between rates. Its what Banks do every day. It is what Hard Money Lenders do.

But of course Dave Ramsey is going to tell you to RUN AWAY from this idea and anyone suggesting it. And I would tell you the same if you don't now what you're doing and don't have the Financial IQ to pull it off. I would also tell you its stupid to jump out of a plane, but I'm likely to go skydiving at some point in my life with a professional as my guide who does it successfully every day.

If you're not over extending yourself and have the money to pay it off, then using credit cards to partially fund your projects and rehabs can be a way of increasing your profits and accelerating your Real Estate Investing growth. Further, as you complete each deal and pay off the cards, your limits will increase, interest rates will reduce (but sometimes only upon request) and the promotional offers will become better. Using your cards can have a short-term hit on your credit score as you are carrying larger balances that are near to or at your limit for that card; however, in the long-term the benefit should be overall positive to your score as your overall limits increase and percentages of utilization decreases as you move into using other forms of OPM, like Private Lenders.

One additional benefit of using credit cards (especially if you have a business like I do) is to run all your household and business expenses through one or more points credit cards. I put just about everything on my AMEX card, and I stack points each month. As a result, most of my travel is completely FREE (paid for with points). I'll eventually do a show just on this topic, called Credit Card Hacking.

OK, I've got much more to say on this topic of Where to get the money, but due to length, I'm actually going to end this episode here, and make this Part 1 of 2. I'll continue in Part 2 next week starting with and focusing on where you really want to get as a Real Estate Investor, and that's having your deals 100% funded by a network of Private Lenders. That's when you'll often get the best terms, lowest rates, low to no points and funding of 100% of both the purchase price and your rehab budget.

Real Estate Investing really becomes fun when you have Private Lenders, but it is also when you REALLY need to know exactly what you're doing, as now you have someone's hard earn money directly on the line. You don't want to be the person who loses someone's life savings - so in the next show (Part 2) - I'll not only speak about how to find and work with Private Lenders, but how to protect their money from loss and create a situation where you're doing deal after deal with the same lenders over and over again - as you make money for your investors and build a rental empire for yourself.

BRRRR - Buy, Rehab, Rent, Refinance, Repeat... The letter B for Buy, followed by 4 R's for Rehab, Rent, Refinance and Repeat. This is the investment strategy I've used for ALL of my properties. Although some rehabs have been relatively lite (only a few thousand dollars required), compared to others being nearly and even over 6 figures - they all required some amount of rehab to make rental ready. I think the BRRRR method of Rental Real Estate Investing is by far the best method to make money and grow wealth with Real Estate... Let's talk about WHY!

Intro...

“Now, one thing I tell everyone is learn about real estate. Repeat after me: real estate provides the highest returns, the greatest values and the least risk.” – Armstrong Williams

Welcome to Episode #14 - BRRRR Might Be The Best Method Of Building Your Rental Property Empire

So let's talk about BRRRR... First, I think the general agreement is that this term of BRRRR (again, meaning Buy, Rehab, Rent, Refinance, Repeat) - was coined by Brandon Turner of BiggerPockets.com. They've even released a book on it recently (that I have), but I've yet to read.

Before getting into Real Estate in 2015, I had talked about it for years - and it was always in the context of being a Landlord. So I never caught the flipping bug by watching too much HGTV. It never really made sense to me why I'd want to do all the work to find a good house to rehab at a decent price, and then take on all the risk of the project with the singular viable exit of selling - and then end up having to pay taxes on any profit (assuming there even is any). Then at the end of each project you have nothing lasting to show for all the risk and effort but possibly some cash that quickly disappears for things you won't even remember a few months later. After each project you're starting all over from zero, so you have essentially created a never ending job for yourself... No Thanks!

Instead, I got into Real Estate Investing to own Rental Properties. And I immediately found that the best deals are on distressed properties. You see if a house is in pristine / move-in ready condition, then absolutely anyone can buy that home. It's therefore almost certain to go for maximum retail price in just about every Real Estate market. Someone is going to buy that home to live in it themselves. As anyone seeking to buy that home as an Investment Rental Property (and if they buy it at full retail price), they're almost certain to have negative cash-flow.

What you need is a distressed property. A house that has a problem you can solve. You want the house that needs new flooring, paint, has a bad smell, needs new appliances, new HVAC, roof, gutters - or you can go big with foundation issues and fire damage (although I wouldn't recommend you start there). I estimated my first property needed $3,000 in rehab and it actually cost me $9,000, but knowing what I know now, I could have gotten it done for six.

Once you find that distressed property and take it down for a price that fully takes into account the rehab that it requires - the BUY in BRRRR. Now the rehab begins - the first R. At this point you haven't made any money. In fact your likely in for 20% down, closing costs, holding costs, and the cost of the rehab - although I often fund my rehabs in full or in part with zero interest credit card promotions (I LOVE FREE MONEY). But once you have the rehab done and the property is ready to rent (you should actually have the home listed for rent and start showings during the rehab to have a tenant ready to go as soon as the rehab is completed). But once it is completed - now its time to start getting paid.

You collect the security deposit and first month's rent, and now that the property has a tenant present, you can begin the refi process (in some cases). You see, there's an ugly thing related to refi called "seasoning". Depending on the refi lender's policies and how you funded the purchase, you may be in the unfortunate situation of needing to have owned the property for some number of months (like 12) - before being able to refi at 75% of appraised value. And you very much WANT to be able to refi at 75% of appraised value. You don't want money being locked in the property that you can't get at because of this technicality. Otherwise, you may be limited to only being able to refi up to the purchase price plus rehab cost of the project - having no association to what the property is now actually worth.

You see the best execution of a BRRRR deal is where you buy a distressed property for like $70,000 and put in something like another $25,000 into the rehab with maybe $5,000 in closing and holding costs throughout the project - so you're $100,000 all in. But then it appraises for $160,000 and you're able to refi at 75% of that ($120,000), thereby putting $20,000 of profit in your pocket - TAX FREE! But unlike the flippers, you still own the property with $40,000 of equity present, and hopefully you have it rented for something like $1,300/mo - and so you are pulling in a couple of few hundred dollars per month in positive cash-flow after paying the mortgage, any HOA (if there is one) and holding reverses for Vacancy, Repairs & Maintenance, CapEx and Property Management. And at some point your reserves may become high enough to cut them back a bit, increasing your cash-flow further - especially if you did a great tenant proof rehab and selected your tenant well.

So now you're making an additional few thousand per year from rent - maybe even more if you manage the property yourself, or have it rented for a higher amount, or if you've got great low interest financing. And you've got $40,000 in equity present, meaning your net worth has increased by that amount! But best of all, you've got ALL your money back out of the property, PLUS $20,000 in profit - TAX FREE! This means your Return on Investment (ROI) is effectively infinite, as you've got no money left in the deal - everything you make is FREE MONEY created out of thin air. And your $20K is TAX FREE; whereas there are scenarios where the flippers may end up paying as much as 50% or more of their profit in taxes - again, NO THANKS!

Now as stated, this is sort of a best case scenario, so you can be forgiven for thinking that this won't be your outcome. But I've had BRRRR deals that went even better than this. And the opposite is also true for me, where I've had BRRRR deals that it turned out I had bought too high, the rehab went over budget, and it rented for $100/mo less than expected. And then to add insult to injury (or in this case it may be better stated as injury to insult) - it appraised for far less than expected, so I ended up having to put in MORE money (another $9,000) at the refi closing instead of getting a nice profit check.

But the so called bad BRRRR deals like that are why I love the BRRRR method so much. Because even on that deal, I was eventually able to raise the rent and it never was a negative cash-flow situation before that. The value is now where I had expected it to be the year prior. The ROI I'm getting on the money still invested in the property (even after having to put in more money) is decent. And if I wanted to refi or sell this property now, I'd get that profit I had been expecting the prior year. And if I did sell, because I've now owned the property for over a year, my taxes would be greatly reduced. But this is one of my best single family homes in an area with new construction all around - so the longer I hold it, the better deal it becomes.

Now it generates great cash-flow, and it seems targeted to go up in value like 5% per year (at least for the next few) due to the location and activity all around. But I got great tax benefits from the rehab expense and depreciation. The mortgage is being paid down by my tenant, as despite having to put more cash in, I got a great rate on the refi. And I could refi this property again at any time and get more than the $20,000 I had originally expected to net the year before. As I'm also now much better at getting the appraisal I had expected - a lessen learned on comps. So I love BRRRR - as the good deals are sooo good, but even the bad deals seem to turn out good with a little time.

But now the asterisks on this "bad" deal example is that I had selected my location very well. I bought too high (I should have gotten the property for less), I underestimated the rehab cost (which is also why I should have gotten the property for less), over-estimated rents (even though I got their eventually), and I considered the comps wrong thereby missing my appraisal target. That's 4 mistakes. Had I made a 5th mistake by doing all of this on a property in the wrong location, I guess it would have truly turned out to be a bad deal then. The location and the market saved me.

But then it was the location and the market that made me willing to pay what I paid and made me think it would immediately rent for more, as well as what made me think I'd get a higher appraisal. I saw all the new construction around and saw what those homes were being listed for (smaller than my home and with fewer bedrooms), so naturally mine would be worth more. What I failed to consider is that those homes had not yet SOLD for those listed prices and that concessions were being offered by the developer on those that had sold to get the houses to start moving. So I jumped the gun on my assessment. But less than a year later with the comps now present and the market still on an up swing, I was where I expected to be the prior year. It turned out to be a good BRRRR deal, despite my errors. This means that as long as you don't make certain mistakes on things that cannot be fixed, like location - its hard to lose long-term with the BRRRR method.

And that's what its all about for me... long-term. I'm not a flipper because I'm trying to grow a Real Estate portfolio of a large number of cash-flow positive rental properties. And I've found the BRRRR method to be the best way of accomplishing that goal. Buy a distressed property that no one else wants (other than maybe another investor) - but that is in the right location. Rehab that property to be tenant proof, worth full value of other homes in the area. Rent it out to a great long-term tenant who will treat the home with care (admittedly sometimes a challenge). And then refinance that property, pulling out as much of your invested cash as you can (hopefully all of it, plus a nice profit). And then repeat this process until you have 10, then 100 and then shoot for 1000 - cash-flow positive rental properties, that will eventually be paid in full by your TENANTS! You are only limited by the systems you put in place to automate things and the drive you have to create a rental property empire that will provide for your needs for the rest of your life. And give you a legacy to pass down to those you love.

I'm all about BRRRR... And once your skills improve, you can take on the really challenging projects (also the most profitable) like those with foundation issues, fire damage or the dreaded black mold. In a coming episode I'll discuss the many problems I've encountered and those you might encounter in Real Estate Investing and talk about how to overcome them. As a Real Estate Investor, you're basically just a problem solver - and so your profit will be directly proportional to the level of problems you're able to solve.

One of my best BRRRR deals had both foundation and fire damage. It was a duplex I purchased for $85,000 and then put another $90,000 into the rehab - so I was all in for $183,000, including about $8,000 in closing and holding costs. The project was funded by a Hard Money Lender, so they provided 80% of the $85,000 purchase price and 100% of the $90,000 rehab expense. This means that I was out of pocket about $25,000 personally. And after getting the rehab completed and tenants in place, at the time of refi, this duplex appraised for $305,000 - so I took out a loan for just 70% of this, at $213,000. That means I got ALL my money ($25,000) back out of the property - PLUS an additional $30,000 in TAX FREE PROFIT! And I still own this duplex that now generates $2,500/mo in rents to pay my $1,700/mo mortgage, which includes the escrow for taxes and insurance. So prior to accounting for reserves, I'm getting $800/mo in positive cash-flow, which is an additional $9,600 per year on top of the $30,000 I already made.

And with $90,000 going into the rehab, not much is needed in the way of repairs & maintenance or CapEx and it is unlikely to be vacant, plus I manage it myself - so reserves needed are pretty low (but I account for them anyway). This duplex is located in Downtown Durham (which is basically gentrification central), with recent, new construction and rehabs all around. So today it would almost certainly appraise for $375,000 (if not more). Between appreciation and the mortgage pay down that has taken place since the prior refi, this means that I likely have well over $165,000 of equity in this duplex. I could sell it and 1031 into something else, or depending on what the rents would support and resulting debt coverage ratio - I could refinance it again, pulling out even more cash. It is even likely that I'd get a better rate today than before.

So these are the types of BRRRR deals that I seek, and this specific property sat for weeks before I noticed it, because others were apparently scared off by the fire damage and 2 inch cracks in the slab foundation. But my experience level and increased problem solving ability from prior projects allowed me to take on this challenge and solve that problem resulting in great profit for myself. Again, in Real Estate Investing, your profit will be proportional to the level of problems you're able to solve.

Every rental property I own had some problem that needed to be solved. Some were as minor as cleaning and carpet or maybe painting all handled for a few thousands dollars. Others required 6 figure rehabs. For example, in a coming episode I'll tell you about an unfinished duplex I bought that required around $150,000 in rehab. And again, it was one of my most profitable deals that's actually still paying off (more on that in a coming episode).

But now there is certainly a place for turn-key investing, where as the name would imply, it requires nothing to be rental ready other than turning the key. But that also means someone else has likely already taken the profit off the table that is possible from a BRRRR deal - which makes perfect sense, because they solved the problem for that property - not you.

So I'll end it here... But I'll certainly talk more about the BRRRR method of Real Estate Investing. Go to andLandlord.com/books to find a link to where you can buy the BRRRR Book from BiggerPockets. I'll also talk more about problem solving in Real Estate, while also mentioning some of my better and worse deals. But if their is a house you've seen for months or even years in your area that is obviously vacant and distressed - find out who owns it. Get in touch with them and see if they'd like to sell it. If you can get a distressed property under contract to purchase at a price that fully takes into account its current condition and it is located in the right area - you've got the makings of an amazing BRRRR deal at your fingertips. And it sounds cliche, but getting the money is the easy part once you've got a great opportunity under contract. When that happens and you need some direction, BiggerPockets.com is a great place to seek advice, and you can even call me - I'm always happy to be of aid to someone trying to succeed in Real Estate Investing.

… and Landlord! Rental Real Estate Investing Podcast – ​Ep. #13 | Avoid Becoming A DIY Landlord!

So in the Summer of 2016, around the time I was working on my 4th rental property, I went out and bought a very nice Ford F-150 and organized all my tools on the truck so that I could handle just about any household maintenance or repair task that could come up. The truck, the tools and YouTube was all I needed to take on any handyman challenge, and it didn’t hurt that I’m a pretty handy guy to begin with. So we’ve all heard the staying, “If you want something done right, do it yourself” – and I was headed full speed down that path of becoming a “Do It Yourself” Landlord… You should avoid that!

Intro…

Welcome to Ep. #13 | Avoid Becoming a DIY (Do It Yourself) Landlord

Now that I’ve started off speaking about buying my truck, let me go on a brief tangent… I had needed a truck anyway, plus I wanted to advertise my business on the truck, as somehow wrapped cars or magnetic signs on cars just don’t look as appropriate as on a truck. But advertising my business is perfect on the truck, especially a blue truck advertising a business named Blue Chariot. You’d think I named Blue Chariot after my truck, but that’s not actually the case even though it fits perfectly.

With that connection it just made sense that my truck should be blue. Otherwise, as with almost every other vehicle I’ve owned, if not for that association with Blue Chariot, my truck would certainly be black, gray or white. But for this singular reason, this is the only blue vehicle I’ve ever owned. It’s a 2013 Ford F-150, as I’ve not bought a new vehicle since my red 1990 Geo Storm back when I was 18. So don’t buy new vehicles. Instead, get a late module used vehicle that’s fully equipped and has every accessory that is known to that vehicle with low mileage. And speak with a CPA before making a vehicle purchase for your business to find out how best to proceed in making it a tax advantaged purchase. My truck essentially ended up being almost free to me.

But now back to the subject at hand… Avoid Becoming a “Do It Yourself” Landlord. With my truck in place and tools on-board, I started out doing work myself on each newly acquired property… number 5, 6 and 7. And I also quickly found myself showing up at occupied units whenever a tenant reported a leak under the sink or a garbage disposal jam. But I shocked myself out of the DIY phase in a “what the hell are you doing” moment, of finding myself using an auger to clear a toilet clog. It was the last time I did any such task at a rental unit.

Shortly after that event, one Friday afternoon another tenant reported their toilet would not stop running, and thankfully for me, they also reported water leaking from the base of the toilet where it meets the floor and a loose tub faucet. If they had only reported that the toilet would not stop running, I could have easily fixed that on my own, and so no doubt I would have stopped by the following Monday morning to handle it myself. I tended to do work on weekday mornings most often, and the tenant would be at work, so I could complete the task at hand without the tenant standing over my shoulder.

But in this case, because they had also reported a leak from the toilet, I didn’t want it to wait until Monday to stop by. And I had previously cracked a toilet by tightening it too much, so I started searching for a plumber and came across Jordan Plumbing owned by a Mr. Jeffrey Jordan. He came by the next morning, met me at the property and fixed all 3 issues – only charging me for two. Yes, it was more expensive than if I had handled it myself, but it was nice to have avoided the need to do so.

A couple of months later, I was on a cruise (walking through the streets of Old San Juan Puerto Rico) when the same tenant called to report another plumbing issue (unrelated to the prior issues), so I gave the tenant the number for Jordan Plumbing and said to call them to schedule a service visit. Mr. Jordan’s office manager called me back like 30 minutes later, as I was still walking through the streets of San Juan before going back to the ship – as they wanted to confirm that I wanted them to come out and handle the service on behalf of the tenant. I told them to please handle whatever was at issue, but I would not be able to pay them until I return home a week later. Despite that, they did the work and when I returned I paid the bill just as I said I would.

But I was now hooked on being able to have things done on my behalf when I was unable (or unwilling) to do so myself. And had I not used this plumber’s services previously (having met him face to face), its possible that he may not have been willing to do work for me based upon a promise to pay a week later. This event of being able to get a tenant issue handled the same day while I’m more than 1,400 miles (over water) away from home – changed my entire outlook on being a “Do It Myself” Landlord. I started purposely building my team immediately upon coming home from that cruise.

A critical member of my team is still Jordan Plumbing, who now has my AMEX card on file and is able to do work for me as needed, and then just charge it to my card on file. I’ve also updated my lease to make it clear that I am NOT responsible for any tenant caused or influenced plumbing issues. So now short of a burst pipe or roots in the line, I charge just about all plumbing bills back to the tenant (within reason – I try not to be to harsh on that). And they sign off on this handling more than once in my lease to avoid any claim to the contrary. It is also now covered in my lease that tenants must be available to schedule and meet with all vendors (like Jordan Plumbing) to allow them entry and access as needed to handle the task. And missing a scheduled appointment incurs a rescheduling fee. This frees me from having to meet the vendor at the property as before.

For years since then, Jordan Plumbing (and other vendors) have handled most of the tasks on my behalf that I previously had to setup and handle myself as a DIY Landlord. In addition to my plumber, I have two HVAC vendors (one is an individual and the other a company). I have two handymen on-call who between the two of them can handle just about any household task. I also have a person for landscaping and lawn-care, an electrician, 3 general contractors – and several other special purpose vendors and individuals. I’ve got someone for flooring, and counters, and shower tile and backsplashes, fireplaces, decks, vents, doors, and more – you name it.

At this point with the size and qualify of my team, I rarely need to do anything myself, although the DIY habits are hard to break once you’ve started down that path, so I still occasionally choose to handle a thing or two myself. Most often it is for newly acquired properties (I don’t remember the last time I did work at an occupied property other than conducting inspections). But for new and vacant properties, I occasionally still prefer to handle certain things myself. For example, I like putting up blinds, while listening to some audio book. Its fun, keeps me mobile and provides a little exercise. Plus, I can knock out an entire house of blinds in under 3 hours; where it often seems to take others twice as long and its not always with the same quality of install that’s up to my standards.

But because I both enjoy installing blinds and I’m pretty good at it, I have taken this onto myself most of the time. And while I still take on certain additional tasks for newly acquired and vacant properties (because I can and enjoy doing so), once a tenant is present, I’ve build my team to get myself out of the DIY Landlord model. And even for the vacant properties, I still limit my tasks to those I actually WANT to do – and all else is outsourced now to a team member.

Do you really want to be the Landlord clearing toilet clogs? Yes, I know you don’t want to be paying something like $300 for a plumber to clear a toilet clog, but this is an easily manageable situation. First, whenever I do need the services of a plumber, I’m paying on my AMEX card, which (from this and all other activity) racks up enough points that all my travels have been FREE going back years. And with a few changes to your lease and some tenant training – you can make it clear to your tenant that THEY are responsible for handling their own toilet clogs (in my case after the first 2 weeks of occupancy).

So you lay out in your lease exactly what is expected of the tenant for handling certain matters of maintenance and repair on their own – whether it be something they do themselves or they hire someone and pay them directly for handling it on their behalf. But the important thing to communicate, to make it very clear, that every repair and maintenance action is NOT my sole responsibility (your responsibility) as the Landlord to handle on the tenant’s behalf. If they want or expect that, then they should not rent one of my single family homes. Instead, they should rent within a larger apartment complex with on-site maintenance staff. Maybe in that scenario they can call for someone to replace a blown light-bulb on their behalf – but in a single family house, I can’t be expected to run all over town for every little thing. Nor can I be expected to send someone out at a cost of like $30 to me, when all that was needed for example – was to turn a screw a few times to stop a toilet from running. You have to make it absolutely crystal clear to the tenant they THEY are responsible for handling their own toilet clogs and other items of minor maintenance and repair. And at the same time you provide details on how to avoid such issues to begin with. I even provide a high-quality plunger in a nice enclosure with each rental now. So that they can easily handle any toilet clogs on their own with the plunger that I left for them. I also make it clear that NOTHING goes into the toilet other than body waste and toilet paper. And even the amount of paper used per flush needs to be limited. And also, there is no such thing as a “flushable wipe” – that’s just some marketing BS.

And when despite these efforts a plumbing concern is still reported, I remind that we do not cover tenant caused plumbing faults, so the issue is likely best self-handled. But I add that I’m happy to put the tenant in touch with my plumber and they can schedule a time for him to come out. But they will be billed for the service call in full unless if determined in the plumber’s sole opinion the issue was not due to any tenant cause. As such, most tenant’s choose to handle the matter on their own. But those who do still seek to have my plumber come out, most of the cases get billed back to the tenant – and they pay with the following month’s rent. Or in a few cases, if it was a non-tenant caused fault then we will cover it in full, because that then is our responsibility to make sure everything works properly in the home. But the most important thing is that this handling has kept me away from tenant toilets for years – which is well worth every penny I’ve paid to a plumber.

And then even when I do have to pay for repairs, I just divide my total repair expenses for a given property by 12 to come up with an approximate monthly cost. And if it’s reasonable to do so based upon current market rents for a location, this will be the partial basis for the needed rent increase at lease renewal. Therefore a lower (or no) rent increase becomes the reward for tenants who either handled their own repairs (as stipulated in the lease) or who took great care of the home so as not to require repairs in the first place. And then the tenant who breaks and damages things all the time ends up paying for it one way or the other. They either pay directly or indirectly – but either way, they do pay for it. Now this may sound harsh, but beyond normal wear-and-tear and maintenance that all homes needs – most issues are the result of how the home is treated by the tenant. And like I said before, if they wanted everything to be handled by the Landlord, then apartment life is the way to go where there’s on site maintenance staff. But the benefits of living in a single family home, even if its a Townhouse or Condo, has certain responsibilities that come along with those benefits. Namely, that you are in part responsible for maintaining the home and there’s certain repair and maintenance tasks that your’re going to have to do on your own.

I’m not running all over town every time the slightest little thing happens, nor am I paying somebody $25, $30, $40, $50 – just to come out and tighten a loose screw. Or swap out a light-bulb, or any of the things that you could reasonably handle on your own.

A perfect example is a home I rehabbed prior to tenant occupancy, including a complete servicing of all pipes and plumbing and a new sewer pump (as this property was below street level, so the waste has to be pumped up to the street). It ended up with a very expensive plumbing bill resulting from over 25 pounds of grease needing to be cleaned out of the pipes and sewer pump. I’m certainly not handling that myself, nor should I have to pay for it, when it was the tenant who poured hot grease down her sink – apparently not realizing that hot grease cools and solidifies. You need a plumber on your team so that this sort of thing never becomes your task to handle, and language in your lease so that it is clear who pays in such cases.

But not just plumbing… Post occupancy, you don’t want to be DIY Landlording anything. Sure, if you’re like me you like to do a little work (hopefully very little) during the rehab or make-ready phase of a newly acquired or newly vacant property. But once you have a tenant in place – I’ve got tenants who have not seen me through multiple visits by other members of my team. And if not for inspections, they wouldn’t have seen me in years. And I’m training someone to handle inspections for me as well.

I will soon get to the point where I am not seen at all. Eventually I wont be handling showings, lease signings or other tenant on-boarding actions. I already don’t handle any maintenance or repair tasks. And I soon won’t need to handle inspections either. I will be completely ghost in the entire process, which will allow me to replicate the system and have rental properties in multiple markets – for which my goal is to operate in at lease 3, but not more than 6 markets.

But right now my properties are all within a 20 minute drive, so I initially got pulled into the “Do It Yourself” Landlord trap. Thankfully I caught myself before getting pulled in too deep. I only cleared one toilet clog before I wondered out-loud, what the hell was I doing. Sure, “if you want something done right, do it yourself” – but clearing toilet clogs? Was that really something I should be doing myself because no one else would do it right? Was that really the best use of my time? It certainly wasn’t something I enjoyed doing – so why was I doing it!?

When you get a chance, lookup Pareto’s Principle (aka “The 80/20 Rule”). It’s a principle that suggests 80% of your results will come from 20% of your actions. I first heard this concept when listening to another Podcast, and I’ve since encountered it in many times. And then I’ve read books like The 4-Hour Workweek and The One Thing, that taught me my time is best spent identifying and focusing on that 20% from which the 80% of my results will come. And for the life of me, I cannot think of what positive result comes from me clearing toilet clogs – so I will NEVER do so again. Nor will I be painting, or staining decks or replacing rotted wood on decks or patching holes in drywall. You name it, if the property is occupied, I will have someone else do that work on my behalf. And if vacant, I will only do those tasks that I am very good at, enjoy doing and get a little exercise in the process – like putting up blinds. I’ve also been known to replace kitchen and bath faucets or install a dishwasher – because I can easily do so, and because it just seems wrong to pay someone something like $179 to do something like install a dishwasher, which I can do myself in like 45 minutes – while listening to an audio book that I would likely be listening to anyway.

But if the dishwasher in an occupied rental and it has an issue, I’ll just call the plumber and have them handle it. Or, most of my appliances are still under warranty, so depending on the exact issue, I may call the manufacture to put in a warranty repair request, and then have the tenant call the actual service provider to schedule the repair visit – so that I’m not in the middle of any of that.

Now an extension of the 80/20 Rule as it relates to the statement “if you want something done right, do it yourself” – is that if you can get someone else to do the job 80% as well as you would have done it yourself, then its worth that 20% shortfall from your own perfection to free your time to be perfect on a greater task. Can you pay someone $25/hr to handle something on your behalf while you go out to do something that earns $250/hr? Or would you be willing to pay someone $50/hr to free your time to pursue $500, or $5,000 – or $50,000!?

As you grow your number of properties and seek to expand into other markets outside of your back yard, you must remove yourself from tasks that someone else can easily handle on your behalf. But with that said, I’m glad to have done certain things myself at lease initially, because now I know what is involved and how long it should take. So now if someone tells me it took them 12 hours to install blinds, I can ask “why did it take you 4 times as long as I could have done the same thing myself? Which I have done in a quarter of that time – multiple times!” – Knowing what’s involved in a task and approximately how long it should take is a good piece of information to possess.

One of the best things about removing myself from the DIY Landlord role, is that I’m perceived by my tenants as a real business person. I think it would have been hard for a tenant to take me seriously if they had just seen me working on their toilet. But knowing that we have real maintenance people who are going to come out and take action upon a reported issue helps to keep everything professional. For example, I require all communication to be in written form (email / ticket or occasionally a text message). The tenant knows that my maintenance person cannot speak on my behalf outside of the scope of the work order that they are there to handle. And if they are having 2 issues that need action, they need to open two tickets so that two separate work orders can be created. Even if the maintenance person is at their home when they report something else, my maintenance person will tell them they need to open a second ticket about that second matter.

But if I were to show up myself, they would expect to be able to engage me in all sorts of off topic discussions unrelated to the reported matter for which I came to address. And knowing that I’m the Landlord, they would expect any conversation with me to be “official”. And now I have no record of this conversation that took place, and I don’t know who said what 6 months from now. I’m not going to remember that conversation. So I make everything a matter of written record. And I try to show up as little as possible, but even when I am in person, I let them know…  Hey, anything you talk to me about, you’re going to have to open a ticket about it anyway, so you might as well just go ahead and open the ticket to begin with. That extra separation makes it easier to keep things professional, as I know the plumber cannot give them permission to paint a room – and if they wish to make that request of me, it must be done in a ticket. They can’t just see me and like “Oh, I had wanted to ask you something… ” – No! And something about that extra step just seems to make most requests go away (or in other words – to never be made at all). My volume of requests and tasks went down significantly when I stopped showing up… Out of sight, out of mind.

But when I made myself available in person – it was one thing after another. Something about seeing me in person makes everything you can imagine come to mind to ask. But the best part about me as the Landlord not being there in person is that the tenant seems to be themselves when the maintenance person shows up or when the plumber stops by. But when I’m there, I get their fake representative. If they have someone living in the home, like a new boyfriend – they make no attempt to hide it from my plumber. If they smoke cigarettes (or other substances), they will do it right in front of my lawn-care person or my handyman… Never realizing that I direct these representatives of my business to specifically look and check for certain things on my behalf – whenever they’re at one of my properties doing work. And I’ll wait a reasonable amount of time before sending the lease violation notice that came from the report I got from that person. Whether it be the plumber or the HVAC person or whoever it was at the property on my behalf. But if I had shown up myself to handle whatever the issue was, the violation (the problem behavior) would have certainly been hidden from me. Because I wouldn’t see the real behavior, because as the Landlord I only get the fake representative.

Well, as usual, I could go on and on, but I’ll cut it here as I think you get the point. So if you’re a Landlord and you want something done right, hire someone to do it on your behalf; and spend your time finding more properties. Don’t get pulled into the DIY (Do It Yourself) Landlord trap, as it will limit the growth and success of your business. Don’t be afraid to pay a professional or somehow experienced in a task to handle certain matters on your behalf. And then whenever possible, pay them with a points credit card, so that you get not only the tax deduct-ability of the business expense, but also the points and resulting free travel that can be generated from it. And I’ll have a future episode on what many call Credit Card Hacking or Travel Hacking.

And also don’t be afraid to pay a bonus here and there to a service professional who has really gone above and beyond for you. When you call your plumber and he fits you into his already fully booked schedule that day. Make sure that you recognize that type of treatment and do likewise. And refer those people out. Don’t think that if you refer them out to others that they then won’t be available for you. if that’s the case, they probably weren’t going to be the best long-term vendor for you in the first place. Because I know that the vendors that I work with, they appreciate the fact that I refer them out. When I call and I have an issue, it really doesn’t matter if their schedule is full, they’re going to work me in. If not that day, then the very first of the next day.

So again, your time as a Landlord is best spent analyzing deals, making offers and securing funds to buy more properties… If instead you’re working on toilets, wash your hands, then slap yourself in the face – because you need to snap yourself out of the DIY Landlord trap your in.

And don’t forget, that if you have properties are in the Raleigh / Durham area of North Carolina, you can hire me and Blue Chariot Management to handle everything on your behalf – because I know the team I’ve built here in the Triangle area of North Carolina has everything covered.

Outro…

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