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BP Podcast 048: Duplex Investing, Finding Great Properties, and Tips for Managing Tenants with Darren Sager

by Brandon Turner on December 12, 2013 · 60 comments

  
Darren Sager

On today’s episode of the BiggerPockets Podcast, we talk with real estate investor Darren Sager about his fascinating business model involving buy and hold real estate, live-in flips, and managing properties with minimal hassle.

This show is crammed full of awesome, actionable ideas, tips, and lessons – so don’t miss a second of it!

Listen to The Show on iTunes

Click here to listen on iTunes.

Listen to the Podcast Here

In This Show, We Cover:BiggerPockets Podcast _ Real Estate Investing and Wealth Building 9.42.11 AM

  • The college professional who got Darren started
  • When to use the 1% rule
  • How Darren bought his first property for almost nothing down
  • The $400,000 live-in flip
  • The #1 most important characteristic Darren looks for in properties
  • The secret to renting property to people with children
  • How to save thousands of dollars using YouTube.
  • And a whole lot more

Links from the Show

Books Mentioned in the Show

 Tweetable Topics

“If a deal doesn’t at least meet the 1% rule – run away.” (Tweet This!)

“It may be cliche, but when buying real estate… location is everything.” (Tweet This!)

“The worse condition a property is in, the more I’ll love it!” (Tweet This!)

“The most successful people are those who failed the most.” (Tweet This!)

Connect with Darren

Darren’s BiggerPockets Profile

Email *
  



{ 60 comments… read them below or add one }

Bobby December 12, 2013 at 5:25 am

Great podcast!
I really wish I would have been able to hear about the flooring back in April, as I had to pick a normal vinyl and then had to call the contractor several times to to fix the vinyl flooring they put in for me.

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Joshua Dorkin December 12, 2013 at 11:28 am

Thanks for listening, Bobby!

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Paul Crowson December 12, 2013 at 9:20 am

the question about what do you do if a tenant dies while leasing to you….
in my standard texas trec lease I use it gives the landlord 1st access to the property, it is a blank space on the lease that calls for a person to be named in charge of the estate within the address/property….and I always write my name in there …and my tenants haven’t ever had a problem with it…but i haven’t ever had to deal with it in actuality…

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James Pratt December 12, 2013 at 1:44 pm

EXCELLENT!! Very down to earth kind of guy. Great job.

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Darren Sager December 13, 2013 at 6:59 am

Thanks James!

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Curt Smith December 12, 2013 at 2:51 pm

In Atlanta few rentals get marketed on MLS, 99% are via craigslist which works great. For apartment buildings, some of them have 3rd party marketing websites. SFRs are all on craigslist.

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Lior Solomon December 12, 2013 at 6:10 pm

I’m a new investor looking for his first deal and have been working with Darren for the past 2 months.

The amount of confidence that Darren brought to my life is invaluable!
I had the “pleasure” working with other real estate agents before I met Darren (the first great outcome of using biggerpockets forums). The fact Darren is an investor opens up a world of opportunities for me as a junior investor.

a. He would hook me up with his contractors and any professional assistance required.
b. Visiting a property with him will point out easily the cons and pros of the property from an investor point of view(a lot of other realtors lack of this valuable knowledge)
c. Always available for questions (trust me I have a lot of them as a newbie :)
d. And to the most important point, he is an awesome guy to hang out with!

I hope that we will nail at least one deal by the end of the year.

Great job Darren!

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Darren Sager December 13, 2013 at 6:40 am

Thank you Lior for the kind words and I feel the same way. Its a pleasure to be working with you and Jamie. I’m sure we’ll get many deals done so no worries!

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Tom Sylvester December 12, 2013 at 6:17 pm

Great cast Darren. Even though I invest in rrrrrrual markets, our businesses sound similar. Love the focus on “tenant proofing” the property. That is a key focus that we strive for.

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Darren Sager December 13, 2013 at 6:37 am

Thanks Tom! I enjoyed your Podcast as well! It was the reason why I said that I wrote down the word rural to see if I could get Brandon going on it. We both have strategies that are working and its great. It’d be good to catch up more with you.

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Ben Kanevsky December 12, 2013 at 7:57 pm

You mentioned about tenants paying for their own home warranty. Do you roll it into the rent or is that something separate they put in their own name? How do you word it in the lease?

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Darren Sager December 13, 2013 at 6:34 am

Hello Ben. I literally have it worded into the lease that its a requirement of the lease. Its gotten so common here in our area now if you list a property for rent even within the MLS system there’s now a check box for if repair insurance is required as part of the lease agreement. As for the wording in the lease itself it goes something along the lines of:

“Tenant is required to pay for 24 hour a day PSE&G service plan which covers the repairs on the boiler, washer, dryer, gas range, hot water heater, dishwasher, wall oven, etc”

If they don’t pay and I have to cover it its considered additional rent of which they’re responsible for. Its not a lot of money. I think around $30 a unit. For that its worth the price of never getting a phone call in the middle of the night that the heat is off. And it helps you run a more efficient business.

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Travis Nance December 12, 2013 at 10:18 pm

Thank you Darren! And Josh and Brandon too. This was a great Interview, and I got a ton of great info out of it. I am looking to follow a similar strategy as Darren’s; buy and hold forever. The rent increase on that first property was unreal. I’m sure the increased value of the property has made it very tempting to sell, but he’s not giving up that golden goose, or changing strategy. I’m curious though, what ever happened to the care-free Professor? Did he sail off into the sunset?
And do you factor economies of scale when calculating properties/numbers? In expensive markets does the 1% rule ALWAYS apply? At what rent roll over the PITI would you feel comfortable even if it didn’t reach 1%?
Travis

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Darren Sager December 13, 2013 at 6:58 am

Thank you Travis for the nice words. The rent increase that we were able to achieve there has been incredible. As for Peter, he’s still teaching because he wants to. He’s well liked by the students and has positively influenced a number of them who’ve passed through his door. As for deals we look at each one individually and it must stand on its own. The 1% rule was what Peter instilled in me as a benchmark and I still use it today. Are there properties that will be considered that don’t meet the 1% rule based upon asking price? Yes, however it doesn’t mean we’re going to pay the ask on it. Other things to take into consideration are what expenses you’ll have on the property after PITI. If you’re not having to pay for any utilities that increases your bottom line. We always look for ways to make tenants pay directly for all their personal use of any utility. Condition on the property matters as well. If we don’t have to do anything to it other then routine maintenance for at least 5-7 years and the tenant pays for all direct expenses the 1% rule can work on higher priced properties. Am I going to drop below the 1% rule? Nope. Never had. If I did I’d be acting emotionally on a purchase and it would mean I wasn’t investing properly.

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alex anderson December 13, 2013 at 4:05 pm

I see some rentals on MLS every once in a while in Milwaukee, but it’s only like 2 out of like 163 results in a particular zip code lol.

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R Jenkins December 13, 2013 at 6:06 pm

alex anderson -> to my knowledge : agents were able to list rentals on mls the start of 2013

A lot of agent have not yet used this tool, but give it a few years.

Milwaukee County currently has 31 rentals active on mls.
Waukesha County currently has 14 rentals active on mls.
Racine County currently has 6 rentals active on mls.
Kenosha currently has 20 rentals active on mls.
Ozaukee County currently has 7 rentals active on mls.
Dane County currently has Zero rentals active on mls.
Sheboygan currently has rentals Zero active on mls.

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Greg Jackson December 14, 2013 at 12:06 pm

Another great podcast packed w/ useful information. Thanks guys!

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Darren Sager December 16, 2013 at 3:25 pm

Thanks Greg! Glad you enjoyed it!

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Darren December 14, 2013 at 1:32 pm

I am wondering.

How do you insure they renter gets the home repair insurance?

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Darren Sager December 15, 2013 at 6:14 am

Great question Darren. First off again we do our best to have the tenant understand and agree to what they’re responsible for and what we’re responsible for before they sign the lease. The point about the repair insurance is covered multiple times along with the fact in general they’re also responsible for the first $150 of any repair. Its explained to them as its really beneficial to them. Having someone on call 24 hours a day to make sure if anything happens they have a team of people ready to make sure they’re not without heat or any appliance is very nice. And when they know that its a direct call so response time is much faster most like it. Ahead of moving in we provide a sheet of information of what they’ll need to do before the date to make sure they’ll have all their utilities and garbage service. On the list again is what they need to do regarding setting up the repair service. Lastly we follow up to make sure its been done a month after they move in.

If for some reason they don’t do it the lease says that if they don’t they’re solely responsible for all the repairs and replacement of those items. If we (as landlord) decide to step in and pay it its considered additional rent of which they’re responsible for. If they don’t pay it then there’s steps to all the additional costs that they’ll pay regarding legal fees to enforce the agreement and again they agree to it ahead of time.

Find a responsible tenant and from the get go it won’t be an issue. If they complain about something like this from the start then again its a barrier to entry if they don’t want to pay it. It amounts to 1% of the total rent they’re paying on average so its not big ticket item.

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Julie December 15, 2013 at 1:43 pm

Very valuable podcast and worth a listen if you are a buy and hold investor! Tips on materials, leases, and several books. I, too, don’t have goals of being a billionaire, just to live comfortably and travel. =) Thanks Darren for sharing your experiences.

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Brandon Turner December 16, 2013 at 12:40 am

Thanks for listening Julie!

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Darren Sager December 16, 2013 at 3:26 pm

You’re very welcome Julie! I’m glad you found the podcast beneficial.

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Shaun December 15, 2013 at 2:58 pm

Listening to it right now and pretty interesting so far.

Wanted to tell Josh and Brandon that the Tweetable Topics don’t seem to be working. They are just opening another copy of this show notes page for me.

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Brandon Turner December 16, 2013 at 12:41 am

Thanks Shaun, and I guess that makes sense now why I’ve seen no Tweets! I’ll fix that ASAP. :) Thank you!

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Shaun December 16, 2013 at 1:06 pm

FYI Seems to be working now.

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Shayne December 16, 2013 at 5:25 pm

Is there anyway I can get a copy of your 20 page lease?

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Darren Sager December 17, 2013 at 1:26 pm

I’m working on making it available!

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Julie December 18, 2013 at 12:27 pm

Yes, I would be interested, too!!

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Lora Hish January 13, 2014 at 2:54 pm

Yes! I was wondering the same; would love a copy! Thank you! Or if this is already available, can you let me know where? Thanks!

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Shayne December 16, 2013 at 5:33 pm

I really enjoyed this podcast, great information. I am looking to start this type of business in more rural Central PA, but the communities are great and the people are pretty handy. It might work to model my lease after Darrens.

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Darren Sager December 20, 2013 at 10:48 am

Thanks Shayne! Glad you enjoyed it!

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Shayne December 20, 2013 at 11:05 am

Lease! Lease! Lease! Lease!

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Darren Sager December 20, 2013 at 11:10 am

After the holidays I’ll make it available to all!

melodee lucido December 17, 2013 at 12:14 am

Darren, You are not just a landlord >>> you are an ARTIST!!! I am so wowed by this podcast I’m going to listen again when I can jot down some of the golden nuggets.

Josh & Brandon, GREAT questions. This is one of my very favorites.

BP . . . bringing class to the industry. Thanks so much.

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Darren Sager December 17, 2013 at 1:30 pm

Thanks Melodee very much! I’m glad you were able to get some “nuggets” out of it. That’s how I’ve felt about listening to the other podcasts when I heard something good.

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Nate Green December 17, 2013 at 5:21 pm

Darren,

Thank you for being on the show. It was so good that I have listened to it three times already. You provided a lot of great information, especially for me as I am planning on investing in small multi-families after I have a little more hands-on experience.

Thanks again,
Nate

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Darren Sager December 18, 2013 at 6:13 am

Thanks Nate very much. I’ve found myself listening to a number of the podcasts multiple times because they’re so full of great information you can’t absorb it in one pass. Happy to hear this one was that way for you!

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Craig M December 18, 2013 at 7:20 pm

Darren-

Bottom line is….you are the Man!
Amazing Podcast. Homerun.
I had never heard of Triple Net Leases prior to the show…Now I am doing some investigating and they look like something I would love to get into (some years down the road after all our SFR are paid off). Can you suggest any websites?

Again, podcast was a blast!
Craig

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Joshua Dorkin December 18, 2013 at 9:53 pm

Craig –
Our last show, BiggerPockets Podcast 047 with Joel Owens was all about Triple Net Leases. Check it out!

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Seth Williams December 20, 2013 at 10:32 am

Great interview Darren! I appreciated hearing your perspective on duplex investing (it’s an area I’ve been trying to pursue as well). Your humility was refreshing as well. Thanks for sharing your wisdom with the BP community.

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Darren Sager December 20, 2013 at 11:00 am

Thanks Seth very much! I enjoyed your Podcast as well! One point that I brought up was the fact of the more time I’ve spent on BP that its showed me how little I know. Your Podcast showed an aspect of investing I’d never considered but it gave yet another example of how to be successful at REI if you commit to something. Keep it up!

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gerald harris December 25, 2013 at 11:12 pm

Great Podcast
I have a duplex right now that i am trying to wholesale, instead i may look to buy it. Great information, thank you

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Darren Sager December 26, 2013 at 6:59 am

Thanks Gerald very much. Hopefully its in a great location that will produce for you your entire lifetime!

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Sharon Tzib January 10, 2014 at 10:04 am

Great info, Darren. Curious, why only duplexes and not tri or 4 plexes too?

Also, do you have any referrals for durable and reasonably priced carpet products?

Brandon or Darren, when you refer to the 3X income requirement, are you guys talking gross or net income? I’m assuming net, but wanted to make sure.

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Brandon Turner January 10, 2014 at 10:07 am

I do gross income, though I might change that to Net on my lower income tenants. 3x gross when you are only making $1200 per month gross ($800 net) on a $400 apartment doesn’t quite cut it.

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Shaun January 10, 2014 at 11:08 am

I’d think it would be more of a pain then it’d be worth to net it out.
Maybe say that for rents less than $500 (or whatever makes sense) you require 4x gross income.

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Sharon Tzib January 10, 2014 at 12:16 pm

I’m not concerned about determining what the net is because it’s already calculated on their pay stub, which they submit with the application. I have always done net because I want to know how much “actual” money they have every month to pay their rent, other bills, etc. If someone makes $2800 gross, but then has deductions for health insurance, 401K contribution, perhaps a child support wage garnishment, that gross amount that looked good at first blush may not be looking so great any more. But I was curious what others do, since I rarely hear it clarified. Thanks for the feedback guys!

Shaun January 10, 2014 at 12:50 pm

That’s not really Net though, you could say that is their “take home” pay.
That would only capture things they have taken directly out of their check. That won’t tell you if they have a car payment, how much their cell phone plan is, how many credit cards they have and what the payments are or any other recurring obligation they are paying. You’d have to dig thought the credit report to put that information together.

Even for some of the stuff you mentioned if they work for a place with out a 401k and they fund an IRA you’d miss that. If they pay child support or alimony but they aren’t a jerk that tried to get out of it that won’t be on there. And you might not be able to figure any of that out without them volunteering the information.

Not saying it isn’t a good idea to look at all that kind of stuff, just that it is way too much work for a basic screening tool.

Darren Sager January 10, 2014 at 3:07 pm

Hello Sharyn! For me it was a means to avoid rent control and that reason alone. Two family homes were considered “mom and pop” businesses and not necessarily for large landlords. I didn’t want to deal with the local municipalities dictating how much I could raise rent and actually depress the book value of my rental property because their monthly rate were below market value.

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Sharon Tzib January 10, 2014 at 1:12 pm

Why can’t I say net pay? I want to know what they take home after their taxes, insurance, 401K, and any other miscellaneous items are deducted. All their other obligations, like a car payment, etc. are on the application to help give me an idea if the applicant indeed has the necessary funds to easily meet rent every month, and yes, I do use their credit report as a back up to make sure they’ve left nothing major out.

Having said that, every landlord can use whatever criteria they want and account for as many of the potential tenant’s expenditures as need be so that they are comfortable with the tenant’s ability to pay. You may rely solely on the 3X gross rule. I’m not comfortable doing that, and don’t feel it is a lot of work at all to dig deeper, and quite frankly, any more I have my property manager do that anyway (but I used to do it myself).

However, what prompted my initial question and what we are talking about here is a pre-screening tool that is advertised in the listing. If I say “tenants must make 3X the rent in gross income” and when I see their paycheck they have a bunch of deductions, because I’ve said gross, I couldn’t legally turn them down for not making enough. Perhaps in the ads one doesn’t specify at all?

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Armaity January 17, 2014 at 3:24 pm

Great Podcast! Was inspired to take notes throughout. Thoroughly enjoyed it, Thanks Darren, Josh and Brandon :)

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Darren Sager January 17, 2014 at 3:32 pm

Thanks very much for the kind words Armaity!

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Michael February 4, 2014 at 9:54 am

Darren, great podcast! What part of the New York market are you in?

Thanks, Michael

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Darren Sager February 4, 2014 at 11:05 am

Thanks Mike very much. Glad you enjoyed it! I’m in the Northern NJ market and soon to be in the five boroughs of NYC.

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Michael February 4, 2014 at 1:00 pm

That is awesome Darren. I am in the NYC area as well and I love your investing model!

Do you attend any REIA events in the NY area?

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Darren Sager February 4, 2014 at 1:17 pm

Hello Mike. Thanks again. We’re going to have another meetup looks like March 11 for members of BP. Look me up on the main site and send me a colleague request.

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Dan Ryu March 5, 2014 at 5:11 am

Great info.
Judging from all the comments, I’m not the only one who found it helpful!

I’m looking to invest and hearing what you said made me think that working with a RE agent that understands investor would be really key.

I hope you don’t mind I’m going to send you a colleague request to ask you some questions about investing in your area.

Thanks!

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Darren Sager March 5, 2014 at 6:20 am

Thanks Dan very much! Glad you enjoyed the Podcast!

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Keith Ghion March 15, 2014 at 11:49 am

Fantastic podcast Darren. Glad you pointed out that I missed it, well worth the listen and probably re-listen a few times!

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