BiggerPockets Real Estate Podcast

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

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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.

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

Read the transcript for episode 48 with Darren Sager here.

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

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investors and other real estate professionals, who chat about failures, successes, motivations, and lessons learned.
    Bobby
    Replied about 7 years ago
    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.
    Joshua Dorkin
    Replied about 7 years ago
    Thanks for listening, Bobby!
    Paul Crowson
    Replied about 7 years ago
    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…
    James Pratt
    Replied about 7 years ago
    EXCELLENT!! Very down to earth kind of guy. Great job.
    Darren Sager
    Replied about 7 years ago
    Thanks James!
    Curt Smith
    Replied about 7 years ago
    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.
    Lior Solomon
    Replied about 7 years ago
    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!
    Darren Sager
    Replied about 7 years ago
    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!
    Tom Sylvester
    Replied about 7 years ago
    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.
    Darren Sager
    Replied about 7 years ago
    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.
    Ben Kanevsky
    Replied about 7 years ago
    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?
    Darren Sager
    Replied about 7 years ago
    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.
    Travis Nance
    Replied about 7 years ago
    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
    Darren Sager
    Replied about 7 years ago
    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.
    alex anderson
    Replied about 7 years ago
    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.
    R Jenkins
    Replied about 7 years ago
    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.
    Greg Jackson
    Replied about 7 years ago
    Another great podcast packed w/ useful information. Thanks guys!
    Darren Sager
    Replied about 7 years ago
    Thanks Greg! Glad you enjoyed it!
    Darren
    Replied about 7 years ago
    I am wondering. How do you insure they renter gets the home repair insurance?
    Darren Sager
    Replied about 7 years ago
    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.
    Julie
    Replied about 7 years ago
    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.
    Brandon Turner
    Replied about 7 years ago
    Thanks for listening Julie!
    Darren Sager
    Replied about 7 years ago
    You’re very welcome Julie! I’m glad you found the podcast beneficial.
    Shaun
    Replied about 7 years ago
    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.
    Brandon Turner
    Replied about 7 years ago
    Thanks Shaun, and I guess that makes sense now why I’ve seen no Tweets! I’ll fix that ASAP. 🙂 Thank you!
    Shaun
    Replied about 7 years ago
    FYI Seems to be working now.
    Shayne
    Replied about 7 years ago
    Is there anyway I can get a copy of your 20 page lease?
    Darren Sager
    Replied about 7 years ago
    I’m working on making it available!
    Julie
    Replied about 7 years ago
    Yes, I would be interested, too!!
    Lora Hish
    Replied about 7 years ago
    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!
    Jaclyn B.
    Replied over 6 years ago
    I just listened to this podcast and would be very interested in looking at your lease. I’m working on my first buy and hold deal and would love to have something to go off of.
    Mark F. Rental Property Investor from Bergen County, NJ
    Replied over 1 year ago
    I’m catching up on episodes from the beginning so I know this is 6 years old. I had to comment as I live in the same area with my plan being about the same. That PSEG comment about appliances plan is absolute gold. Talk about automation and 4 hour work weekish! Love it. Favorite episode to date.
    Bill Coleman
    Replied over 6 years ago
    Would love to get a copy of your lease as well as understand what other things specifically that you are doing to tenant proof your houses.
    Victor Brak
    Replied over 6 years ago
    If you could share your standard lease agreement that would be greatly appreciated. I would also like to read any blog posts on your part, love the attention to detail, and your implementation of prevention, prevention, prevention.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied about 6 years ago
    Keeping bad tenants out is not via the application or the lease, nor by using a screening service like mrlandlord.com or NTN. It’s in the face to face interview and trick questions and the importance of the prospect’s answers. I follow the prospect to their car,,, it has to be neat! They must want my place because their relative is near by, kids need to stay in this school district. Family and schools are the best sticky factors to keep a renter. The lease can’t fix what was screwed up by letting a bad renter in. 🙂
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied about 6 years ago
    I forgot to mention that my latest least: – never expires. I no longer chase renters to resign each year. Just give me 60 days notice, leave any time, even in the first year. No unhappy renters in my places allowed. LOL – The lease says every year will have a rent increase. I may tell them no increase but it;s int he lease. No howling renters either so I solved that. – houses we own in taxable entities pay rent through a paperless service. Like erentpayment.com or similar. No checks. Unfortunatley this is not possible with SD-IRA owned rentals. Lots of paper..
    Shayne
    Replied about 7 years ago
    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.
    Darren Sager
    Replied about 7 years ago
    Thanks Shayne! Glad you enjoyed it!
    Shayne
    Replied about 7 years ago
    Lease! Lease! Lease! Lease!
    Darren Sager
    Replied about 7 years ago
    After the holidays I’ll make it available to all!
    melodee lucido
    Replied about 7 years ago
    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.
    Darren Sager
    Replied about 7 years ago
    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.
    Nate Green
    Replied about 7 years ago
    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
    Darren Sager
    Replied about 7 years ago
    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!
    Craig M
    Replied about 7 years ago
    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
    Joshua Dorkin
    Replied about 7 years ago
    Craig – Our last show, BiggerPockets Podcast 047 with Joel Owens was all about Triple Net Leases. Check it out!
    Seth Williams
    Replied about 7 years ago
    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.
    Darren Sager
    Replied about 7 years ago
    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!
    gerald harris
    Replied about 7 years ago
    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
    Darren Sager
    Replied about 7 years ago
    Thanks Gerald very much. Hopefully its in a great location that will produce for you your entire lifetime!
    Darren Sager
    Replied about 7 years ago
    Thanks Gerald very much. Hopefully its in a great location that will produce for you your entire lifetime!
    Sharon Tzib
    Replied about 7 years ago
    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.
    Brandon Turner
    Replied about 7 years ago
    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.
    Shaun
    Replied about 7 years ago
    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.
    Sharon Tzib
    Replied about 7 years ago
    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
    Replied about 7 years ago
    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
    Replied about 7 years ago
    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.
    Sharon Tzib
    Replied about 7 years ago
    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?
    Armaity
    Replied about 7 years ago
    Great Podcast! Was inspired to take notes throughout. Thoroughly enjoyed it, Thanks Darren, Josh and Brandon 🙂
    Darren Sager
    Replied about 7 years ago
    Thanks very much for the kind words Armaity!
    Michael
    Replied about 7 years ago
    Darren, great podcast! What part of the New York market are you in? Thanks, Michael
    Darren Sager
    Replied about 7 years ago
    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.
    Michael
    Replied about 7 years ago
    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?
    Darren Sager
    Replied about 7 years ago
    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.
    Dan Ryu
    Replied almost 7 years ago
    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!
    Darren Sager
    Replied almost 7 years ago
    Thanks Dan very much! Glad you enjoyed the Podcast!
    Keith Ghion
    Replied almost 7 years ago
    Fantastic podcast Darren. Glad you pointed out that I missed it, well worth the listen and probably re-listen a few times!
    Darren Sager Investor from Summit, NJ
    Replied about 6 years ago
    Thanks Keith!
    Lee Richter
    Replied over 6 years ago
    Darren Sager I just listened to the podcast. Very good job. Did you make the lease available? If so where can we get a copy? Thank you Lee 🙂
    Jay Luke from Sacramento, California
    Replied about 6 years ago
    When you get a loan to purchase the duplex is there a certain time frame where you have to live in the home or can you immediately rent out both sides?
    Darren Sager Investor from Summit, NJ
    Replied about 6 years ago
    Hey Jay, It all depends upon how your structure your loan. If you do it as a straight investment in most cases the lenders will require you to put down 25% to allow you to rent it out fully from the get go. If you are going to live in it (which will get you a lower interest rate in most cases) you’ll have to occupy one of the units within a certain number of days to qualify for that loan. You’ll have to stay in the residence for certain period of time as well before you’re allowed to rent it out both units. If you don’t move into one of the units you’re lender could require you to put more money down and charge you a higher interest rate.
    Jay Luke from Sacramento, California
    Replied about 6 years ago
    @Darren Sager thanks for the information. Does your credit score matter?
    Darren Sager Investor from Summit, NJ
    Replied about 6 years ago
    My pleasure Jay. Yes credit score always matters. The better credit scores get you access to the best rates available. Over the life of the loan it can be significant!
    Deshan Kennedy Real Estate Agent from Fredericksburg, VA
    Replied almost 6 years ago
    Awesome podcast Darren. There was a lot of useful information in this podcast.
    Darren Sager Investor from Summit, NJ
    Replied almost 6 years ago
    Thank you Deshan! Glad you enjoyed it and there was some gold to mine in it!
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied almost 6 years ago
    Awesome awesome podcast. Even though its an older, it’s by far my favorite so far.
    Darren Sager Investor from Summit, NJ
    Replied almost 6 years ago
    Thank you Ayodeji! Very kind words. I’m happy to hear it’s one of your favorites!
    Ryan Donahue Investor from Los Angeles, California
    Replied over 5 years ago
    @Darren Sager I know this Podcast is from a while ago, but its my favorite BP podcast. There is a “no nonsense” approach to your management and approach that comes through strong in the Podcast. You mentioned offering a sample of the 20 page lease agreement. Is it available? I am most interested in the nontraditional elements like Paint Codes and other little details that make managing property more efficient. Thanks for your time and effort on BP.
    Darren Sager Investor from Summit, NJ
    Replied over 5 years ago
    Hey Ryan, Thanks for the kind words. I’m glad you enjoyed the Podcast and found it to be your favorite! My lease is ever evolving, sort of like the constitution. Laws change so the lease changes. I have a good base lease I can send you, you’ll just need to make it your own based upon local laws and your particular situation. Send me a message through BP and I’ll make it happen.
    Timothy Godfrey Real Estate Investor from Springfield, PA
    Replied about 5 years ago
    Hey Darren- I actually live in the Philly suburbs…bought a rental property in Philly in 2007 and it has been the worst experience ever (too many evictions/fights/deadbeats to mention). I almost gave up on the idea until I discovered Bigger Pockets and realize what a moron I was, and that I broke every rule in the book. Though it has been a money pit, I am convinced that there is a better way! Along those lines, I would be very interested in looking at your lease, if possible, as well. It may not work for this property, but in the future I think it could come in very handy! Thanks for all the great info…let me know! Tim
    David Pierce from Tacoma, Washington
    Replied about 5 years ago
    Darren would you consider working with an out of state investor?
    Pierre A. Investor from NYC
    Replied over 3 years ago
    Great interview Darren. Thanks for this educational podcast packed with tips such as materials to use in your rentals and even lease policies. I’m also from NYC and looking to pursue getting a duplex. I’m looking forward to any meetups that you have in the near future. Thanks for your time and wisdom!
    James Lapp Investor from Richmond, RI
    Replied 9 months ago
    Thank you for an informative episode, Darren. Did you every make public your 20 page lease agreement. I'd love to get a copy. Thank you!