BiggerPockets

A Landlord's Role in the Journey to Community Revitalization

Sunday, June 09

 

You may be like me and feel more comfortable checking a map before setting off to a new destination. And if you are wired that way, then I want you to take a

 

 

look at my map of the community revitalization process. It shows there are four stages along the path: Safety, New Norms, Lag, and Catalyzed.

 

Once you understand what stage a neighborhood is in, you'll be able to deploy the most relevant tactics to move it forward.

 

Now just like the volunteers that work a water station during a marathon race, landlords can play a vital role in helping a neighborhood move forward.

 

The people in the Safety Stage are dealing with violence, robberies, and petty crime. There are typically more renters in the neighborhood than owners, so by default landlords have a tremendous amount of influence. Landlord can move the neighborhood forward by supporting and encouraging basic neighborhood crime watch activities that have been effective for over 40 years.

 

It's not rocket science - neighborhoods in this stage need leadership. Landlords have the power to keep the neighborhood from going around in circles; and exercising a little leadership can have a huge impact.  It's fundamental, there are higher property values in safer neighborhoods.

 

The landlord that creates safety also creates equity

The next stage has to do with helping residents take on New Norms. It's the time for breaking down the street culture that prevents people from cooperating and replacing it with a sense of neighborliness and concern for each other.

 

Again landlords can encourage this by sponsoring block parties, street fairs, National Night Out activities or supporting after school programs, scouting troops, and other groups that strengthen the neighborhood.

 

Like any business...

 

Landlords should donate to the community surrounding their rentals

The Lag Stage follow New Norms. This stage is when things are running smoothly, but only the area's insiders know it. Outsiders still know the neighborhood by it's old reputation and old perceptions must be addressed before the community can improve it's popularity.

 

In the Lag Stage, landlords should play the role of public relation agents. They should share good news with the local press and promote the area's success story to outsiders.

 

Landlords are really promoting the area to their future tenants and buyers. That's just smart business right? The marketing effort should flow out of an investor's self-interest if nothing else. But if you don't know you're in the Lag Stage, you may not think to do this.

 

Anyway, the last stage, the Catalyzed Stage is a fun time for everyone. You'll see newspaper headlines that read like this. The area will be back in demand and will attract new investments and interest. Soon new business will come and people will understand the financial benefits of being associated with the area. Their self-interest will drive future improvements.

 

Landlords don't need to do anything in this stage. They can sell their properties as demand grows or sit back and enjoy the benefits of their work.

 

Community Revitalization the Catalytic Landlord Way

Does this type of real estate investing sound exciting to you? Do you see how you can grow equity assisting a neighborhood that shows promise? If so, leave a comment; tell me what you're going to do and where you plan to do it.

 

DIY - The IOU Mortgage

Saturday, June 01

After my BP Podcast interview, I receive several inquiries about how I pulled together a multi-investor mortgage partnership to buy a single family rental. Well I don’t know if I did everything perfectly, but the process worked for me and my investors has been happy since 2006.

Here are the steps I took:

1. 1.      Sent out a one page letter to friends about pooling our long term money to form a mortgage partnership (letters of intent).

2.  
4. 2.      Got an unsecured loan to supplement my down payment and bought a rental house free and clear in my name. I am the owner.

5.  

1. 3.      Created a general partnership and prepared 10 partnership agreements that spelled out the terms (monthly payment, conditions, buy out, future potential, etc.). This matched conditions from my letter of intent. I am the general partner. Other investors are limited partners.

2.  
4. 4.      Filed a lien against the property for loan amount in the name of the general partnership.

5.  
7. 5.      Collected money from limited partners and paid off unsecured loan. Now I make a monthly interest-only mortgage payment to the general partnership’s bank account which makes monthly distributions (online bill pay) to limited partners.

8.  
10. 6.      Each year, I send out a homemade Schedule K-1 to all the partners. It’s a one-page spreadsheet that lists all partners’ names, addresses, original investments, and annual interest received.

11.  

My goal is to put together a step-by-step guide. So please leave a comment, I'll be happy to attach examples and answer your questions. And for you experts out there, please tell me what I should have done better.  Thanks

The Biggest Expense Loser - We Have a Winner

Saturday, April 27

Deborah B. is the first winner in the $100 Expense Reduction Challenge. Here's the link the my original post announcing the challenge.

 

Deborah B. now holds the title of Biggest Expense Loser! She did it by fine-tuning her insurance policies then converting them from Replacement Cost Value (RCV) to Actual Cash Value (ACV). The cost-cutting scheme saved her over $200 per month ($25 per property)!!!

 

This concept of RCV vs. ACV was new to me. I had to have several people explain it to me several different ways before I could really grasp it. Here’s how Deborah B. explained it:

 

Deborah B. owns inexpensive rentals in Oklahoma's “tornado alley.” She doesn't plan to rebuild if disaster strikes. She just wants enough money to pay for clean up and recover her intial down payment.

Shifting Her Thinking
Since she wasn't planning on replacing her buildings, there was no need to pay for "replacement" insurance. So she converted all her insurance policies to ACV. So now if there was a catastrophic event, her insurance carrier would cut her a check in the amount needed to replace her rentals (RCV) less her deductible and less the depreciation.

 

Here's the equation: ACV = RCV - deductable - depreciation

 

This will likely not be enough to rebuild, but Deborah doesn't care. She just wants the ability to recoup her original down payment investment (in addition to the insurance check, Deborah B.might need to sell the land to fully recoop her intial investment).

 

Congratulation Deborah! We're emailing you get a $25 Home Depot gift card!

AN INTERVIEW FROM THE WINNER'S CIRCLE
Deborah B. was kind enough to answer some interview questions. Here is what she said:

 

When did you start landlording?

I started in 2002

 

What city and state are your rentals located?

In the Oklahoma City Metro/Oklahoma

 

What types of rentals do you like owning?

Single Family Houses

 

What is the #1 challenge of owning those types of rentals and how do you mitigate the challenge? 

Families are vulnerable to economic changes, we mitigate by extensive tenant screening and being supportive when families face sudden changes.

 

How did you come up with the idea to slim down the replacement values in your insurance policy to find savings?

Oklahoma has been experiencing unusually severe hail for a few years. Even on replacement value policies, roof deductibles were climbing so we did a risk:benefit analysis and came down on the side of ACV policies

 

How much will you save per month per property?

We actually raised the value of a few properties so the number is a bit blurry but in the neighborhood of $25 per mo per property

 

Any advice for other landlords who are considering taking the $100 Expense Reduction Challenge?

Your initial question on Bigger Pockets challenged me to quit thinking about it and DO something.  I'm certain that every landlord has some small opportunity they haven't made the time to capitalize on.

 

Clever Maintenance Tips from BP Members

Thursday, March 14

A lot of great ideas were suggested during my $100 Expense Reduction Challenge. Some suggestions were more maintenance related and not equity boosters, so I decided to create this list just for maintenance ideas. I'll continue to update this post as more ideas are discovered.

 

Please leave a comment and tell me what I missed:

 

1. Triple check for leaks.

 

2. Make sure trees don't rub roof.

 

3. Install heavy duty door stops.

 

4. Use orange peel wall texture to hide flaws.

 

5. Check AC condensate lines.

 

6. Consider a DIY lock rekeying system.

 

7. Buy tenant a plunger.

 

8. Allow pets if you have old carpet instead of replacing carpet.

 

9. If you have a honey bee infestation, DON'T hire an exterminator, find a local beekeeper to remove them at NO CHARGE.

 

10. Check with your city to see what services they provide at no charge. Get the most from your tax dollars.

 

11. Clean and inspect gutters for separations at the seams as well as overall integrity.

 

12. Every five or so years, and after a major hail storm, have a trusted roofer come out and inspect the roof for damage such as nail pops or rotting wood.

 

13. Flush water heaters annually.

 

14. Keep all wood on the exterior of the home painted. 

 

15. Make sure the dirt around your foundation properly slopes away from the foundation and not towards it.  Make sure water drains away from the home and not into a basement or crawl space.

 

 

16. Check all windows and doors for gaps and seal them with a weather proof sealant to prevent water penetration. 

 

17.  Keep an eye of the base of your trees. Any trees that are rotted at the bottom need to be removed before they fall on your house or a neighbor’s house.

 

18. Monitor your roof for damaged or missing shingles. 

 

19. Inspect and clean wood buring chimney once a year. 

 

20. Have the heating and air conditioning system cleaned and inspected at least once a year for safety reasons. 

 

21. Use your crawl space to check under building to monitor the walls and the plumbing for signs of leaks. If this area has standing water in it, do not enter it.

 

22. Test ground fault circuit interrupters (GFCIs) in monthly.

$100 Expense Reduction Challenge

Wednesday, March 13

Hopefully you've decided to join other BP members and the LeadingLandlord.com community in trying to reduce your expense by $100 per month per rental property. I'm offering a $20 Home Depot gift card to the first 10 people who can produce documentation of their $100 savings.

 

Here's a list of the ideas and suggestions you might try. Remember the goal is to a) deliberately create savings, and b) boost your NOI by reducing expenses.

 

If you're looking for great maintenance tips, check out https://www.biggerpockets.com/blogs/2997/blog_posts/26883-clever-maintenance-tips-from-bp-members .

 

1. Install a faucet aerator - This device takes 1 minute to install, costs less than $4, and can easily save $100 in water and water heating expenses.

 

2. Challenge your property taxes - Nice article by Ken Corsini discusses why it's profitable to appeal your property taxes.

 

3. Trim your insurance premiums -There is a lot you can do to reduce landlord insurance premiums. Don't accept them as fixed expenses.

 

4. Install an on-site key box to help locked out tenants - When a tenant gets locked out, I simply tell them the code and they let themselves in - putting the key back afterwards. I then change the code after every use. This tip has saved me hours hassle.

 

5. Cut Your Phone Bill - Switch to a Wi-Fi based voice-over-internet phone (VOIP)

 

6. Install an artificial lawn and save money on your water bill and lawn maintenance.

 

7. Varnish/paint/refinish hardwood flooring and get rid of carpet and vinyl.

 

8. Install floating vinyl plank flooring instead of carpet or vinyl. It's a DIY project any easy to repair years later.

 

9. Switch out incandescent light bulbs for CFLs or LED bulbs. These bulbs have longer useful lives and use much less energy.

 

10. Reduce lease up time by:

a) Adding one unique feature to capture applicant's imagination.

b) Offer departing tenant $10/showing to keep their place clean and $100 if their unit gets leased before their departure.

 

11. Reduce insurance premiums by modifying policy to cover actual cash values (ACV) instead of replacement values (RV).

 

12. Shelter more cash flow by using a Cost Segregation Study to help you accelerate depreciation for personal assets and catch up on past years.
http://en.wikipedia.org/wiki/Cost_segregation_study

 

13. DIY garbage collection - Supply and maintain your own bin.

 

14. Install a Ratio Utility Billing System (RUBS) that allows you to measure and back bill tenants for their pro rata share of water, gas, electricity, etc.

 

15. Install Solar Panels -

Here are two articles discussing a new initiative from Honda where they are offering a really great deal to customers of new solar installations:

http://www.clarkhoward.com/news/clark-howard/environment-energy/honda-rolls-out-home-solar-installation-initiative/nWsjD/

 

http://www.nytimes.com/2013/02/20/business/honda-to-offer-customers-a-home-solar-system-option.html?_r=0

 

Honda makes very favorable financing available to new installation customers thus making your upfront cost zero or near zero.

 

16. Day Cleaning - Save electricity by having janitorial staff clean during the day. No need to have lights on after work hours.

 

 

17. Heat costs are a big factor. I've eliminated all oil heat, either by selling the properties or converting to natural gas or heat pump. Natural gas here is 60% cheaper than oil, very big savings in the cold Northeast.

 

18. In multi-family buildings I've eliminated common furnaces and boilers, and hot water heaters and have had the tenants pay for there own heat and hot water, mostly by installing new gas equipment and separate meters. 

 

19. In all the multi-unit building I've replaced older 3 & 5 gallon toilets with 1.5 gallon flush toilets, to reduce the amount of water consumed in each building. Savings so far thousands of gallons.

 

 

 

 

Infographic for New Landlords

Friday, January 18

One of the many great things about BP is that you can meet people from all over the world without leaving home. That happened to me as I became intrigued by Shannon Pineau’s BP blog.

Her thoughts about landlording seemed similar to my own. She's brilliant!

Although she's in Canada and I'm in California, we collaborated to produce a quick start infographic for new landlords.

Hope you like it enough to share it!