Danger Will Robinson!

The mister and I married in 1980. We were 19, freshly spit-out by the public school system and totally clueless about the real-life world of household finance. Our parents were lower middle class, Depression-era survivors with a ton of fear about anything deemed risky…and pretty much everything was considered risky.

For the first twenty years of our marriage we lived by the mantra:

• Get educated
• Get a job (preferably with a big corporation)
• Work hard for someone else so you’ll get promoted
• Live within your means
• Buy a house, pay it off and stay put
• Save for retirement.
• And pray Social Security doesn’t fail before you do.

Not So Risky Business: 3/2/1 with garage apartment in a historic district bought with 80/20 financing. Fix-up involved paint, removing old carpet, refinishing the oak floors underneath and installing a new kitchen floor. Total cash out of pocket– 7K (repairs + closing costs). Positive cashflow from Day 1 of $400/month.

True Risk

Starting a business was considered risky. Investing was considered risky. The stock market was gambling and don’t even get me started on real estate investment.

But here’s what I’ve come to understand:

• Education is good, but things change. You can go back to school a dozen times during your working years and never keep up.
• It’s extremely risky to rely on only one source of income, and for that source to be completely outside of your control. Working for someone else means you have no say in your salary, work schedule or rate of increase. If you need more income, you can work more hours, get a second job or hope for a promotion. Of course, that only works as long as your boss doesn’t decide you’re a numbskull that’ll never get a promotion no matter what. Or decides to cut expenses by outsourceing your entire department.
• It’s risky to save for retirement and watch inflation eat up the increase. It’s risky to count on a retirement savings plan you don’t understand in the first place and turn over to someone you’ll never meet, assuming they have your best interests in mind.
• Living within your means is a beautiful concept and highly recommended, but if you never step outside your comfort zone, you’ll never know what your means might become.
• And don’t get me started on Social Security.

Compound Interest

When we finally comprehended the power of compound interest, our way of life changed forever. Over time, I’ve come to understand that compound interest either enslaves people or sets them free. Living on the negative side of the equation makes someone else wealthy. Moving to the positive side builds family wealth and financial freedom. Simple as that.

So why, why, why is this concept so hard to internalize? Probably because most of us were indoctrinated with the dogma that any move from the negative side of the consumer-debt/savings equation to the positive business owner/investor side was just too risky.

How Hard Can it Be?

But how tough is it to save enough every few years for the down payment on a single family home in a nice neighborhood? Income tax refunds, bonuses, automatic savings accounts tend to add up over time with a little effort. And how difficult is it to find a nice person to make those mortgage payments for you? And how hard is it to pocket the majority of that rent once the mortgage is paid off?

And just how many homes could you buy and pay off by retirement-no fancy footwork, no learning tricksy real estate investment schemes–Five? Ten? Fifteen?

If you acquire one rent house every other year between the ages of 25-45, you’ll have 10 houses with 20 years left before retiring to pay off that last mortgage. And if, after expenses, you clear $700 per month per house-how does an extra $7000 a month during retirement sound?

Now that, my friends, is a backup plan. And I can guarantee that during your investment years, with a minimum of effort you can and will learn a few simple ways to make the process faster and easier with less of your own money involved to maximize returns.

And that doesn’t sound the least bit risky to me.

Welcome to Our Blog!
Welcome to the Real Estate Dispatch from BiggerPockets.com. Our blog brings together experts in various fields of real estate with the goal of keeping our readers informed and up to speed. Whether you're a real estate professional (lender, Realtor, banker, etc), investor (landlord, flipper, wholesaler, etc.), or simply a consumer, renter or homeowner interested in the world of real estate, this blog is the place for you to get involved!

You can subscribe to our RSS feed, get blog updates by email, join our free mailing list, or best of all, join our social network along with 25,000 others interested in real estate education, dealmaking, networking, and marketing.

Tags: landlord, Landlord Tenant, Real Estate Investing, real estate investment, rent houses

Simon Lagree Had it All Wrong

Without doubt, being a landlord requires a certain mindset. Before actually owning rent houses, I was certain I didn’t want to participate based on our first experience as tenants. Right after the wedding, the mister and I moved into a lovely little duplex on the edge of town. We stayed 2 ½ years, paid on time each month, never caused damage or broke a single rule. And yet there was no doubt that our landlord was the adversary-he made sure we knew from day one.

When sewage from the entire complex started backing up into our bathroom, his reply was typical of what we’d come to expect. He told us it was a ‘city problem’ over which he had no control. When the excrement seeped through the wall, soaking the living room carpet on a regular basis, he said we’d best get the rent in on time regardless. After 3 months of dookie, we finally left in the middle of a one-year lease. Our loving landlord threatened to sue for the six months remaining and refused to return our deposit.

The Landlord Stinx!

Of course not all landlords are rotten, but enough are that certain stereotypes have grown up around the profession. Just as the words ‘Used Car Salesman’ and ‘IRS Agent’ bring vivid images to mind, landlords suffer from the reputation of being heavy handed, greedy, and suspicious. There’s a certain everyone’s-out-to-get-me mentality that smells up the name.

Unfortunately, sometimes everyone *is* out the get them. Tenants with no respect for private property, governments that assume landlords are milking the poor, state legislatures that want to ensure deadbeat tenants have a place to stay (whether they actually pay rent or not)… no wonder some landlords wind up jaded.

If this were the only way to do business, I’d go back to running likker. But over the years, we’ve found another way… a balancing act of authority and business-like professionalism backed by a well-written lease.

Don’t Smile Until Thanksgiving

I’d like to propose another model based on my first grade teacher back at good ol’ Freeman Elementary, Mrs. Locke. She was ancient–probably all of 30. Her flaming red hair and Yard Stick of Doom had a class of 28 little wildcats quaking in their loafers. She stood over the class, hands on hips and proclaimed her authority with The Look.

She repeated the rules… and repeated the rules… and repeated the rules. And we followed the rules because we respected her. She was not our friend. She was not our pal. She was The Teacher. She could do awful things like send us to the Principal. She could put our desk in the hall where everyone that walked by bore witness to our shame. And if all else failed, the worst punishment of all–The Paddle (which, come to think of, she never actually used.)

Back in the days before smiley-stickers, good teachers knew how to control the classroom without drama. To establish respect, the teacher needed to be seen as an authority figure with actual power. Rules were made, rules were written on the blackboard, rules were obeyed.

Or Else.

So in the same spirit, I present:

A First Grade Teacher’s Rules of Landlording:

• Remember who you are. You own the house. You make the rules. You are The Landlord.
• You are not your tenant’s friend. Don’t pal around with someone you might have to evict.
• Maintain a presence without being oppressive. You either have authority or you don’t. Bluster, swagger and heavy-handed bluff will cause tenants to lose respect (and makes you look silly.)
• The rules are the rules. Repeat the rules, follow the rules, don’t bend the rules-ever. You’ll be sorry.
• Everything needs to be in writing. You can’t send someone to the office without a note and you can’t evict someone without documentation.
• This is a business-act professionally at all times including the way you dress. (Mrs. Locke had the best bouffant hairdo in the whole school…we were very proud.)
• Reward good tenants. You want them to stay, right? Let them know you appreciate the care they give your house.
• Refine your lease as you go. If you find your kiddies are bringing Hot Wheels to class, institute a no-Hot Wheels rule. If you find your tenants park Hot Wheelz on your grass, put a No Hot Wheelz on the Grass clause in future leases.
• Adapt and overcome. Learn from your mistakes. Cut your losses and move on–just don’t make them again.
• Don’t be defined by what you do day-to-day. I ran into Mrs. Locke when I was in nursing school-no missing that red hair. Turns out she had a life outside of first grade. Who knew?
• Remember: People are just people–if they’re honest and trustworthy, they will remain that way once they’re tenants. If they’re liars and cheats they will lie and try to cheat you too-it’s nothing personal.

Which leads to: Nothing is personal. It’s just business.

Random picture of JoJo on the couch that has absolutely nothing to do with landlording.

Tags: landlord, Landlord Tenant, lease, rent houses, renter, tenants

Recently, during a relatively calm and drama-free conversation, daughter #3 (the cheeky one running around the kitchen at this very moment with a doily on her head) asked, “Mom? Now that you’ve plastered your name all over the internet, I guess its okay to tell people we’re landlords, right?

Ignoring for a moment the habit of certain individuals to exaggerate during annoyance maneuvers, this does bring up an interesting point. It is a fact that for years, certain parties of the first part did threaten certain child-units into silence. “Don’t tell anyone we’re thinking about buying real estate, hear me? Don’t tell anyone we bought that house in town, Hear me? Don’t tell anyone we’re landlords, Hear me?”

J. Edgar was an amateur.

Perhaps the kiddies resented it just a touch, but my paranoia was firmly rooted somewhere in the general vicinity of reasonableness. Investing in rent houses was so far outside our comfort zone and our newly blossoming ideas on money management so fragile, I was afraid someone might squish them. And to be honest, I just didn’t want to deal.

You’re planning to invest in What??!!

How About I Run Those Numbers For You? (And other helpful phrases you’ll never hear from friends and family)

Family and friends generally mean well-they want to help, really they do. Sometimes, they are afraid and they help by making sure you share their trepidation. They help by warning, scolding, waving giant red flags and employing any necessary means to throw the proverbial cold water all over the tiny embers of change which flicker in the bosom in bondage (said the drama queen as she threw herself upon her bed of suffering).

Having arrived in this world during the turbulent ‘60’s with a bunch of hippie-older brothers leading the charge, I’d learned to do my own thing, man. The mister and I’d been swimming upstream since we married at 19 (against everyone else’s better judgment) so I wasn’t exactly desperate for approval. I was only afraid of myself… afraid my inner-child would pitch a fit and toss my inner-investor in a corner-where she’d stay for several more years before getting up the gumption to try again. Afraid I’d be unable to move forward under the onslaught of faulty reasoning that once-upon-a-time I’d believed more fiercely than anyone.

It was time to change or else. And there were plenty of negative voices in my head already without adding to the chorus.

Change Takes Time (and Other Witty Sayings to Soothe the Battered Ego When Landing Upon the Backside)

Our financial transformation took about 7 years. In that time, we moved steadily forward without any visible results for 5 of those years. I started a home business performing background checks for small businesses owners and nonprofit groups which failed to make a profit. From our standpoint (and with a healthy application of hindsight), it was imminently successful. I learned to organize a business, understand and apply Texas business practices, and run a pretty mean background check. Before, concepts like marketing, ecommerce, and website development were foreign to this nursing major. And probably most important, by the time we became landlords, our office was in place, our books in order and everything we learned magically applied to real estate. But try explaining that to someone sitting across the table at the mall telling you that your failed business venture perfectly illustrates the reason they would never do anything so foolish.

Eventually, our success in real estate began to show. We went from living in a 1300 sq. ft. doublewide trailer to a larger custom home. Our clothes were purchased from upscale places like Penneys and Target instead of Goodwill. I was able to give gifts that didn’t come from the dollar store.

And, when people started to notice, I was strong enough mentally to share if anyone really wanted to hear.

Silence equals Self-preservation

A word of advice: If you simply must talk, find someone, somewhere who actually invests. Go to real estate meetings, visit forums, check out blogs and post comments.

And at the risk of winning the official title for Most Cliché’s Ever in a Single Blog Entry-don’t allow anyone to yank up your new baby plans before they develop deep enough roots to take the tugging. Silence is Golden. Don’t let anyone steal your dreams, dude.

Etcetera

Honestly! Who in their right mind would try to save you from a project like this?

Tags: getting started, investor, landlord, real estate investing, REI, rent houses