Real Estate Investing: Preparing for Recession

 

“Where there is no vision, the people perish…”

Proverbs 29:18

 

Well, we started with a Bible verse, so it’s a good time to go into the story of Joseph in the Bible (located in Genesis 41). 

 

To paraphrase, Pharoah, the leader of Egypt, had two dreams that no one could interpret.  His chief cupbearer (and a former jailbird) remembered that he knew a guy in the joint who had (successfully) interpreted dreams for him and his buddy a few years back.  He told Pharoah about this Joseph guy and Pharoah had him sent for. 

 

Joseph said God had revealed both of Pharoah’s dreams to him and they had the same message; Egypt and the surrounding lands would have seven years of incredible plenty followed by seven years of devastating famine.  He advised, “Let the Pharoah look for a discerning and wise man and put him in charge of the land of Egypt.  Let Pharoah appoint commissioners over the land to take a fifth (20%) of the harvest of Egypt during the seven years of abundance… This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt…”

 

He concurs and appoints Joseph to head this newly created post and things go as predicted.  Egypt is the only place that has food when the years of famine come, and Joseph is administering it on Pharoah’s behalf.  The Egyptians and the people of surrounding lands are forced to sell Pharoah all their possessions and land just to get food. 

 

To bring this back into the realm of real estate investing, landlords are clearly in the time of plenty as property values and rental prices have been on a growth curve for the last ten years.  To boot, interest rates have been historically low (and really still are) which allow for low borrowing costs and has made for a robust sales market.  Many landlords have used this as a time to sell some of their “dog” properties, make improvements and raise the rents on their existing properties, buy some new ones, and refinance/eliminate debt.

 

Recently, interest rates have more than doubled and many economists (none with divine inspiration like Joseph to my knowledge…) claim a recession is around the corner.  If that’s true, the housing market could take a sharp correction which could be a great opportunity for prepared investors.

 

I have vague recollections from the last housing correction from 2008-2012.  I did not buy any investment properties then; I was too concentrated on keeping my existing rental homes afloat as rents were low during that time period.  I remember that selling homes was really hard; buyers were scarce!  Many sellers were just giving their houses back to the bank or using “short sales” as the banks would take a loss on part of the loan during the sale.  I remember thinking, “What’s wrong with me?  As a wanna-be real estate investor, how am I not buying homes now?  These houses are going for a steal and they seem to be all over the place!”

 

The thing that was wrong was that I could not get a decent loan and did not have much cash on hand.  So, I needed to sit on the sidelines like most other people until the economic waves grew more favorable.  But the buyers who were prepared got some great deals!

 

The investment challenge now is to be more like Joseph and be prepared for any possible famine while things are favorable.  If the right investment comes along during any upcoming recessionary period, I’d like to be able to snap it up (while simultaneously staying solvent during any prolonged economic slump).  Preparation now can pay huge dividends later.

 

Happy Investing & Landlording!

Extend the Lease AND Sell? That’s Not “The Way”

 

 

 “You can have it all.”

(1980’s Michelob Light Advertising Slogan)

 

I was (attentively) listening to a teacher’s presentation at my children’s school and she referenced the movie, Twister.  I nudged my wife and whispered, “That movie is probably 20 years old now.”  “Yeah, at least…”, she quietly agreed while discreetly double-pointing to the stage to redirect my attention back to (arguably) more important points of the on-going monologue.

 

But it got me thinking about older movies and Road Trip came to mind.  In short, it is about a group of Ithaca College (NY) students racing against time trying to get across the country to the main character’s girlfriend’s dorm in Texas before her mail arrived.  It was going to be close so they needed the quickest route to get there. 

 

There was the route that took all interstates and would definitely be the safest way.  But would it be fast enough?  Preliminary math on the mileage didn’t look promising.  However, there was another path that was more closely aligned with “how the crow flies” that would cut considerable time off of the trip.  It would take them on unproven, side roads.  It was the classic “risk versus reward”. 

 

One of the quotes from the movie that I still remember is from the character, Rubin, when he was defending taking the unproven route:

 

“It’s supposed to be a challenge, it’s a shortcut!  If it were easy, it would just be the way.”

 

The point that I take from this is that if something is straight-forward with the least amount of risk, it is “the way”.  It’s a “best practice”; there is no short-cut needed.  If they could have made it to Texas in plenty of time on the interstates, they would have been cruising in the fast lane there (though it would have made the movie less interesting…).

 

The way may be boring, but it is effective.  And it requires good planning in advance.

 

As a property manager in Charlotte, we ask our owners approximately 75 days prior to lease expiration whether they want us to extend a tenant’s lease and for ideally how long of a time period (one year or multi-year).  If the rental home is being kept as a long term investment, then “the way” is to offer to sign a lease extension for a long period of time.  If the owner wants to sell it in the near future, “the way” would be to sign a shorter-term lease and/or let the current lease expire and go month-to-month until a notice to vacate is needed.

 

In a perfect landlord world, tenants would be in leases all the time (no vacancies!), but landlords could still sell the home and have the tenants vacate when the buyer wanted.  But, alas, the world doesn’t work like that.  We live in a world of tradeoffs.

A lease is legally binding regardless of who owns it.  The main trade-off made with long term leases is that both the tenants and owner are sacrificing flexibility for security.  The tenants now cannot move out (without incurring financial penalty) if Uncle Joe calls in a few months and offers a free house to stay in.  They are stuck in a lease.  And, on the same token, if the owner loses his job and wants to move back into the house, he cannot kick the tenants out and take the house back.  On the plus side, the tenants can feel confident that their kids will be able to go to the same school for the life of the lease.  And the owner can count on monthly rental payments. 

 

There is security for both parties, but not flexibility.

 

You usually can’t have it all, no matter what Michelob Light says.

 

But what if the owner did extend the lease and then decided he wanted to sell the home right away?  We still live in the United States of America and no one can tell someone they can’t sell an asset that they own.  However, when selling, the prospective buyer would be purchasing the home SUBJECT TO the existing lease.  In short, the buyer would be stuck with the tenants at the terms of the lease for its duration.  For investors, that may be acceptable (or preferable!).  For someone who intends to live there, not so much.

 

That’s when Rubin’s “shortcut” would be needed.  And that is when it can be a challenge.  Solutions include trying to find investors to buy the home subject to the lease, letting the tenants out of their lease and encouraging them to find a new house, and/or negotiating a financial settlement to entice the tenants to move.  It can be tricky (and not always successful).

 

However, shortcuts sometime work out.  The Ithaca students were able to get to the incriminating piece of mail before the girlfriend could get to her mailbox.  But it was a stressful “road trip” and success didn’t seem likely during most of it.

 

I don’t know about you, but I generally prefer the calmness of the way; “boring” property management works well for me!  It’s good to make lease extension decisions thoughtfully now to avoid having to take uncertain shortcuts later.

 

Happy Landlording!

Rental Roomies & Higher-End Homes a Win-Win?

 

 

 “Many hands make light work.”

(Old English Proverb)

 

I remember back to my college days in sunny Arizona when I had to figure out where I was going to live my sophomore year.  Most of my friends were thinking of staying in the student housing in the dormitories for Year 2.  I had virtually no experience with rental properties and wasn’t sure what to do.

 

I talked to my Dad about it (I learned early it was always smart to run my plans by my financial backer first).  He didn’t really have any input on where I lived; I was the third child and he was much more pragmatic.  “I’m paying XX dollars for your housing- just let me know in what bank account it should go.  So, in that brief exchange, I had my financial backing and freedom to choose where to live.

 

Some of my friends got similar commitments from their parents and we were house hunting!  Of course we were all-in on finding a house with a pool (common in hot Phoenix) and hot tub (more rare, but not insurmountable).  We found a 4 bedroom house with both, plus lemon and lime trees in the backyard to boot.  It came to $1,200.00/month (which was high back then for Phoenix and definitely over market rate).

 

But… split between 4 guys it was $300.00/month which was a third of my Dad-provided housing budget.  I now had extra funds to play with.  We, as a group, were overpaying, but I was psyched!  I was paying much less than if I was living on my own or with one other roommate.

 

I’m seeing a similar play in the rental market as prices continue to rise.  Some of our higher-end rentals are (smartly) getting taken by groups of young professionals. 

 

First, as a point of reference (according to Rent.com), the average one-bedroom apartment in Charlotte in April 2022 costs $1,513.00/month and the average two-bedroom is $1,730.00/month. 

 

If we chop that into per person, we can calculate roughly $850 - $1,500 per person.  When that is multiplied into a 4 or 5 bedroom home or townhome, you can equate that to a $3,400.00 (low end) to a $7,500.00 (upper end) rent spend- and that’s going off of averages.  Obviously, some people spend more than that on their housing.

 

As good of a strategy it is for tenants to decrease their rental costs, it is also a good one for landlords.  Purchasing lower-priced housing in Charlotte has been very competitive for years, but most investors typically avoid higher-end housing.  However, by buying higher-end housing and marketing to roommate situations, it could allow for good cash flow.  Relatively-speaking, there is just not that much higher-end housing available for rent in the Charlotte market.  Really nice, feature-rich houses could go fast and for top dollar.

 

For now, it’s a good deal for all, much like my college housing.  Tenants get better housing at a lower price and investors get less buying competition and the ability to charge higher rents.  It could be a rare win-win in the current investment housing market.

 

Happy Landlording!

Don’t Ask Me When You Should Buy Real Estate…

 

 

 “Don’t ask the barber whether you need a haircut.”

(Warren Buffett)

 

“Hindsight is 20/20”

(Popular Idiom)

 

When you work in real estate for a living (especially on what could be considered the investment side in property management), you tend to get a lot of “party questions” about buying rental homes.  You hear different versions of this:

 

Oh, you’re in property management?  My cousin owns about 50 rentals in Lincroft, NJ and is making a killing.  He fills them all with Section 8 tenants and just collects the guaranteed money on the first of each month.  Lucky dog!  Is it a good time to start buying properties and get into something like that here in Charlotte?

 

There are different schools of thought on how to answer that question.

 

The first school of thought: YES, YES, & YES!!  You sell and manage rental properties for a living- duh!! 

 

Back in the day, I worked with a woman who would look at me cross-eyed when she saw me show any hesitation when the question of when someone should be buying real estate came up.  To her, the answer was always unequivocally “now!”, followed up with “I’ll pull up some listings that we can go look at!”.  In her book, it was a complete rookie move to even contemplate any different type of answer.  If her kids were going to eat tomorrow, she needed to sell real estate today.  So it was always a good time for anyone to buy real estate (and the more the better!).

 

I laughed at her response and actually thought it was a bit dishonest.  But, if you followed her advice at the time, you would have made an absolute killing.  And her advice is still the same, in case you were wondering.

 

The second school of thought:  I’m not sure… (The “Honest “Approach)

 

A friend of mine recently forwarded me an e-mail from 2018 that we had shared discussing an investment property he was contemplating buying.  I wasn’t sure (at $120K it seemed a bit high for what it was…) so I encouraged him to lowball the offer and ask for some concessions.  Of course, when an offer is bogged down like that, it is typically rejected unless the seller is on the desperate side and low on options.  So my friend did what I suggested and the sale never went through.

 

On top of his recent e-mail was a link showing that the property sold this year for $210K.   So in less than four years, he would have pocketed $90K; that’s not a bad day in the office for the eventual buyer!  But I felt sort of badly that I helped talk my friend out of what turned out to be a great deal.  Fortunately, he is a gracious guy, and hasn’t come over to break my legs (yet…).

 

So, don’t ask me when you should buy real estate!  I want to give you the right answer, I really do.  But timing the market is tough.  I’m not sure if we are on the top of the market (and about to fall of a cliff) or if we are only getting started.

 

However, if you can make the numbers work for immediate cash flow and have plans to hold the real estate long term, it is a good time to buy now (especially in Charlotte!).  I can say that with all honesty while not drawing the ire of my old co-worker.

 

Happy Landlording!

 

Good Landlords & the Golden State Warriors: A Deep (Vendor) Bench Matters

 

 

The Warriors won the NBA title this month in an exciting series versus the Boston Celtics.  Steph Curry, the star of the team (and local Charlotte product!), won NBA Finals MVP and fellow starters Andrew Wiggins and Klay Thompson played well.  But one of the major reasons they were able to pull off a series victory was the play of their bench.  Less heralded Warrior’s players- namely Jordan Poole, Kevin Looney, and Gary Payton, Jr.- gave the team great minutes while the starring players weren’t on the court.  “Strength in Numbers” was the team’s slogan during the regular season and it continued in the playoffs leading to an NBA Championship.

 

This is also applicable for landlords utilizing the vendors they have to do maintenance and repairs on their rental homes.  I got a call last week from someone interested in our property management services.  When asked what prompted the call, she said that her handyman had gone back to the workforce; this left her without anyone she trusted to do the work on her rental home in a timely, well done, and reasonably-priced manner.   I could empathize.

 

When COVID hit, many people who had little time to make home improvements suddenly became very interested in their homes.  Part of it was being home and seeing many of the issues their homes had that they had ignored.   Some of it was just making improvements so they could enjoy their home as they were around much more.  Either way, it led to vendor demand to increase which led to scarcity of vendor availability and price increases.  This hit property managers as well.  The advantage swung to vendors as they had more work than they could handle, putting them in a position to refuse jobs and not call prospective customers back.  This trend continues now.

 

The good news for experienced property managers is that most have a deep bench of vendors.  While we use many of our “stars” regularly to service our homes (and have for years), it is helpful to have a list of secondary vendors who are proven to do good work.  Going to Google as sudden needs arise and hoping that a vendor is going to provide tenants a good experience is not ideal.  It is far better to incorporate new vendors on a regular basis on smaller jobs to ascertain if they meet expectations.  Cultivating a good vendor list is an asset that makes a property manager’s job much easier and keeps owner clients and tenants happy.

 

Though property managers have a built-in advantage of managing large number of homes which can make working with them attractive (repeat business), smaller landlords can also build good vendor lists by:

 

1. Being courteous with vendors and trying to make things easy for them
2. Paying quickly and in full
3. Providing pictures and details upfront of what needs to be done so they can minimize trips and maximize their revenue
4. Working with their schedules and only accelerating issues that are truly time-sensitive
5. Providing referrals to them from friends and family that need similar services
6. Writing 5-Star Google reviews (when warranted)

 

The Warriors would arguably not have gone far in the playoffs and won a championship if they did not allow their bench players to play meaningful minutes and make them feel like a valued part of the team.  Smart landlords should do likewise and use secondary vendors on occasion so they are in the fold and can be utilized when the need arises.

 

Happy Landlording!

As Landlords (Temporarily) Rejoice, Renting Still Has Its Merits

 

“Every cloud has a silver lining” & “The grass is always greener on the other side”

(Popular Axioms)

 

I’m not sure I’ve ever read an article that talked about the “joys of renting.”  I’m sure it exists somewhere.  Maybe it’s because I’m saturated with a bunch of real estate industry communications that always tout “the dream of homeownership” and how everyone should strive for it. I’m bombarded by banter like, “There’s no feeling like stepping over the front door threshold for the first time and knowing that you own the home”*.

 

* As my uncle likes to point out, it must be the warm feeling that comes from knowing that your bank actually owns most of it.

 

The way home prices and rents have shot up, the pro-homeownership articles seem to have a lot of merit!  After sorting through all the mail and texts from investment groups hungry to buy homes, it is sometimes shocking to see what prices they are offering.  It makes me think, “I don’t think I have much money, but these people are telling me I’m sort of rich…”

 

But as a veteran of leaner landlord times when rent barely covered the mortgage (and often went negative when repairs and vacancy happened) and it was hard to sell a house, life wasn’t always so rosy.  I often thought of how renters had it pretty good in many respects:

 

1. No fear of a $10K repair call at any moment
2. If something major breaks, call the landlord and let him deal with it
3. If you want to live somewhere else at any time, just move.  No fuss, no muss.

 

That all holds true today.

 

So, though it seems landlords have a better situation now, things change.  Renting will always have merit and hot markets always turn sour at some point.

 

Homeowners and landlords are able to enjoy current market conditions (and they should!), but renters shouldn’t feel totally left out.  Things always swing back and forth and renters always have some built-in advantages in any market that owners never get to enjoy. 

 

But, for now, landlords should rejoice!

 

(Very) Happy Landlording!

Rental Tenant Interviews: 3 Additional Questions To Ask

 

"Winning is not a sometime thing; it's an all the time thing. You don't win once in a while; you don't do things right once in a while; you do them right all of the time. Winning is a habit. Unfortunately, so is losing.”

Vince Lombardi (former Green Bay Packers Head Coach)

 

With low unemployment numbers, job applicants seem to really have the upper hand in the hiring process now.  The stories are interesting, if not shocking, to someone who remembers pleading for employment back in the day.  I remember it being nerve-wracking going into interviews and then wondering how things went afterwards:

 

Did they like me? 

I might have blown question #3; I hope that doesn’t sink me

How long should I wait to get a call back before following up?

Where’s a stamp to send a “thank you” letter for the interviewer?

My greatest weakness?  Oh, sometimes I just work too long and hard and forget to eat…

 

But now, the onus seems to be on the companies.  They need workers!  They ask:

 

What kind of coffee would you like?  We have lots of different kinds and sweeteners!  Oh, you want Gatorade instead?  No problem!  I like your style already!

When did you say you could start?

Do you prefer a car service to work or did you just want to work from home?

Is this person going to show up or did we get “ghosted” again?

 

Fortunately, for property managers in Charlotte, the advantage is with the landlords (for the time being…).  There are a smaller number of Charlotte-area rental homes available for prospective renters, especially those priced on the lower side.  It is not uncommon to get many rental applications on the first day a rental home comes on the market.  Tenants compete to secure these homes. 

 

But with so many applications, how does one choose a winner?

 

Sticking with the basics is paramount- credit and criminal background checks, landlord history, employment/income verification.  These are the backbone of finding the best candidate.  However, there is often a lot of grey area left after finding out this basic information, especially when several potential renters have very similar background results.  It can be tough to figure out who to approve.

 

So what to do?

 

There’s a common saying in human resources that the job interview begins at first contact; so what has the prospective tenant shown us so far in our dealings?  Here are three questions that may be helpful in further assessing closely qualified candidates:

 

1. Were they on-time (or early!) if we met them at the property?
2. How long did it take for them to provide any documentation we needed to run their application?  Did we need to ask several times?
3. (And what I think is the most telling) Have they been pleasant to interact with?

 

As Coach Lombardi said, “you don’t do things right once in a while; you do them right all the time.”  It’s a habit.  Regular background checks will reveal much of the habits of applicants.  We want tenants with good ones!  And courtesy, responsiveness, and (especially) pleasantness are other habits that are invaluable to landlords. 

 

Happy Landlording!

Still Gotta Buy Cereal… Lease Renewal Discounting Opportunities

 

 Grocery store prices have really gone up!  Whether it’s due to inflation, the war in Ukraine,  gas prices, Will Smith punching Chris Rock at the Oscars, or whatever explanation mega-corporations think the public will best swallow, it’s been sort of shocking how much more things cost percentage-wise. 

 

This leads to an issue in my house.  My son is a picky eater (following the youthful pattern of his old man, unfortunately…); finding things he is willing to eat is difficult.  Fortunately, Honey Nut Cheerios have been on his acceptable list for a while now and are a go-to for at least 1 meal a day.  But prices have gone up and substitute store brands don’t pass muster, so we are in a conundrum.

 

General Mills’ stockholders are pleased as we are forking over a dollar more per box.  I’m somewhat positive their actual increased costs are a fraction of that, but “never let a crisis go to waste” has long been part of good business acumen.  So we grit our teeth and pay it so the young tyke can survive.

 

Tenants are in a similar situation now.  As their existing leases are coming up for renewal, they are finding that the rental prices offered to extend them are much higher than their current rate.  This leads many to quickly try to locate the greener pasture of a cheaper rental home.  But these homes are largely non-existent as most landlords have followed suit and raised their rental home prices as well.  They find the rent they are currently paying is a huge bargain to what their new rate would be, but, unfortunately, also to what other homes are renting for.  What to do?

 

The old answer would be to take this rental market and shove it!  Become a home buyer!  Build wealth!  Get a fixed rate mortgage so that the monthly costs of the home would never go up!  But the only thing harder than the rental market currently is the “for sale” market.  Talk to anyone who has tried to buy a house in the past few years.  Mission (almost) Impossible- and, if successful, you’re not buying a bargain!

 

So, again, what to do?

 

For tenants, it’s a tough situation.  I’d recommend being qualified to purchase and then to scour deals for sale and rent; then look to see and apply/make offers on a lot of houses.  A less stressful strategy would be to just batten down the hatches and wait things out until there is an inevitable housing market downturn.  It’s the “stay put and stay solvent” strategy.

 

But, as a landlord, what is a good strategy on lease renewals?  Landlords are in a good spot in today’s housing environment.  I think there is a temptation to raise the rent to or above market rate to maximize cash flow.  And then hope the tenant stays (and can afford it).

 

However, I’d offer a contrarian strategy of not putting existing tenants over a barrel.  True, it might be difficult for them to find another place to live so there is an inherent advantage that wouldn’t be exercised.  But if they have been good tenants who take care of the house and pay on time, I’d recommend pricing the lease extension rate 5-10% below the prevailing market rate for a vacant rental.

 

But why? 

 

Several reasons:

 

1. Fix-up and vacancy costs will probably push the payback period to over a year.  If the new tenant leaves after their 1-year lease expires, it’s a lot of activity to produce a loss.

 

2. When tenants examine the rental market (and they will!), they will see that the renewal terms are a relatively a good deal and will be more inclined to stay.

 

3. Good tenants are worth their weight in gold!  Continual cash flow from good tenants pays down landlord mortgages and reduces wear on homes.  And call me soft, but good tenants do deserve some type of positive consideration for keeping their part of the lease.  It’s good business.

 

Higher prices are hitting different groups differently, but people still gotta have somewhere to live and afford cereal too.  Housing discounts aren’t as ubiquitous as Cheerios coupons, so use lease renewal discounting as an opportunity to keep good tenants.

 

Happy Landlording!

Rental Tenant Screening: If You Have to Ask… You Shouldn’t

 

 

 “If you have to ask, you can’t afford it.”

JP Morgan

 

I recently had hernia surgery which went fine (thanks for asking!).  It lasted about 45 minutes, was pain-free (while I slept), and the recovery seems to be complete.  The process was smooth.

 

The issues I had were pre-procedure while trying to figure out how much it was going to cost.  I had a choice- I didn’t have to get the surgery per se.  I had some discomfort from time-to-time, but I think I had had the issue for around 25 years and there was no rush.  So I was trying to time it right with my insurance so I could pay the least amount out-of-pocket as possible.  My question was, “If I schedule the surgery next month, what would the approximate cost be?”

 

This was apparently a difficult question.  “Sir, it depends if the anesthesiologist is in-network or out-of-network.”  “Mr. Furniss, it is not the simple.  If the surgeon finds further issues while he’s in your body, it could take longer and cost more.”  I get it.  It’s not an exact science.  But if I ask my plumber how much it costs to fix my garbage disposal, he can give me a ballpark figure on what it usually costs.  I just wanted to know what to expect if the doctor didn’t discover that several of my nearby organs were failing.  You know, garden variety surgery cost figure stuff.  It was a painful process and I never got the answer I was looking for.

 

“If you have to ask, you can’t afford it.”  When the $32K bill came (before insurance), I guess the saying had some merit.

 

I bring up this story because I was thinking of some of the worst tenants we’ve ever had in our 20 years of being in the property management business.  Most of them had some “red flags” on their applications.  When we discussed what we found during our application screening process with the prospective tenants, they explained it in such a way that it was easy to sympathize.  And, usually, the rental house had been on the market for a while and the owner was anxious to get it filled (we were too!).  This led to approving some tenants far in the gray area.

 

These tenant approvals made me nervous in my stomach.  When we met to sign the lease, I found myself asking some variation of the same question:

 

“You’re going to be great tenants, right?”

 

Inevitably, the answer was always the same.  “Oh yeah, we’re going to be the best tenants you ever had!  We’re going to pay on time every month, you’ll see.  When you do your inspections, you’re going to think cleaning and lawn care people live here!  All we were looking for was someone to give us another chance.”

 

And, predictably, they were not the best tenants we ever had.

 

And I started to realize that if I ever felt I had to ask that question, it was the clearest sign that we shouldn’t approve the application.

 

I learned the hard way that JP Morgan was on to something that was applicable in the property management field.  “If you have to ask, you shouldn’t.”

 

Happy Landlording!

Finding Value & Buying Rental Homes on Your Credit Card

Fresh out of college, I was living in New York City and was slinging cell phones by day (they were relatively new back then) and dreaming big dreams at night.  How could I become financially successful like many of the people I was passing on Wall Street everyday?  I wasn’t overly into finance, but started reading a lot of material from the real estate gurus.  Be a millionaire with no money down!  Live off of passive income to live the life you’ve always imagined!  It’s so easy anyone can do it!

 

That sounded right up my alley- easy and something even I could do.  If that mother of 6 in El Paso could be netting $25K month in passive rental income, surely I could do half of that?  I was all-in.  Unfortunately, New York City real estate was prohibitively expensive for me to buy (got $1M to plunk down?), so I wasn’t sure how I would get started. 

 

So I moved to Charlotte and became a full-time Charlotte real estate investor.  The $1M homes were replaced with much more affordable options.  I posted classified ads (“We Buy Homes!”) and tried to follow the guidelines from the infomercials.  I joined an investment club and started getting calls and e-mails for discounted homes to buy.

 

Many of the homes were really cheap, some to the tune of $50K.  The problem was to what to do with them after purchase.  Most people didn’t want to live in them as they were in “war zones”.  I’ve never been a gun guy, but visiting some of these homes made me think hard about my self-protection stance.  I didn’t feel overly safe at many of them and replacing broken windows constantly didn’t seem economically savvy.  So I, and others, passed on buying many of these homes (laughable now, right?) and they languished on the market for months and years.

 

One day, I visited one of these types of homes and was not really interested.  The seller said she was negotiable on price, but I liked being alive and really didn’t want to be involved.  Plus, she said she needed to close really quickly and needed cash, and I didn’t have a ton of cash on hand.  I figured I’d ask what she was looking for before declining.

 

$8K. 

 

Well $8K was in my wheelhouse.  I wrote up the contract and asked the closing attorney if he would take one of my Visa checks that came in the mail earlier that week from my credit card company.  No problem! 

 

Did I want this house?  Not really.  It came with issues.  I had to sink another $20K into it just to make it habitable for a rental.  And the area wasn’t great.  But $8K?  Come on!  I had to do it.

 

I learned that every asset had a price.

 

I got a call recently from a prospective client who asked me if her home had a realistic chance of renting.  It was in a desirable area and she lived there currently, but the kitchen wasn’t redone and it had an older layout.  Did she need to sink $50K-$100K into it before it could go to market?

 

The answer, without even looking at it, was “yes” and “no”.  The real question was how much she wanted to rent it out for.  Would it rent for as much as the remodeled home down the street if it wasn’t renovated?  Probably not.  But depending on the rental price, someone would gladly take it.  There are 66 people on average moving to Charlotte every day who need a place to live!

 

Real estate, like anything, is a value proposition that has a suitable price.  A rental house priced at $3K/month may sit, but at $2K it may fly off the market.  Value is what matters.  Top conditioned homes will rent out the highest, while homes in poorer condition will rent out for less.  The market is relatively efficient. 

 

Happy Landlording!