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Josh: This is the BiggerPockets Podcast, Show 36.
Josh: Hey can I st?
Josh: Can we?
Brandon: Do it.
Josh: Can we start?
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Josh: What’s going on everybody? This is Josh Dorkin, host of the BiggerPockets podcast. Here with my cohost, Brandon Turner. Hey Brandon.
Brandon: Hey, hey Josh. How’s it going?
Josh: It’s going okay. How you doing?
Brandon: I’m good. I’m doing something different on this podcast that I’ve never done before.
Josh: Yes, I know, you’re sitting you’re lazy backside on a couch.
Brandon: Yes, I got my microphone hooked up to my like couch, with this big stand and I’m like relaxing on my couch while recording this.
Josh: Yes, he’s literally like laying out on his couch. It’s ridiculous.
Brandon: If there’s any like, chiropractors listening to the show, they would hate me right now for the way I’m laying, but.
Brandon: That’s alright.
Josh: Yes. Nice, nice.
Brandon: Yes, yes, I’ll live.
Josh: That’s awesome.
Brandon: Cool, alright, well, yes, good show today. Coming up, I’m excited.
Josh: Yes, yes, but you didn’t ask me how I’m doing so you know, whatever.
Brandon: Sure I did, I said, “Hey, what’s up.” I think. I don’t actually remember.
Josh: Well I’m doing, I am doing well; however, I do want to make a note here, as anyone who’s listening, they know the great state Colorado has been undergoing some serious chaos. The flooding here has been really pretty awful. I mean we, me personally, we were spared, but lots of folks have dealt with some serious serious damage. I mean, tons of homeless people. Lots of people have lost a lot of their possessions including you know, John Holdman, our lead moderator on BiggerPockets. He had a ton of damage to his house. A lot of other people I know did as well so you guys if you’re listening and you want to help out, I know the Red Cross is doing collections so you know, please do give and donate to the Red Cross. It’s a good cause. There’s some real bad stuff happening here so. That’s it; just wanted to, yes, get that out there.
Brandon: Nice, very noble.
Josh: I’m a noble guy. It’s not true what they say about me.
Brandon: It’s not true what they say about you.
Josh: Yes, yes, well, listen so last week we started doing—we started this new segment where we asked listeners to share their favorite quote via Twitter, Facebook, or G+ using #BiggerPockets. Last week’s winner was Greg Jackson who tweeted, “Life is too precious to spend doing something you hate” which is we like to say, “Awesome.”
Brandon: Awesome. Awesome.
Josh: Yes. Yes. Greg’s going to win a free digital copy of the book on flipping houses and the book on estimating rehab cost by J Scott so big congratulations go out to Greg and thank you very much for tweeting that and getting the word spread about BiggerPockets. We love it. We love it.
Brandon: Yes, cool.
Josh: Of course, everyone else who did not win, I want to encourage you to jump on this week and share your favorite quote from today’s episode on your social media so next week you can win a digital copy of the book on flipping houses and the book on estimating rehab costs as well. Use #BiggerPockets on G+, Facebook, or Twitter and that will be awesome. Of course, if you missed last show, you’ll know that our Quick Tip is no more.
Brandon: No more.
Josh: No, no more, but anyway, so thanks a lot to Greg and to those people who tweet out this week’s quote.
Josh: Yes, yes, so why don’t move on to the meat of the show here. Today’s guest is a long time landlord and weekly contributor to the BiggerPockets blog, Kevin Perk. Kevin’s is based out of Memphis, Tennessee and he’s a real hands on landlord so he’s going to share a ton of tips today on buying rental property, dealing with tenants, property management, and a whole lot more so get your pens out and ready. As always however remember to jump onto the show notes at BiggerPockets.com/.
Josh: That’s right, Show 36 to find links to everything we talked about today and also to take a minute to leave a comment or ask Kevin any questions you have. It’s a great way to interact with out guests so leave your feedback in the show notes at BiggerPockets.com/show36. There’s always a ton of conversations happening there so you don’t want to miss out on that. Without further delay, why don’t we bring this guy on? What do you think?
Brandon: Sounds good to me.
Josh: Alright, Kevin, what’s up man, good to have you?
Kevin: Thanks, man. I really appreciate being here.
Brandon: Yes, we appreciate having you. Let’s jump into it.
Josh: Yes. Absolutely.
Brandon: Alright, what do you do? What’s your story?
Kevin: Well, my wife, Karen and I are buy and hold investors. Basically, we are landlords. We’ve been doing that for about ten years now. Here in good old midtown Memphis, Tennessee. I buy smaller apartment buildings, duplexes, triplexes, things like that, even houses. I’ll buy and hold. That’s what we do.
Josh: That is what you do. That is awesome so you are actual real estate investors.
Kevin: Yes, sir, yes, that is what we do.
Josh: Not flippers, you invest.
Kevin: We are not flippers. We invest, right.
Josh: Yes, I’m just trying to start a debate here. That’s all.
Kevin: No, yes.
Josh: Come on take my bait.
Kevin: Do not bet on appreciation. Invest.
Josh: Nice. Alright, man, so you guys are buy and hold investors, how did that come about? How did you decide to get involved in the industry?
Kevin: Well, you know, it’s kind of funny how that started. My previous life, before I got into this full time, I was a city planner. I was actually planning director of one of the counties here around the Memphis and I really couldn’t see myself sitting at that desk for 30 more years. My wife and I were kind of, “But what do you do?” I mean you just, you don’t know.
You don’t have the knowledge yet. I was sitting on my porch reading one night and my wife kind of emphatically called me, “Hey, come here and watch this guy on TV.” You know, I was like, “Huh? Well, what’s she, you know, she’s really being emphatic. I need to go see this who this guy is.” Well it was Robert Kiyosaki and he was doing a PBS, you know, telethon thing, you know, where they have fund raising and he was doing his cash flow quadrants and so we sat and watched. You know, I was like, this guy is making a little bit of sense and I read his book and then I—it went from there. It mushroomed from there. The real estate part of his book really made a lot of sense to me, about getting income properties and people paying you. That’s really how it took off.
Josh: Nice, nice.
Josh: What are the early days look like. You know, you guys saw this video. You bought the book.
Josh: You know how did you go from there to now we own our first property?
Kevin: It was a lot of learning, you know, long learning curve, a lot reading, a lot of interacting, networking with other investors. We found a local REA group and went there and talked to them. Our first property was a duplex. We kind of used Kiyosaki’s thing, have—you know, get somebody paying you so we bought a duplex, lived in one side, rented out the other.
Kevin: They paid the mortgage and everything and it was kind of like, wow, this works. We just kept buying more and more.
Brandon: That’s awesome. Yes, I always recommend people do that, like the duplex, live in one house and rent the other.
Brandon: Is such a good idea.
Kevin: It was it worked out well.
Brandon: Yes, and you don’t still live in a duplex do you?
Kevin: No, no, I have since bought a foreclosure and fixed it up.
Kevin: It’s our own, but we still own the duplex. It’s still there.
Brandon: Nice. That’s exactly what I did. I lived in a duplex, lived in one half and then I bought a foreclosure and lived in that now.
Josh: You guys are like buddies.
Brandon: I know we’re like.
Kevin: I know.
Brandon: Batman and Robin here.
Josh: Kevin, he’s definitely your Robin, Kevin.
Kevin: Okay, okay, yes.
Brandon: I’ll be your Robin, alright anyway so how do you normally—I mean you’ve been buying more and more now for the last ten years I am assuming.
Brandon: How are you finding them?
Kevin: Well, I’ve found the properties in all sorts of ways. You know, I’ve driven by and seen the tall grass and send a letter and that’s worked sometimes. You know, all sorts of things, but honestly, these days it’s MLS listings. I mean that’s the honest answer and kind of once you get up into the position, you know, you’ve been an investor for awhile once realtors see that you can close on an eight unit apartment building, the deals are going to find you.
Kevin: You know, they’re going to kind of bring them to you a little bit, but that’s the honest answer. You know, the foreclosures, you kind of got to wait ‘til the realtor gets them and list them and that sort of thing. It’s 90% of it is MLS these days.
Josh: Got it, got it. You’re not doing any kind marketing at thing point or anything like that to find properties.
Josh: You’re just waiting for them to come your way from your selected group of one or more agents.
Kevin: Yes, yes and I really don’t even have a selected group of agents so to speak. You know, there are just certain agents that deal with those type of multifamily properties and you know, there’s a select group of buyers I guess you could say. You know, I’m just on that list. They call me.
Brandon: Do you buy any single family or is it just multi now?
Kevin: No, I buy single families as well.
Kevin: You know I just look at the MLS everyday. I have a search set up. It pings me if certain words are in the realtor’s comments. Like foreclosure or fix up or estate. Things like that and you know, it prompts me to take a closer look at a particular property.
Brandon: Alright so when you buy a property, a lot of people have the trouble as once they get four of them, they can no longer buy anymore.
Brandon: I’m assuming you have more.
Brandon: I mean you obviously have more than four.
Kevin: I do.
Brandon: How do you—what do you do? Like, what’s your solution for financing these things?
Kevin: Well, we have been lucky in that, you know, we started out before the four rule was in place so you could get ten which was before—when was that? 2007 when everything went to hell and the real estate crashed.
Josh: Yes, seven, eight.
Kevin: Seven, eight, somewhere in there. We were able to use that for quite awhile and of course by networking and talking to other investors, we learned that you know you could put one in your name, and then one in your wife’s name. You don’t have to put them both on so you’re able to get a few more, but we’ve also always had a line or credit and commercial financing with local banks.
Kevin: I’ve also had private lenders finance properties for me or help finance properties for me so today, since I can’t get the four Fannie Mae, Freddy Mae backed loans anymore, it’s all commercial loans and private lenders.
Brandon: Is that even on like a single-family house?
Brandon: Can I get a commercial loan?
Kevin: Yes. A commercial loan.
Brandon: How does that work?
Kevin: Basically, you would go in and talk to a local bank and you don’t want to go to Bank of America to find these. You got to go to the local little bank or your credit union and you’ll talk to the VP of new accounts or commercial financing there and basically, they’ll review your portfolio and your business structure. They’ll hopefully give you a line of credit. It could be a hundred thousand, it could be $500,000, it could be a million and they’ll let you, you know, whatever you want to buy with that, go get it, as long as it appraises and works out and all that sort of thing.
Brandon: Alright, so this is something that’s really fascinating to me because you know, I am like you. I want to buy property and I use private lenders sometimes, but I do not have a giant line of credit that I can play with.
Brandon: I would love a giant line of credit that I could play with so I’m wondering like.
Brandon: I mean, if I go into the bank and tell them you know, “Hey, look at my portfolio, I’ve got so far.”
Brandon: I mean, I guess I just have a hard time believing that a bank is going to say yes, you know this 28 year-old kid were going to give him a line of credit based on. You know what I mean? Like I have so many properties that it’s not like I could ever pay them anyway with my salary from my job or whatever so.
Kevin: They very well might. You know, it’s part of a—it’s a sales job for you, a little bit to go in and show the banker that you’re a good risk, that you’re building a company and building an investment portfolio and that you have every intention to pay these things back because they’re going to have all some cash flow because of how you buy them because of all that sort of stuff. You have to know the bankers speak that service covered ratios and things like that to talk to them a little bit, but yes, you might. Now, you’re going to have to shop around these days. I’m not saying this is going to be easy.
In 2007, they’d give anybody who’s breathing a loan, which is how we kind of got into this mess, but now if you have a good business model and you can prove good cash flow and things like that and if you can get an introduction from another investor which gets back to networking. If they can give you an in, you know, “Hey, Mr. Banker, you really should talk to Josh or Brandon because they’re smart. They know what they’re doing.” Chances are pretty good. They might give you a little feeder and test the waters with you.
Brandon: That’s awesome.
Josh: Yes, and stop complaining about your salary on the radio show, seriously. I’m like, really. Come on.
Brandon: I’m just saying. I’m not going to go to the bank. I mean, like if I try to qualify for traditional financing now, they just look at how much debt I have compared to income.
Kevin: Oh, I can’t.
Brandon: Yes, and they’d just laugh at me.
Kevin: It’s impossible. I’ve got one of my old loans with, you know, a big bank. I won’t mention them and I was just trying to refinance it because the rates are so much lower and the guy literally said to me, “I can’t put all your information in the computer because I just don’t have that many slots to put it in. Therefore, I’m shutout.” You know, I was like, I already have the loan with you, you know, I’ve been paying you for it.
Kevin: Why can’t you just refinance? “ I just don’t have all the slots in my computer and it just shut down right there. That was it.”
Josh: Smart banks.
Kevin: I have too many properties.
Kevin: Too many properties.
Josh: Yes. Yes, small banks portfolio lenders, that’s stuff, that’s some great advice. Well, you had mentioned private lenders.
Josh: Why would a private lender go ahead and lend on a buy and hold type of property? How does that work? Are you getting a 30-year loan from a private lender?
Josh: Or how are you doing it?
Kevin: No, generally our private lenders, they have to give me five years and then there’s a balloon in there, you know at the end of five years so it becomes due at the end of five years. At that time, they can choose to either come back with us and roll the thing over again or we can try and cash them out. That’s just one of my criteria that have to have for me to buy properties with the lenders and if that doesn’t work with the particular person, that’s fine. You know, I understand, go on, we’ll move on, do something else. There are certain folks who are happy. Yes, with the interest rate you’re paying and it’s better than what I can get putting it in a CD right now, which is what 0.5%.
Kevin: You know, they’re happy to do that.
Josh: What kind of rate are you getting from private lenders?
Kevin: Somewhere between eight and ten.
Kevin: It depends.
Josh: How long are you typically, actually holding before you do a refi?
Kevin: Five years.
Josh: You are actually holding for five years?
Brandon: What do you do at the end there if you can’t refinance out because the bank’s not going to give you a loan, lets say. Do you kind of have another exit strategy? Is that when you sell?
Kevin: Well, I’ve always been able to find somebody to refinance or you know, there’s always been a bank or somebody’s willing to step in and do it. I really haven’t hit that problem because the properties are nice and they cash flow well.
Kevin: You know I’ve never missed a payment. I’ve never not paid the lender, they’re happy with us. They want to keep it going. The cash is coming in. I like the cash coming in from rents. They like the cash coming in from, you know they’re basically the bank. They like being the bank.
Josh: Yes. Okay, so you’ve got these properties and obviously, you’re buying them at hopefully at a decent discount. You had already said that you’re buying them from the MLS.
Josh: Are—you know—what kind of discount are you getting off list priced on your typical property. What do you—what kind of discount are you paying from there? Are—do these need repair? I guess or are they ready to go.
Kevin: Yes, I tend to buy distressed properties. Distressed, you know means they’re either in a short sale or they’ve been foreclosed on and so usually yes, they’ve been beaten up.
Kevin: The previous landlord didn’t manage it well. Lost it, obviously, and so you know, all kinds of things happened there. They might be vacant now. If they’ve been foreclosed, they usually are vacant. How much of a discount? Well, it depends on the realtor and how much they list it for.
Honestly, sometimes these things have to sit on the market for a while for the bank or the seller or the realtor to come to reality as to what the actual price is going to be. They’re investment properties and so you base the sales price on the amount of income that can be generated. You know, and that’s where it starts off. A lot of realtors have to be educated as to how that works and that just takes some time sometimes to do so I really can’t give a hard and fast number of how much a discount do I get.
Josh: Sure. Yes.
Kevin: There is always a discount and you know I’ve passed on tons of properties because they won’t come down.
Kevin: I’ll let somebody else buy it.
Josh: Yes, no right on. Yes, you know, we put together this guide, it’s what is it, the Ultimate Agent’s Guide to Working With Investors and you know, we wrote that and we’ll link to at on the show notes at what is it, BiggerPockets.com/show36. The guide is designed to help educate agents for this exact purpose.
Josh: Because, you know, it’s really amazing that agents don’t get that training as a requirement.
Kevin: They don’t, they don’t.
Josh: I mean they really need to be better educated particularly in working with investors because, yes, for them it’s great. You know, you can build a better, stronger business.
Josh: If you know how to do this stuff and obviously, you know, stop wasting your time and energy and money. You know, listing properties at really bad prices.
Kevin: That’s right.
Josh: When they’re not worth, what you’re listing them for.
Kevin: Right, right. I’ve actually—I’ve talked to, you know, given some talks to groups of realtors about working with investors and that sort of thing. Yes, it’s all about educating them because they don’t learn it through the realtor process. I always like to say, you know, I don’t know what it’s like in your state, but here in Tennessee, to get a license to cut hair, you have to take more hours than to get a license to sell real estate so.
Kevin: You know.
Brandon: Yes, that’s crazy. Say, I’m curious, you said you offer on, you know, a lot of properties and you might not get a lot of them. Do you have like a ration that you tend to get? You know, I hear some investors say, look at a hundred, you know, offer ten and you actually get one. Do you find that ratio about right or do you only offer on ones you’re pretty sure you can get.
Kevin: I’d say at the beginning, it was kind that way. Yes, make a lot of offers. You have to, some of the folks that we network with and even myself will say, “You know, you need to go look at a hundred properties before you find one that you want to use because—if you’re new, I mean, that’s just. You got to get used to the market to what’s out there, to what’s going on. Yes, if you make ten offers, you’ll probably will get one. That’s probably about the way it works. These days, I’m kind of know if it’s going to work or not and so. You know, I’ll make offers where I’ll think it’s going to work. If I think it’s probably not, I might wait a little bit and see how it sits on the market for a while. Or somebody from will come and pick it up and pay too much. I’ll pick it up three years later when it gets foreclosed.
Josh: Yes, exactly. Exactly, no that’s great. What about—those properties that you make the offer on and then it goes back on the market, well, it stays on the market obviously and nobody bites, what—you know, at what point in time do you go back and hit up that agent again and put a secondary offer in.
Kevin: I’ve waited over a year to go back. I’ve made an initial offer, didn’t get accepted. The owners for whatever reason didn’t accept it. It sat on the market for over a year from that point. I came back and said, you know, here’s my offer again. It still stands and was able to pick up the properties at that point so it took time. They had to be educated as to what the price really was.
Josh: Right on, right on. Was that the only time that you had come back on an offer? On a property that sat or has a…
Kevin: No, no, I went on another one. A bank had foreclosed on a property and I went out and talked to the bank and said, “Look, you know, I’ll give you x dollars for this particular property.” They decided they wanted they wanted to list it on the market. They spent eight months listing, sitting this thing on the market. I eventually picked it up from them for less than what I had initially offered them.
Kevin: You know so they had to learn the hard way and that bank’s not even around anymore. That bank actually got foreclosed on.
Josh: Nice. Awesome.
Kevin: They made some pretty bad deals in there.
Josh: That’s great.
Kevin: Obviously didn’t learn from their mistakes.
Josh: Do you have a database? Do you track those properties that you’re interested in and just kind of watch them to see when they go or is it kind of—if it kind of comes back somehow, you run across it again then it’s at the front of your mind.
Kevin: I don’t really have a database. I kind of just have a folder where I’ll put the, maybe a print out from an MLS listing in. Every once in awhile I’ll just look through it and see or a lot of times the realtors will play their little games where they’ll drop the price a hundred dollars or put it back on the market and so it’ll pop back up and I’ll see it again and I’ll be like “Oh, this thing is still on the market. Let me go check it out.”
Josh: Got you.
Kevin: Or driving around, I’ll see the sign still in the yard. You know, that sort of thing and it’ll pop in my mind that I need to check that out again.
Josh: Right on, right on. What neighborhoods are you buying in? Are you buying in middle class, upper middle, you know, what are you looking at?
Kevin: We generally are going to buy in a better neighborhoods. I generally stay in midtown Memphis and I know you guys don’t know where that is. It’s a trendy area. A lot of folks want to live there. I like to buy in neighborhoods where people want to live, not where they have to live and so my tenants; my typical tenant is a young urban professional tenant.
Josh: Oh, okay.
Kevin: That’s who I’m going to get. They care about their credit and they want their security deposit back.
Kevin: That’s going to be my typical tenant. I’ve got—I invest in areas where the trendy restaurants are, where the trendy shops are, you know, that sort of thing.
Josh: Got you. Got you. Okay, so you, you know, midtown Memphis is a little different than like midtown Montecino. There’s more than one traffic light there, right?
Kevin: Yes, yes, there are dozens.
Josh: Oh okay.
Kevin: Yes, lots of them.
Brandon: What kind of price range are these houses in?
Kevin: Midtown Memphis has got houses all the way from, you know, you can buy a beat up $30,000 house to you know, some of the houses in midtown are 1.5 million dollars.
Kevin: Obviously, 1.5 million dollar house, you’re not going to get that cash flow, but the $30,000 one with a little bit of fix up, yes, you might get that. It’s harder to find properties in those types of areas because the values tend to be higher and there tends to be more investors chasing them a little bit.
Josh: You’re talking the lower end?
Kevin: Higher end. The higher end areas.
Josh: Okay. Okay.
Kevin: Yes, you know, the values are just higher and so it’s harder to make those cash flow because the values are higher.
Kevin: You simply have to pay more for them. That can make it a little tougher to find the deal so you really have to stay on top of it. When something comes on the market and it’s a deal, man, you’ve got to jump on it quick because somebody else is going to get it too. You know, everybody else is out there looking for that too so if you’ve got your money, your commercial financing, all that stuff in place.
You got to have that stuff ready to go so you can make that offer, maybe within 24 hours to go. I can remember a couple of years ago, I went to look at a property at 10 o’clock in the morning, by noon, I told my wife. You know, she’s the realtor. I said, “Hey, let’s make an offer on that.” We called the realtor. She said, “Oh, it’s already under contract.” You know and it had just popped up at 8 o’clock the night before so I mean, it was gone. It just, if it’s priced right, it’s going to go.
Josh: Got you. Got you. You said your wife’s a realtor?
Kevin: Yes, she’s actually a real estate broker.
Josh: She’s a broker? Okay.
Josh: How does, obviously I’m assuming there’s some serious benefit to having the license under your per view between you and your wife.
Kevin: Yes and you know everything is in house. We don’t have other realtors working for us. We don’t manage other folk’s properties. The real estate brokerage is basically allows us access to the MLS. We can see it, you know, all on our own time. We don’t have to have another realtor involved and obviously whenever we purchase something, the seller pays commission here in Tennessee so you know, we get—she gets some commission from when we buy property.
Josh: Got you. Why would somebody go and get a brokerage license versus just your agent license? More commission? Obviously is one reason.
Kevin: Yes, more commission and if you’re just an agent, then you have to hang your your license with a broker somewhere and depending on the broker, they’re going to make the rules as to well, do you have to attend sales meetings, do you have to attend this. You know I need you to have so much in sales etcetera etcetera, it’s just. There are brokers out there who will work with investors, but sometimes they can be few and far between and hard to find. They’re out there.
Brandon: When you offer on a property then, do you have to disclose that your wife is an agent or broker? You know like, there’s some disclosure rules, but how does that work for a married couple?
Kevin: If I’m just making the offer initially, we don’t, I don’t have to disclose, I’ll just hand, I have a one-page contract that I use and I’ll just give that out. Eventually yes, you know, she’s representing me so yes, all the disclosures will come, but initially, right off the top no.
Josh: Was that—at some point obviously, your wife went and picked up the license so.
Josh: You know, previous to that, you know, I guess what kind of advice would you have for some folks listening in terms of, you know, when’s maybe a good time to think about getting that license and you know, if is it, you know at what point is it a good time to go from being an agent, hanging your shingle with somebody else to hanging your own shingle? It’s hard to say.
Kevin: Yes, it is hard to say. I guess it’s going to depend on the investor and what they want to do and just how, do they want to keep things in house or do they mind hanging out their license with somebody else. You do take on a little more liability of course, being a broker. I mean it all is going to fall on you. Whereas if you’re hanging with another broker, it’s going to fall on the other broker. There’s few more costs, more liability insurance, more classes you have to take, etcetera, etcetera to keep that thing up. It’s just going to depend on how you want to restructure your business or how you want to run things. It’s worked out for us very well because we just like to keep things in house and close to what we’re doing.
Josh: Right on. Right.
Kevin: If that makes sense to you all.
Josh: Oh yes, definitely, definitely. Alright, let’s move to a little controversy so to speak.
Kevin: Uh oh.
Josh: A little controversy here. Slumlords.
Josh: Yes, slumlords. They’re out there, there’s plenty of them. Hopefully you are not one. I am assuming you are not one.
Kevin: I hope not. I hope not. No. No. No.
Josh: I—you know, I’d like to talk about what makes somebody a slumlord?
Kevin: Well, you kind of have to think what’s typically a slumlord? You know, it’s someone I think who’s not fixing up their properties or lets them go into disrepair. Just kind of neglects their tenants I think. Why do they do that? Well, who knows? It could be many things I mean I think, there are yes, a couple folks out there who the general public might think slumlords, sitting back smoking their cigars on piles of money just counting their change. I think mostly it’s—most folks who get accused of being slumlords and you guys may agree or not here, I think it’s folks who get in trouble somehow and eventually their properties end up being distressed and folks like me pick them up. They haven’t learned how to manage tenants. They haven’t learned how to screen tenants. They haven’t had enough cash flow. Something happens and they get in trouble.
Brandon: In other words, they didn’t spend enough time on BiggerPockets.
Kevin: Then the property.
Kevin: Yes, they haven’t learned enough and the cash flow starts to crunch. Suddenly, they can’t make the repairs. That’s just—that’s a pyramid. That will just start to build. If you let a few repairs go and then it will just get worse and worse and then you’re good tenants will leave.
You’ll try to do anything to fill them. You’ll start filling them with bad tenants. That just—it just leads down a spiral and I think, honestly, that’s a lot of folks what happens is why they would get called a slumlord. They get in over their heads. Then thirdly, I think people just get tired of it and say you know I’m just tired of dealing with this. I don’t want to. Don’t call me ever again. Just pay. You’re rent’s cheap. Don’t call me. I’m not fixing it. I’m just tired of dealing with it and if I can ever sell these, I would, you know so.
Josh: Yes. Yes. I think there’s a lot of that. I also think, you know, there certainly are those people who say, ah well you know what, I’m going to buy a property and you know. That doesn’t need paint. Who cares? You know.
Josh: I think a lot of that is an attitude—I—who knows what the percentages are.
Kevin: Oh yes.
Josh: I think the guy who just says screw it. You know, they don’t have respect for their tenants and they could care less and so.
Josh: They’re low lives or whatever. You know, they got a roof on their head. They should be happy. You know, those are the really bad ones. I think the folks who kind of find themselves in trouble. You know, obviously they’re hopefully doing it unintentionally.
Josh: If they have the ability to would do better by their tenants, but you know, in the end, everybody kind of—they all give a bad name to those people who are not slumlords, right?
Kevin: They do and I think people don’t realize just, you know, land lording is not the easiest thing in the world to do. I mean it’s a lot of these so called gurus out there will tell folks, “Hey, it’s easy. You know, you can do it from Hawaii sitting on the beach.” It’s you know, it’s not that easy. I see a lot of out of state investors here coming in form Seattle, Australia, or wherever and I’m just like wondering, how the heck are you guys going to manage this the other hemisphere and I honestly pick up a lot of properties from folks from California, Seattle, whatnot who have bought here, who are trying to manage it from the west coast and you know, it’s a lot harder than you think it is.
Brandon: Yes, I remember you wrote a post a couple months called like, “So You’re A Slumlord. How to Respond?”
Brandon: The whole idea was, every time, cause I have the same thing that you do. Whenever somebody asks me what I do, I say well I’m an investor.
Brandon: They always make that joke every time.
Kevin: They do.
Brandon: Oh you’re a slumlord?
Kevin: They do. It’s just a associated with landlords unfortunately. I don’t know how we got such a bad name, but we did and I try really hard not to do it.
Kevin: You know, to try to keep things up nice and you know respond to tenant issues.
Josh: Yes and I think that’s really the goal of what I’ve been working on for almost nine years now with BiggerPockets.
Josh: Is you know, can we do something, can we work as a community together to change, not only the way investors learn, you know, kind of getting rid of the old, you know, get rich quick.
Josh: Guru mentality and moving towards more of a community based working with local mentors and people, but also to—trying to change the perception of real estate investors.
Josh: Change the way that they think about themselves, as well because I think, you know; take like bandit signs, for example.
Josh: It’s a tactic that the gurus push on everybody and it’s really popular and frankly it’s kind of effective.
Josh: In the end, I’ll argue everyday of the week that it’s really bad for you, personally as a brand and it’s really bad for investors as a group.
Josh: You know these things are bad for our neighborhoods. They don’t look good. You know, they may work, but there’s other ways to do it.
Josh: I think if we kind of all work together in terms of how can we better set of people that we’re a part of? You know, I think that’s how it’s going to change.
Josh: It’s just going to take time.
Kevin: Yes. It’s education like we were talking about with the realtors earlier and it’s just showing folks that, you know, “Hey, we’re not all bad.”
Josh: Yes, definitely.
Brandon: Alright, I want to move on to another topic. You know, I know a lot of people that listen to the show are either.
Brandon: Not investors yet and want to be or maybe they own one property or two properties.
Brandon: You know, they’re small time do it yourself land lords.
Brandon: I want to get in kind of some how to questions I guess.
Brandon: On how you actually manage properties so why don’t we start out very beginning, how do you find good tenants like how do you advertise? How do you get the right tenant in there?
Kevin: Yes. All of our advertisements are done through our websites and web based media. You know, I’ve got my own website and that puts it up there. We have a property management software that we have purchased and used, which kind of automatically generates the ads and it puts it automatically on Craigslist and several other out there. That is how we get and find tenants. We do not even put signs in the yards anymore. We—it’s all internet based as I said, we typically have a young urban professional tenant. They’re going to be online. They’re going to be with their smart phones. That’s how they’re finding their information.
Kevin: That’s how we’re trying to connect with them. Now in other types of markets, you’re definitely going to have to put signs in yards. I’m not saying signs are bad, you know for rent signs. It just depends on your market, but that’s how we find them. Everything is internet based for us.
Brandon: Yes. I find that Craigslist nowadays, like, just in the last two years or so of my market, Craigslist has completely overtaken any other form of advertising that we’re doing.
Kevin: Oh it’s phenomenal.
Brandon: It is. It’s awesome because it’s free.
Brandon: Like our local of newspaper is a hundred—I think it’s fairly cheap for a newspaper, but it’s $140 a month or something.
Kevin: Oh, our newspaper is outrageously expensive. Nobody reads it.
Josh: What’s your newspaper?
Kevin: It’s Commercial Appeal.
Kevin: To put an ad in that thing is really expensive. I don’t even remember what it is because we haven’t done it in nine years.
Kevin: We do use, since you brought up print media, we do use. There’s a local free paper here that certain cities have. You know they put them around, you know, everywhere. We do use that because a lot of the, you know, that paper gets picked up and read by our tenant base quite a bit and so we will put an ad in there, which also goes onto Backpage. There’s a Memphis Backpage. It also goes up there and that site brings us so us some good traffic as well.
Josh: Yes, yes. I found Backpage just wasn’t very effective, but Craigslist certainly is a great resource for finding tenants.
Kevin: It’s just going to depend on the market and there you are and what folks do and you’re going to have to try several different things to find what works for you.
Josh: Yes, I think, you know, lower end tenants, lower in come properties typically; the signs are going to be your best bet.
Kevin: Yes, they will.
Josh: As you rise up among the income class, you’re going to find that online media certainly is your best bet.
Kevin: Right, but even in the higher income areas, folks are going to be driving around looking because they might want a particular school. They’re going to be looking, driving around in that school district and that’s going to be the driver for them is finding something in that particular school district so signs still in the higher neighborhoods work.
Josh: Well, I’ll tell you, Zillow actually just came out and I haven’t even tested it yet, but they just announced that they mapping of school district now.
Josh: On their site, which you know, it’s phenomenal. I think that’s going to be really valuable for folks looking to rent and you know, different districts and for people buying as well.
Josh: There’s a great Quick Tip, for you. I snuck it in there.
Brandon: There you go.
Kevin: Yes, it’s a big driver for people with families; you know, with kids, schools. I mean my tenants generally don’t have kids so that’s not a big issue, but for those families that are moving into an area and you know, with kids, schools are going to drive it and that’s what they’re going to look for.
Josh: Cool, so what’s your screening process?
Kevin: Well, I’m going to look for generally about four things, you know everybody has to fill out an application; everybody has to pay the application fee hands down. You know there’s no getting around that.
Brandon: That’s online, right? Not a paper app?
Kevin: It’s, we could do either, but most of it is online.
Kevin: It comes through our website, but for those who, whatever reason can’t get online, we can give them a paper one. No big deal, you know, but basically, we’re looking for income to pay rent. I want to see that you’ve got enough income coming in to pay rent and cover your bills and have food and all that sort of stuff. I don’t want any evictions. You know, no evictions period. I want fairly decent credit. I want.
Josh: What’s fairly decent?
Kevin: $600 and up, that’s what we’re generally looking at here. We can go a little lower, depending, but it’s depending on your situation. We just really want to see that you’re going to pay your bills and that you have paid your bills.
Kevin: Especially things like utility bills, you know, if you’re not paying those, and they’re coming after you, you’re not going to pay me either.
Kevin: That’s what we’re looking for.
Brandon: I always look for the car loan. If people don’t pay their car loan, yes.
Brandon: Because that’s the last thing somebody wants to get rid of is their car because that’s like their life.
Kevin: Right or the cable bill, you know.
Kevin: If cable’s gone then you know it’s bad. Other things, you know, you may not think about, but neatness counts, manners count and not lying to me is a big thing.
Kevin: If you lie to me on an application, I find it. You’re done.
Kevin: You know you’re out the door right there. We ask have you been in bankruptcy? Tell me the truth. I’ve worked with people who’ve been in bankruptcy. Hey, one of my tenants was a guy who went bankrupt because cancer bankrupted him. You know, he was great. Yes, I can work with you as long as you’re honest with me upfront and you’re not a jerk.
Kevin: I mean if you come up off, you know, being a jerk. I’m not going to let you in my property because guess what you’re going to be once I let you in, an even bigger jerk. You know, manners, neatness, if your car is full of trash and all that, you know. It’s—you’re apartment is going to be full of trash.
Josh: Yes and you know, I think most people are aware of the protected classes.
Josh: You know, race, age, gender, that kind of stuff, but you know, as a landlord, you can discriminate against, you know, dirty pigs, slobs.
Brandon: Dirty is not a protected class.
Kevin: It is not; dirty is not a protected class. Smokers, you don’t have to let smokers in. We’ve talked about that in the blog before. I know a landlord who doesn’t allow folks with motorcycles.
Kevin: He says because the motorcycle is going to end up in my living room dripping oil on the carpet in January. You know, that’s and so no motorcycles. I just don’t allow tenants that have them.
Kevin: No landscapers because they’re just dirty.
Kevin: They’re just going to be filled with mud.
Brandon: I’ve had a couple of roofers and every roofer is extremely dirty on the walls because they’re with a—their hands are all covered in roofing material.
Kevin: They’re black, yes.
Brandon: They cover the walls IN dirt. It happens, I’ve had three of them. Just like that.
Brandon: I should make.
Josh: All the roofers in the world are going to hate us now.
Kevin: Yes and all landscapers.
Brandon: Well I was thinking I should make that.
Kevin: No landscapers.
Brandon: Yes, maybe I’ll make that a requirement.
Kevin: Yes. It wasn’t me that bans them. It was other folks.
Josh: What other non-protected things have you screened out?
Kevin: You know, obviously drugs are one. If you’ve got.
Josh: Come on Kevin.
Kevin: You know. It all depends. No, no, I’m kidding. You know, if we SEE serious convictions in the past, you know criminals; I mean crimes, that’s one. Criminals are not a protected class. You know, obviously a traffic ticket or something minor a long time ago, we can work with you, but I mean, I just don’t want to see. I just don’t want all those problems that are going to come with that. Especially if you’ve been dealing, I mean that’s just one, no. It’ll drive your other tenants away.
Brandon: What about DWIs or DUIs?
Kevin: You know that’s going to kind of look at, you’ll be able to see if they make poor decisions when you pull their credit.
Kevin: You know, was the DUI a poor decision along with a bunch of other things like they don’t pay their bills and they’re just doing dumb things or is the DUI a one time thing. The guy made a mistake and he really kind of needs a chance. You can kind of see it when you get the whole picture in your screen and everybody out that way.
Josh: Got you. Okay, okay.
Josh: You’ve been doing this awhile, you’re obviously very skilled at it, you know, I think one of the big problems that newer landlords face, particularly, as we approach the time of the year that we’re approaching now, in most of the country at least, is you know, November, October, December, January, February, it gets harder to rent your apartment. It gets harder your house out. People aren’t looking as much. I think often times, there’s that level of compromise that happens. Well, you know, if I can’t get them in now, you know I’m going to have to wait ‘til February. What can you tell the listeners to maybe alleviate that? Do you have any advice for what they can do? I would just say just drop the rent and find, you know, a better class of customer, but what would you say?
Kevin: Right. That’s the main thing, if a property is not renting, a lot of times it’s because of the price and you need to come down a little bit on the price see if you start to get some more hits. I know it’s painful to have it sitting there vacant, but don’t drop your standards just to get somebody in there, you’re not going to make any money. On the back end, you’re going to end paying a lot more than what you’re going to collect in rent. We’ve tried and learned the hard way of going down that road.
Josh: Oh yes, me too.
Josh: Really bad.
Kevin: Folks just stick it out a little bit, if you can get past Christmas, people will start looking. People are moving to town, changing jobs, there’s all kind of things. Yes, they’re not as many as May and June, but they’re out there. If you have a nice place, at a decent area, at a good price, it’s going to rent eventually so just stick to your guns.
Josh: Yes, that’s great. That’s great.
Brandon: A lot of landlords, you know advocate, you now when you actually sign a lease with the tenant, structure that lease so it doesn’t end in December, January, or November, December, January, you know, if that means offering an eight month lease instead of a 12 month because you don’t want to end at the wrong time, and I know like for me, I always go into like blips mode in October, November and I like—I ramp up my marketing like crazy to make sure everything is full.
Brandon: By November 1st because nothing will rent from November 1st ‘til January 31st in my area. Just nothing.
Kevin: It’s difficult. I can’t say nothing will rent here. Obviously were in a slightly different market. It will rent, but it is certainly more difficult and yes, we have used that’s one trick. You know, maybe do a six-month lease so that it ends in June, you know, if you can negotiate, a 14-month or a 15-month or whatever if a tenant is willing to do that. Then yes, try to extend them out so that your vacancy comes up when the market is high.
Josh: Nice, how do you collect rent? Do you collect rent online through one of these online rent payment companies or what do you use?
Kevin: Our property management software has a portal where folks can pay their rent online and about 70% of them do that.
Josh: What do you use? What software?
Kevin: We use AppFolio.
Brandon: I also use—I just started using it on my website and it’s really really cool so.
Kevin: Yes, it is, especially talking about the ads on Craigslist’s that we did before. It generates those. It makes them pretty. It’s nice. It’s really—I’ll give them a little plug. It’s a nice thing. You new folks out there are not going to need that right away, but as you build your business, that’s something you’re going to want to think about.
Josh: We have a list on and we’ll point to it on the show notes as well at BiggerPockets.com/show36 of—it’s a whole list of handful of different online rent.
Josh: Online property management software platforms like AppFolio so make sure to check that out in the show notes at BiggerPockets.com/show36 and you can do your own research on that.
Josh: Obviously, you just got two plugs to AppFolio.
Kevin: Yes, shop around. We shopped around all of them or a lot of them. We found that, you know, that was the one that worked the best for us and you’re just going to have to see what works for you. Before that, we used a service called Clearnow. If you’re not that big you can use them.
You can use them, obviously, they take a little cut out of your rent, but it’s so worth it because it deposits it right into your checking account. You don’t have to go to the mailbox. You don’t have to go banging on doors or anything like that. Boom, it’s right there and of course, my tenant base going to like that. They’re used to paying things online, they’re used to paying with debit cards and things like that.
They don’t have checkbooks anymore. They don’t have stamps, you know, what’s a stamp? We don’t know what that is. Everything is done online. The more we can get to that, the better for us, but we still, like I say, it’s about 70% that pay online. The rest is check. They mail them to us. I don’t go banging on doors looking for rent.
Josh: Yes, yes, right on. What about cash flow, so you know, I’m a guy of a mindset that cash flow means you’re making a profit every single month, you know, barring the cutbacks that you actually plan for ahead of time. When you’re plotting ahead for a purchase, you’re obviously keeping in mind all the expenses that come with the rental property, not the ones that, you know, sorry to rip on agents here, but the vast majority of agents will tell investors, you know, it’s your rent minus your mortgage.
Kevin: Right, right.
Josh: That is not cash flow.
Josh: What’s your theory on cash flow? Would you buy a property that’s quote “break even” or do you only aim for specific amount per door? How do you work it?
Kevin: No, I will not buy a property that’s break even because I can tell you, it won’t be break even for long. Something is going to break; something is going to happen that it will not be break even. My standard is I look for about $150 positive cash flow, per month, per unit so if it’s a duplex that’s $300 positive cash flow per month, and that’s on top of everything. You know, that’s your principal, interest, taxes, insurance, about 10% percent vacancy credit thrown in there, 10%-12% repairs and then trying to put a little bit of reserve fund away for the future. You know, you got to repair the roof at some point. Your condenser is going to go, all those sort of things so you got to put a little bit of a reserve away as well.
Josh: What about property management since you guys are managing. Are you assuming the management fee of say 10% a month on top of that because you got to pay yourself?
Kevin: Yes, yes, we kind of throw that a little bit in there as well, not as much as we first started out, but now as we’ve gotten a little wiser and structured things a little differently, yes we try to plug that in there. As you get larger, you can’t do it all yourself.
Kevin: We’ve had to hire a couple of folks as well to help us out and so they have got to be paid somehow, so it comes out of that cash flow.
Josh: What’s the best way for newer folks to plan for, you know, the expenses, you know, again, that’s probably one of the biggest errors that we see people making is.
Josh: They have the wrong assumptions about what it actually costs to be a landlord and that’s where they screw up. You know, it happens. When they buy, they overpay because they don’t what—they think the rent is going to be covered by the mortgage.
Kevin: Right. That’s it.
Josh: That’s the end of the story.
Kevin: Yes, you know, they give bad advice. People, they’re told, well, you just need to cover your mortgage. You know, but there’s also taxes, there’s insurance and the repairs. The average that everybody likes to use is 10% of your gross income so if your rent is $600, you can expect to pay $60 a month in repairs. You may not do it every month, but say in May, something’s going to break and you’re going to have to use those five accumulated months. That $300 to fix something. Trust me, it’s going to come and I would even probably, I’ve lately been going to 12%-15% trying to budget that in because you know, stuff breaks, a lot.
Kevin: Not every tenant is going to take as good care of stuff as it is like you would if it was your own. I mean things break and you’ve just got to be ready for that. You’ve also got to have reserves too. That’s key as well. Have some cash in the bank.
Josh: What does that look like? How many, you know, and I’m guessing that’ll depend on the size of the property, the purchase price, but you know what would you recommend in terms of reserves for folks?
Kevin: You know it’s going to depend on how big the property is. You should at least have an emergency fund of several thousand dollars, at least. If you’ve got one property, put $5-$10,000 aside because if something happens, you know, if there’s a storm and it blows your roof off, well, I mean, you’re going to have a huge deductible to put it back on. You know, stuff happens.
Kevin: Trees fall on properties, you just never know. You just never know, you’re taking a gamble if you don’t have some funds put aside.
Brandon: I have a triplex that we saved up $9,000 for like the emergency fund and we wiped the entire thing out in one month. I mean 100% of it in one month just because we had two vacancies, an eviction, and two remodels.
Brandon: Because the units were destroyed. Yes.
Kevin: That’s the other thing people don’t realize is the turnover kills you.
Kevin: Especially if they tear up the unit.
Kevin: The key is A get long term tenants if you can, B, if you can’t, get your properties back in almost as good condition as what they went out because turnover, if you constantly have to rehab these things every year, fresh paint, redo, the floors, you know, yadiyadayada, the whole thing. You’re cash flow is going to get killed.
Josh: How do you do that?
Kevin: How do I do, make sure I get them back?
Josh: How does somebody get a property back in as good or close as good od a condition as possible. Don’t rent to landscapers. I know.
Kevin: Right, right. It goes back to the tenant screening we talked about and getting a tenant that cares about their credit and not getting that dinged and getting somebody who actually wants their security deposit back and somebody who’s neat and has manners and all that sort of things is probably going to take care of your property fairly well.
Brandon: That just shows why.
Kevin: Plus manage it—we manage it when they tell us they’re going to move out, boom, we send them a form. Here’s all the things you’ve got to do. The fridge has got to be cleaned. The stove has got to be cleaned. With prices next to them.
Kevin: That says if we have to clean the fridge, it’s $50. You know, if I have to take a fork out of the drawer, it’s $10. You know, if I have to put a light bulb in, it’s $10 so we send them that list and you know, this is what. If you want to get your security deposit back this is what you got to do and a lot of times, we get it back in pretty dang good condition.
Brandon: We just did. We just started that. We got that form that says, the price for everything.
Brandon: It’s hard to tell you know, how much it’s improving, but the last two people that moved out with that form cleaned spotless.
Brandon: Because I think there’s something about that when they see the number that it’s $10 bucks to replace a light bulb.
Brandon: Yes, all of the sudden then they start to you know, think, oh that’s coming out of my wallet.
Kevin: Yes, and you know, you’ll never get them back perfect.
Kevin: There’s always normal wear and tear. You’re going to have to touch up a little paint and what not, but you know, it’s not hundreds or thousands of dollars worth of repairs that you have to go in and fix.
Kevin: You can almost re-rent them instantly, which is what you want.
Josh: Yes. Yes, for sure. Alright, well, let’s kind of move on to the next section here. We’re going to try and speed it up a little bit because this looking like this is going to be a pretty long show here, which is great because there is a ton of, ton of great stuff here. For you, at least, I guess what’s the point of the cash flow. You know, is this live off the cash flow say for future purchases or is it are you using it to pay down loans? What are you doing?
Kevin: You know, it’s living and building reserves and everything else. I mean the cash flow is our salary. Pretty much. That’s how put food on our table, put gas in the car, buy an occasional luxury, pay our mortgage payment on my house and that sort of thing. It’s what we live on and it’s what we use to invest further in the business to make improvements to put a little bit down perhaps on buying another property.
Josh: Well, let me ask you this so you’re what we would call a pretty successful landlord, you know and so you know, I think I really want to harp on this because, you know, your success world, you’re living off your business.
Josh: You’ve created this business that you and your family survives off of and does, hopefully fairly well with, but you know, you’re not spending, you know six months of the year in Tahiti and buying, you know, ten Mercedes and blinging it up. I mean, the perception of this landlord.
Josh: As rich man, what’s your theory on that?
Kevin: You know it kind of gets back to the slumlord discussion we had. They all perceive as we go home, light up a cigar and then sit on my piles of cash like Scrouge McDuck or something.
Josh: Scrouge McDuck.
Kevin: I don’t know.
Josh: I love that guy.
Kevin: You know I don’t know where that perception came from, but it yes, you’re paying me $600-$800 a month in rent, but you know, a lot of that is going back out. I’ve got to pay the bank. I’ve got to pay the bank on the 1st, there’s no calling the bank and going, “Oh well, I’m a little late, you know, my cat died or whatever.” You know, I have got to pay them on the 1st or they are going to take the property from me.
I’ve got to pay the city taxes and the county taxes. There’s no stopping that. Insurance and you know when you call me about your toilet leaking or this is broke or that’s broke, that’s where the money comes from. I got to cut the grass. I got to keep the place painted and looking good. I got to pay somebody to pick up the trash. All of these things add up to where I’m really not bringing home $800 a month that you’re paying me. You know, the majority of that is going back out to keep over your head that’s nice and habitable and someplace you want to live in.
Kevin: I get a little bit extra. I can eat a pizza every once in awhile or you know, drink a good beer every once in awhile, maybe take a vacation every once in awhile, but I’m certainly not sitting in Hawaii six months out of the year.
Kevin: As much as I’d like to be.
Kevin: Maybe that’s the goal.
Kevin: At some point, but right now, we’re still building our business.
Kevin: Our goal eventually would be to replace us more and more as more and more cash flow comes in.
Kevin: Replace us with managers and then maybe we can go and sit in Hawaii at some point.
Josh: I wanted to raise that just because again, I think there’s a lot of people out there that are selling that dream.
Josh: I really, you know, if anything, if we can do anything with what BiggerPockets is and does and the show is, I want to be about reality and that’s called reality right there. I mean, you know, if you want to get rich, you can get rich with real estate.
Kevin: It’s a lot of work.
Josh: It takes time and it’s a lot of work.
Kevin: It takes time; it’s a lot of work. The best thing you get from being on your own and getting into real estate is flexibility. You get your time and you get a flexible schedule. You know, you can work at two in the morning if you want to or ten in the morning or whatever, but the bad part is, it’s all on you. I mean it’s all falling on you especially in the beginning. When you don’t have any help, somebody calls, “Hey, my toilet’s leaking.” You got to go over there and fix it, You know or you got to cut the grass, you got to do all these things to keep that up and it’s hard. It’s time consuming and it takes a lot of fun sometimes.
Brandon: Yes, so what would you say then is like the worst part about being a landlord.
Kevin: The fact that it’s all on you. It all comes back going to come back to you. I mean if you’re going to sink or swim, it’s all on you and how you’ve done your business. That’s I think the hardest part of it. Sometimes you can feel rather alone out there working on these things. Keeping it up and you know that’s why it’s nice to network with other folks, other landlords on BiggerPockets or whatever because you don’t feel so alone.
Kevin: Somebody else is having the same problems you are.
Brandon: Yes, it’s thousand percent sure. I talked to somebody yesterday and they said every time they talk to somebody about real estate in their life, they kind of look at them like they’re greedy and I feel the same way sometimes. I talk to my family and friends about it.
Brandon: They just kind of, you know, their eyes gloss over and they just think, “Oh there’s Brandon being greedy.”
Kevin: Oh, people don’t get it.
Josh: Stop bragging you guys. Come on.
Brandon: Yes, that’s exactly what people think and.
Kevin: People don’t get it and you know, one of the things a lot of folks say about you know, if you want to get into real estate is go talk to other folks who are in the real estate, don’t talk to Uncle John who you know, works for the government or something because they’re going to tell you real estate is bad, you know, dadada, you know that’s not true. You need to find somebody who’s actually in real estate and will give you the straight dope on what’s going on.
Josh: Yes and it’s funny, people always say to me over the years, they’re like, “Well, how’s BiggerPockets? How’s your business? You know, the market’s real crappy. You know, what’s going on?” I said, “Listen, no matter what there are people who are buying properties.”
Josh: If the market’s great, people, everybody is jumping in thinking, “Hey, I’m going to be a landlord.” When the market turns, most of those people get out of the business and sell their properties to real investors, guys like you guys who have a background. Who work their butts off to do it and aren’t there trying to gamble and bet on appreciation. Other things.
Josh: Yes, absolutely, absolutely, hey so you mentioned networking.
Josh: I believe quote, tell me if I’m wrong here. You’re the VP of a local real estate club. How did you get into that? Why did you get into that? Let’s really quickly try and fly through this whole REA thing.
Josh: The value of it, so tell us a little bit about that really quick.
Kevin: Well, yes, I was past president and vice president of our local REA, which is the Memphis Investors Group. I’ve been involved with them for ten years. How did I get into them? I just was looking for help. Looking for other folks to talk about on real estate and you start Googling things, you start looking around and you find these clubs and so I went, kept going, and signed up, and became a member and I’ve been going ever since. It’s been great. The biggest thing about going at least to my club was learning. Learning from other investors out there who had done it and so I didn’t make the same mistakes that they had made. I’ve got a good friend here who says, you know, if you don’t do it. You’re going to have a bunch of seminars, specifically says seminars and we all know what a seminar is. You know, you go to these gurus; you pay thousands of dollars to take their seminar. Well even if you don’t do that, your still going to pay thousands of dollars for seminars because you’re going to let in a bad tenant, you’re going to buy a property wrong and you’re going to end up paying thousands of dollars to learn that lesson the hard way instead of going to a local REA group and hearing another more experienced investor tell you, here’s how you screen tenants, you know, here’s how you buy properties right, or whatever it happens to be. That’s kind of how I got into it and now I like to give back and that’s why I stay with it. I like to teach and give back to the new folks coming in.
Josh: There’s obviously good clubs and there’s certainly quite a few bad ones out there.
Kevin: Yes, there are.
Josh: How can somebody avoid the bad ones? I guess do you just kind of got to go and see if it’s just a big fat pitch fest and if.
Kevin: Yes, yes, they’re not going to have up a sign that says you know we’re a bad club.
Kevin: Be careful. They’re not going to have their red flags out, but there certainly are I think things you can look for and it’s just going to take a little bit of time on your part to go and feel them out. I think if you go and it’s always a sales pitch. Somebody’s always trying to sell you something or somebody’s always trying to sell you in particular their particular properties. Red flag, red flag.
Kevin: You know, be careful. You know, not saying that it’s a bad club. It could be very good. You know there are lots of privately owned REAs out there that are fine. I’ve been to several and they’re good clubs. Ours is a non-profit so you know maybe that’ll make a difference to you non-profit versus a private one, but don’t say if it’s private though, it’s automatically bad. It could be good.
Kevin: I would say that if they’re always trying to sell you something, if they’re trying to sell you a specific products or a specific set of properties, then you’re spidy sense should go up and say well maybe something’s not quite right here.
Josh: Nice. Yes. You know, that’s great advice.
Kevin: Yes, be careful.
Josh: Yes. Right on.
Kevin: On the other hand, if it’s you know, yes they’re trying to sell you something sometimes then it’s networking and it’s also classes and it’s also panel discussions and other things where real local investors are talking to you. Then you’ve probably found the right place.
Josh: Yes, just leave your wallet at home. Bring your cards and you know. Go have fun.
Kevin: Yes, when you’re going out there first, you probably do want to keep your cards close to the chest, feel it out, see what’s going on.
Kevin: You know, trust your instincts if it feels bad, it may be, but if people are being open, yes, it’s good.
Josh: Cool. Alright, well we are you know, we’re like almost an hour now so we better slowly start to wrap this up.
Brandon: To my new favorite part of the show which is the Fire Round.
Josh: Fire Round.
Brandon: Yes, the Fire Round.
Josh: Do you like that?
Kevin: Sounds great.
Brandon: The Fire Round is questions from the BiggerPockets forums.
Brandon: Most of these come directly from there and they’re questions that actual people have asked and I want to get your advice on it so. Very first one, how do you decide on rent, the rental amount for renewals when somebody’s renewal comes up? How do you know to raise the rent or keep it the same?
Kevin: You’ve got to stay abreast of your market. You got to see what other investors are doing and what other properties are renting for and again that’s part of networking so you’re with other investors and seeing what’s going on. It’s going to be based on your market. If the market’s going up and you can raise the rent then certainly do so, but if not and you want to keep a good steady paying tenant, you know, then don’t raise the rent. Obviously, if the market’s hot and has been raising or going up then yes, you can raise it a little bit. Sure.
Josh: Right on, right on. Okay. During turnover, do you rent your own DIY, rug doctor, Home Depot steam cleaner or do you go get the professionally cleaned your carpets.
Kevin: At first I did it myself, but now I hire all that stuff out and then to a new folk, to a new person, I would say do it yourself first so you learn the cost, the expense on how to do it. As you grow and get bigger, then you hire that stuff out.
Brandon: Cool. Speaking of that then, best flooring for a rental?
Kevin: I like hardwood floors and ceramic tiles. Ceramic tiles in the kitchen and bath, hardwood floors everywhere else with tons of clear gloss polyurethane.
Josh: Nice. Nice. Keep it shiny.
Kevin: Shiny and hard and indestructible pretty much or close to it.
Josh: Nice, excellent. Okay, my tenant moved out without any warning, what do I do?
Kevin: It depends on your state and what the laws say, here I have got to—here I’ve got to actually send the notice. Then I actually have to store their stuff for 30 days if they’re just abandoned. After that, I can pretty much declare it abandoned. I can take their stuff out, sell it, try to recoup any costs, and then clean and re-rent the unit, but they haven’t given you notice that they have left and so technically possession is still theirs under the law. You have to be very careful. If you go in and start moving stuff and then they show up, if they just went to Hawaii for 30 days and then didn’t tell you then they come back, well, you know, I had $3,000 sitting under the mattress, where is it? Grandma’s gold ring is gone, etcetera, etcetera.
Kevin: You can set yourself up to be burned quickly.
Josh: Yes. Very very dangerous.
Kevin: Know your statutes and what you have to do in that situation.
Josh: That’s great and we have written a couple of good articles on that and we’ll see if we can scrap them up and put them in the show notes as well.
Brandon: Cool. Cash for keys. Do you pay tenants to leave that you don’t—instead of an eviction?
Kevin: I would prefer to, sometimes, yes. It’s cheaper generally than going through the eviction. An eviction is expensive and it’s adversarial and I just don’t like going down to the courthouse. It’s generally cheaper for me to pay cash for keys and I can tell the folks, look, get your stuff, clean it up, broom sweep it, make it clean and I will—here’s some cash to go and that’s usually. I get my property sign the possession form back to me. I got my property back. It’s just easier.
Kevin: It’s cheaper and easier.
Josh: Right on.
Kevin: I hate to do it. I hate to pay somebody to.
Brandon: I know. It hurts.
Kevin: It hurts and you know, I’d love to have my day in court and all of that, but it’s you know, just pay them to get out. It’s going to be easier on everybody.
Josh: Yes, breathe, are you okay?
Josh: Take a breath. You seemed a little frustrated, a little angry, I get it, you know.
Kevin: On the flip side though, I’ve only done, in ten years, I’ve only done three evictions.
Brandon: That’s good.
Kevin: You know I try to avoid that as much as I can.
Josh: Yes. Yes. That’s probably a testament to your screening process.
Kevin: Yes, yes.
Josh: Yes, right on. Alright, so how do you deal with tenants who pay rent late and don’t call? Just rent shows up on the 8th and they don’t say anything or the 12th.
Kevin: They haven’t talked to me at all?
Kevin: Wow, they better start talking to me. You know, I don’t know. That’s really never happened. We talk to them and you know with texting and all of that, they’ll get in touch with us somehow. They’re going to get a note on their door or something else. They just don’t talk to me at all? I mean I’m eventually going to get an FED warrant and that’ll get their attention. At that point, if they pay late again and keep doing it and not talking to me. They’re going to go.
Josh: For those people.
Kevin: At the end of their lease, they’re going to go.
Josh: What’s an FED warrant for those people.
Kevin: I’m sorry.
Josh: Who have not heard of it?
Brandon: I have no idea.
Josh: I’ve never heard of it.
Kevin: Forcible Entry and Detainer.
Kevin: It is an eviction warrant in Tennessee.
Brandon: Oh okay.
Josh: Okay, got you.
Kevin: You go and.
Josh: Sounds a little bit more hardcore.
Kevin: Yes, FED warrant.
Kevin: Forcible Entry and Detainer, yes that’s the eviction here in Tennessee and that is what will be tacked on their door. Usually just the service that’s tacked on their door will get the—get somebody calling you real quick.
Kevin: That’s when you can talk to them. Don’t ever do that again.
Brandon: Nice, well alright, final section of the podcast today is our Famous Four.
Josh: Famous Four. That wasn’t very good.
Brandon: Josh just taught us…
Kevin: Yes, I don’t even know what you said I don’t think.
Brandon: Alright this is.
Josh: The Famous Four.
Brandon: Famous Four. We ask these questions to every single person and here we go with you.
Brandon: Number one.
Brandon: What is your favorite real estate book?
Kevin: My favorite real estate book I don’t know if I can narrow it down to one. I’m going to give you two if that’s okay. I liked Kiyosaki’s Rich Dad, Poor Dad for newbies because it gets your mind thinking differently about cash and money and I also like the E-Myth for more experienced folks, for building systems for businesses. I mean, that’s just key when you get into this is having systems in place to keep your sanity and to keep your business growing. I would say those two.
Brandon: Nice, you know if there’s anybody listening to this podcast right now that hasn’t read both of those yet.
Brandon: I mean almost every guest says one or the other or both.
Kevin: Yes, pretty much.
Kevin: It just depends on where you are in life for each one of those. If you’re new, Kiyosaki. If you’ve been in it for a while, E-Myth.
Kevin: Yes, so would that E-Myth then be your favorite non-real estate business book. Yes, they’re both kind of non-real estate.
Kevin: Actually, they’re more business books, but they apply to real estate very well.
Josh: Indeed. Indeed. Absolutely. What about hobbies? Do you do anything for fun other than kicking those three tenants out of your properties?
Kevin: Ah, that wasn’t fun. Believe me. Yes, I like to read. I read quite a bit. I like to teach. I still use those college degrees. I teach college level geography. I do that for fun so.
Josh: Oh nice. I’m for fun am a astronaut so.
Kevin: Oh cool.
Josh: Yes, I just use my astrophysics degree for fun on the side.
Brandon: That’s a complete lie everyone. Josh is lying.
Kevin: He wouldn’t lie to us, would he?
Josh: No, never.
Kevin: No never. Other than that, I like to—I run for exercise. I just ran a four miler in 26 minutes on Friday.
Kevin: I play racquetball.
Brandon: Oh I love racquetball.
Kevin: Do you? Oh we’ll have to play.
Josh: I like it too, but I’d be afraid to play with the giant Sasquatch that is Brandon. He’s like eight feet tall.
Brandon: I’m actually terrible at it, but it’s fun. I throw people around.
Josh: Which is scarier.
Brandon: I just run into people and throw them into the walls.
Josh: Yes, pretty much.
Josh: Full contact racquetball.
Brandon: Ooh, good idea.
Brandon: Alright, final question.
Josh: By the way, that is fascinating the whole geography thing.
Brandon: It is.
Josh: I’m a huge fan of geography and I think it’s awesome.
Kevin: Well and I enjoy teaching, which is part of the reason I like writing for you guys on BiggerPockets and I like going back to my REA and things like that. I just enjoy giving back and teaching and trying to get folks to do it right.
Brandon: Yes. We definitely appreciate it. Final question, what do you believe sets apart the successful landlords from the non-successful ones. The ones that give up and fail or lose their properties or whatever.
Kevin: I think it’s that they bet on something other than cash flow or didn’t analyze the cash flow properly. If you bet on appreciation, you’re going to lose. You’re speculating because you know, real estate does not always go up as we’ve so hard learned. If you bet on cash flow, if you always have positive cash flow who care’s what your property’s worth, you’re still got proper cash flow coming in.
Kevin: You’re going to be able to eat. You’re going to be able to buy gas, all those other things. You’re going to be able to ride over the rough waves that we’ve just gone through. Hey, any—all the folks that are still standing today in my REA club, etcetera, bet on cash flow. Those are the ones that are still above water today.
Kevin: The folks who are flipping and trying to—they’re gone.
Kevin: Flipping is good, you can do it, I’m not saying that’s bad, but the ones who are just doing that and were betting on appreciation. Most of those guys are gone now.
Josh: Interesting, interesting. Well, I’ll tell you, man, you’re area is kind of a hotbed of investor activity.
Kevin: It is.
Josh: There’s a lot of stuff happening. Memphis is hot.
Kevin: It is.
Josh: Memphis is hot so.
Kevin: Memphis is one of the few cities around where you can actually buy a property that will cash flow very well.
Kevin: We have folks coming here like I mentioned, Australia, New Zealand. At our REA group, I meet folks from all over the world coming here and wanting to buy properties in Memphis.
Kevin: Yes so everybody else stay away. We’ve got enough people. We’ve got stuff of these deals.
Kevin: No, Memphis is a good, but you know don’t let that be your only criteria. You know, come here. See it. Make sure you understand everything going in. It has to you know managing the property, finding tenants, understanding cash flow, all of that. It’s so important, especially if you’re in Australia trying to manage this thing.
Josh: Yes, yes, for sure. Well listen Kevin, really really great advice, lots of good tips here and we definitely want to thank you for taking the time to be on the show and of course for also being a contributor to BiggerPockets. We really do appreciate it.
Kevin: Well, thank you. I really appreciate being here. Like I said, I kind of have the heart of a teacher. I enjoy giving back, so I’m glad to do it anytime.
Brandon: You’re website is? What is it again?
Kevin: My website, yes, I blog as well, SmarterLandlording.com.
Brandon: Oh, thank you Kevin.
Josh: Alright guys that was our show with Kevin Perk. Be sure to connect with Kevin on BiggerPockets and we’ll have a link to his profile on the show notes. Also, also make sure you’re connecting with Kevin over on his blog at SmarterLandlording.com. That’s SmarterLandlording.com. Kevin is definitely a savvy landlord. What do you think Brandon?
Brandon: I agree. I learned a lot on this episode so yes.
Brandon: Good stuff.
Josh: Yes, I’m not sure how you learn anything lounging on your couch there. I mean, your energy is down, you’re just kind of I don’t know man.
Brandon: Today is good.
Josh: There’s something not right about it.
Brandon: Today is good. Today is I’m learning and I’m relaxing and my feet are up. This is awesome.
Brandon: Awesome and I’m not playing the drinking game.
Josh: Although somebody is. Apparently, we just got a tweet at the time of us recording this from Luke Ward, which is Who’s That at OK Investors and Luke said, “I will be definitely doing the BP podcast adult beverage game this week. Haha. Just not full of shots, awesome.” If you too want to partake in the BiggerPockets adult drinking game, feel free to take a shot of anything you want whenever we say “Awesome.”
Okay, moving on, don’t forget everybody the. We’re doing this hash tag thing to give away free copies of our BiggerPockets book on flipping houses and estimating rehab costs. If you want to have a chance of winning a free copy of the E-books, just share your favorite quotes from today’s episode, Facebook, Twitter, or G+, with the hash tag, #BiggerPockets and we’ll be looking out and ordering our next winner at the next show. Otherwise, of course, make sure you’re following us on Facebook, Twitter, G+ and so on and the fast and easiest way to do that is go to Facebook.com/BiggerPockets, Gplus/BiggerPockets, LinkedIn/BiggerPockets, so on and so forth and you will find all out profiles.
Otherwise, again, jump on the show notes ask Kevin any questions you’ve got for him, especially if they’re pertaining to rental properties or you know working with—networking at REAs and things like that. He’s definitely a pro at that stuff and connect with us on BiggerPockets. If you have not set up an account yet, what on earth are you waiting for? You will meet people like Kevin every single day, all day long. We have hundreds and hundreds of new posts every single day. New discussions happening everyday on BiggerPockets. There’s absolutely no reason you shouldn’t be on there engaging, connecting with your peers and so do it. If you just set up a profile. Get out and connect. Introduce yourself. Ask questions, answer questions. The more you do that, the more you’re going to meet other people, build your business so do it, do it. That’s it. This is me I’m Josh. I am signing off.
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