BiggerPockets Real Estate Podcast

BiggerPockets Podcast 072: Managing Hundreds of Tenants and Getting Uncle Sam to Pay the Rent with Mark Ainley

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Today on the BiggerPockets Podcast we jump straight into the nitty-gritty with a real estate broker, investor and property manager from the greater Chicago area.

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Mark Ainley brings a fresh perspective on how to successfully invest in lower-income rentals and goes deep into the details of everything you’d need to know, covering acquisition to rehab to management, straight out of of his experience investing in the notorious South Side Chicago area.

Today’s show also gives great insight on the in’s and out’s of Section 8 housing, the program that has the government paying a portion (even up to 100%)  of the rental income for the tenant. Mark also covers a lot of the managerial secrets behind being a successful property management company and gives you specific criteria on how to vet property managers.

This show is really meaty so be sure to grab a pen and paper for notes… and with that, let’s jump into it!

Read the Transcript

Click here to read the transcript.

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

  • How to build a real estate company from your mom’s basement.
  • “Cash-for-keys” – an alternative to eviction
  • Warning: How to lose money by betting on appreciation
  • How to handle late Section 8 tenants when they only owe $15
  • How Brandon got a broke tweaker out of his property
  • Advice for newbies who are thinking about getting started in lower income areas
  • How to find flexible non-profit portfolio lenders
  • The full-gambit of investing in Section 8 housing
  • Major red flags  to look for in tenant screening
  • How to do deals via text message
  • and much, much more!

Links Mentioned

Books Mentioned in the Show

Tweetable Topics

“To do a flip successfully it takes being at the property every single day!” (Tweet This!)

Connect with Mark

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 investo...
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    Chris Alarie
    Replied almost 6 years ago
    This was a very informative podcast. So Mark, you primarily do section 8 rentals? Are you still buying mostly condos? What are the biggest risks in investing in condos for rentals and section 8? Thanks…
    Mark Ainley
    Replied almost 6 years ago
    Thanks for reaching out! For properties we own and have invested in since the crash(2008) our focus is section 8 tenants of which about 80% of our rentals have section 8 tenants in them. We have really gone away from buying condos unless we can buy them all up in an assoc and deconvert the building to a multi unit but otherwise we have been buying mostly single family homes the past 6 months. The problem you have with condos anywhere is the association’s management. More times than not you have people running the board that may not have the qualifications to do so and they make decisions that can effect the investors bottom line. They have control to reduce the amount of rentals or the ability to rent all together.
    Mark Ainley
    Replied almost 6 years ago
    Thanks for reaching out! For properties we own and have invested in since the crash(2008) our focus is section 8 tenants of which about 80% of our rentals have section 8 tenants in them. We have really gone away from buying condos unless we can buy them all up in an assoc and deconvert the building to a multi unit but otherwise we have been buying mostly single family homes the past 6 months. The problem you have with condos anywhere is the association’s management. More times than not you have people running the board that may not have the qualifications to do so and they make decisions that can effect the investors bottom line. They have control to reduce the amount of rentals or the ability to rent all together. Reply Report comment
    Mark Ainley
    Replied almost 6 years ago
    Thanks for reaching out! For properties we own and have invested in since the crash(2008) our focus is section 8 tenants of which about 80% of our rentals have section 8 tenants in them. We have really gone away from buying condos unless we can buy them all up in an assoc and deconvert the building to a multi unit but otherwise we have been buying mostly single family homes the past 6 months. The problem you have with condos anywhere is the association’s management. More times than not you have people running the board that may not have the qualifications to do so and they make decisions that can effect the investors bottom line. They have control to reduce the amount of rentals or the ability to rent all together.
    Kim Martin
    Replied almost 6 years ago
    I have heard that it is nearly impossible to raise the rent on Section 8 rentals. What has been your experience? Do you have to be licensed to be a property manager? Thanks so much for the extremely educational podcast!
    Mark Ainley
    Replied almost 6 years ago
    That is correct raising rents is tough but the benefit is you get at least two years min out of every new tenant because it is a pain for section 8 tenants to move. I would take a tenant staying another year than ability to raise rent $50 per month. The is such a large cost to turnover. If u have a $1000 month rental u have the following costs when a tenant moves: -$500.00 vacancy(say at best case 2 weeks) -$1,000.00 commission (commission to other agent) -$500.00 this is best case scenario on unit clean up Best case scenario is $2,000 cost and seems rare to get best case so we really don’t worry about increases annually. On south side of Chicago the section 8 rents are already a tad higher than market rents so really don’t worry about it. Now there is a form you can fill out to request rent increase with section 8 but if approved it does increase the tenant portion and not the HUD portion. We went thru and requested on 30 units last summer and we really pissed off about 20 tenants it was approved on and we ultimately retracted the request on all but a few. In areas that the poverty level is below a certain percent the owner can file for property tax reduction. We do that successfully in a couple units we manage in Naperville.
    Bob T.
    Replied almost 6 years ago
    Hi Mark, another great podcast! Last year sec8 in DuPage put a freeze on the rent increase, have you got any luck in rent increase this year? You right on about the “flip” things have changed in the city.
    Mark Ainley
    Replied almost 6 years ago
    In Dupage County we don’t request the rent increase like we do Cook County because most areas in Dupage, if not all, qualify for the property tax reduction. It is a shame DHA did put that freeze on because that doesn’t help getting landlords interested in Dupage from the outside looking in. Not many people understand the true benefit of the property tax reduction part of the program though!
    scott S.
    Replied almost 6 years ago
    Loved the pod cast. How about a very easy example of cash /cash formula and also cap rate. I thought the difference was cap rate does not include debt service where cash on cash does? Thank you, Scott
    Mark Ainley
    Replied almost 6 years ago
    Cap rate is generally determined before debt service and cap rate is the cash on cash return so they are the same if no debt service. Below is a simple example. I also have a real life example of a 5 unit property we just listed this week that we are selling for a 10% cap rate. If any interest in seeing that send me an email at [email protected] $25,000 – Purchase $25,000 – Rehab $50,000 – Total Investment $12,000 – Annual Rent ($ 600) – Vacancy 5% ($1,200) – Property Tax ($ 960) – Management Fees ($ 1,000) – Gas/Heat ($ 300) – Water ($ 325) – Landscape ($ 600) – Repairs & Maintenance ($4,985) – Total Annual Expense $7,015 – Net Income (Gross Annual Income – Total Annual Expense) 14.03% – CAP Rate (Net Income / Total Investment)
    Kamil
    Replied almost 6 years ago
    Hi Mark, Fantastic show, great insight, priceless. Quick question about portfolio re-fi. Im currently trying to get cash out of 5 properties which are in an LLC. The couple bank that I’ve approached are telling me that I have to transfer the properties into my name, re-fi and then I can put them back into the LLC. Is that correct from your experience, or should I keep searching in the small community bank sphere for one that will do it within the LLC. Thank you for you time! Your response is greatly appreciate it.
    Mark Ainley
    Replied almost 6 years ago
    Thanks for your question! In our experience with cashing out we didn’t not have to move it into our personal name in order to refi. The LLC signed for the loan and the members of the LLC, which was me and my partners, personally guaranteed the loan. Going that route would add alot of time and extra expense deeding in and out and to a point defeats some of the protection the LLC is supposed to over. Is the bank giving you an individual loan on each property or one large loan across the properties? When a bank wants to be able to sell your loan off in the secondary market they will have you sign outside of the LLC and if that is the case there are many banks that should go the route of lending the LLC and the members signing personally still.
    Mike
    Replied almost 6 years ago
    Great show. Enjoined it a lot.
    Gary Gross
    Replied over 5 years ago
    Hello Mark, Great insight on investing in Chicago on the south side. My comment is for Joshua, I think you need to do a little more research on Chicago’s south side because I’m an investor on the south side and have friends that are investors in Detroit and it’s not even close to being the same, so I think saying that was a little irresponsible on your part. I love the Bigger Pockets and it has helped me tremendously in my business, but just do a little more research. Beverly, Hyde Park, Chatham and many more areas are nothing like Detroit.
    mark
    Replied over 5 years ago
    Gary, I don’t think I ever compared Chicago South Side to Detroit cause I don’t think they are anything alike and have sent similar posts (like yours to me) with the same message that it is insulting to compare the two. I am a huge advocate for the south side and am fully aware of its potential as a community and for investors. Reply Report comment
    mark
    Replied over 5 years ago
    Gary, I don’t think I ever compared Chicago South Side to Detroit cause I don’t think they are anything alike and have sent similar posts (like yours to me) with the same message that it is insulting to compare the two. I am a huge advocate for the south side and am fully aware of its potential as a community and for investors.
    mark
    Replied over 5 years ago
    LOL Gary, just read thru your message again and your post wasn’t towards me….sorry about that!
    Kingsley
    Replied over 5 years ago
    Superb Content Guys..Thanks!
    Billy Cones from Harker Heights, Texas
    Replied over 5 years ago
    Great tip on the “Community Reinvestment Act”, I have been looking for a community bank that did business services with Real Estate Investors in the Harker Heights, Killeen, Fort Hood area.
    Richie Thomas Rental Property Investor from San Francisco, CA
    Replied 5 months ago
    Hey Mark and Brandon and Josh. Thanks for this great introduction to Section 8. I wanted to call out that around minute 31:00, it sounds like the implication is that there's a judgment call to be made, in terms of to whether to evict someone for late payment when they only owe a small amount. That's the way I interpreted the conversation, anyway (please correct me if I'm wrong). I wanted to call out that it can actually be legally risky to treat this situation as a judgment call, or to handle it on a case-by-case basis. I just earned my real estate license, and at least in California, if one tenant is given leeway in this regard and another tenant is not, that 2nd tenant may have grounds to sue for housing discrimination. Giving leeway to that first tenant places the landlord in the position where they've implicitly invalidated any rules which were stipulated in the lease. Just something to watch out for.