BiggerPockets Podcast 008 with Al Williamson Transcript
Link to show: BP Podcast 008: Learning to Be a Profitable but Ethical Landlord with Al Williamson
Josh: This is show 008 of the BiggerPockets Podcast.
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Josh: Welcome to another episode of the BiggerPockets Podcast I’m your host Josh Dorkin along with my co-host Mr. Brandon Turner. What’s going on Brandon, how’s your week going?
Brandon: Hey it’s going alright. I got to admit my butt is getting kicked from this Insanity workout program which is fun but man that thing kills. You ever done that?
Josh: I have not worked out in a long time, thank you for calling me out, you know that and you’re trying to pressure me here.
Brandon: That I am.
Josh: Alright hey it doesn’t show if it make any difference.
Brandon: Yeah but the listeners don’t know that. But anyway my week is going well. Actually I put an offer on a fourplex actually I talked about it on the BiggerPockets blog a few weeks ago about I made a video on how I analyzed an investment property. And then I went and put and offer in on it, they we’re asking 120, I offered them 80. And they verbally accepted, the agent called and said that they accepted. There was four days of kind of limbo where they were just saying, “Yeah we’ll do it, sounds good.” And then I got an email saying, “Somebody higher up the chain said no way, we’re not taking a $40,000 loss.” So now it’s getting back on the market.
So that’s kind of a bummer but yeah it’s kind of a bummer.
Josh: Sounds like the typical goings on of an investor so roll with the punches baby.
Brandon: It does yeah and actually one thing I did when I did that is I submitted a piece of paper with it my cover letter. I’ve never done this before, but I submitted a cover letter with like, “Hey my name’s Brandon this is my wife we’re looking to buy this property. And we want to improve the neighborhood blah, blah,” and put our picture on there, cute young couple invested in real estate.” And my theory was that it’s a local banker selling this like a small local community bank. I thought well whoever is in charge might see that and think, “Oh this is great,” it’s some emotion in that.
Josh: Oh how cute, let’s give them more money because they’re cute.
Brandon: Exactly that’s my theory so I put that up on the blog. So I asked that question on the forum the other day if that would actually work or not and I think most people thought well it’s worth a try. Some people said probably not but I thought it was worth the risk. But yeah maybe it worked initially but maybe it didn’t work for the higher ups that’s probably what happened.
Josh: It’s possible and that actually, the give it a try attitude is definitely one that today’s guest exhibits. So I think it’s kind of a good example for exactly what we’re going to be talking about later. But that does lead us to a new feature that we do on the show here called The BiggerPockets Quick Tip where we’re going to let you guys know just a little factoid I guess about using BiggerPockets to help you maximize your investing.
And today’s tip is something a lot of you guys may know already. But for those of you who read the BiggerPockets Blog at biggerpockets.com/renewsblog, did you know that there’s actually a whole other world on BiggerPockets called the BiggerPockets Forums that have over 500,000 posts or slightly under 500,000 posts.
We’re right at that borderline right about now at the time that the show was coming out. But hundreds of conversations, there’s tons of activity going on in the forums. So if you were not aware, go and check it out again BiggerPockets.com/forums, other forums. And for those of you people who know of the BiggerPockets Forums, there’s this whole other world on BiggerPockets.
The BiggerPockets Blog where we’ve got dozens of authors who’re writing unbelievable content every day, we’re putting in multiple articles a day. So check that out. I’m way past 30 seconds so the 30 second quick tip is obviously not so quick anyway Brandon.
Brandon: Let’s introduce our guest.
Josh: Why don’t we do that? Al Williamson our guest today is a professional civil engineer who’s also a landlord. Al’s pretty active on BiggerPockets as well as on his own blog, Leading Landlord and Al, talks about pretty unique ways the landlords can create new income streams, reduce expenses, increase their equity which is pretty much what we want to talk to Al about today.
So Al, welcome to the show man.
Al: Thank you Josh it’s an honor to be here with Brandon too.
Brandon: Yeah the honor is all ours.
Josh: Slightly less honorable with Brandon but yeah. It’s definitely good to have you man. Alright man so let’s jump right into this; you are a civil engineer turned landlord. Tell us a little bit about your civil engineerness.
Al: Okay yeah well I always was a tinker. My father kind of was a mechanic and he made me watch him and then I just kind of got into it. I just loved fixing things more than blowing them up.
Al: So I had to pick a major and if I wanted to be an adventurer which was the goal, I figured I better just do something general; let’s do civil. So that’s how that came about.
Josh: And what’s the focus in civil?
Al: Well civil’s structures, I oversee bridge construction, roadways, do the solar installation, solar [Inaudible] [06:03] system on Alcatraz, all kinds of fun stuff. It is a fun career.
Josh: Wow okay so you’re the guy we could yell at when our bridges are falling apart and you’re the guy that gets to light up Alcatraz, very cool.
Al: That’s it.
Josh: Now that’s awesome. Alright well so what made you then get into real estate because you kind of have every young boy’s like fantasy job of like building and playing with things?
Al: Yeah I wasn’t even thinking about real estate till I got married. I was getting ready to get married and I went to a church picnic and an older gentleman was giving me all kinds of advice. And one of them was, “Hey you should think about moving into a duplex instead of a single family home, why don’t you guys move into a duplex?”
So that triggered everything, that was it started the explosion of me reading everything I could get my hands on and making the numbers work and I could see it unfolding before my eyes.
Al: Yeah so it’s really good to be able to share things with other people because if no one would have put that in my ear, I wouldn’t be here.
Josh: Okay now that’s great. Well so I’m assuming then that you listened to the sage wisdom of the unsolicited advice of the gentleman who told to go ahead and buy this duplex yes?
Al: I did one step better, I was able to have a great wife, but she was cooperative, “whatever you want to do honey,” type of thing. So that was awesome so I went for a fourplex instead of a duplex.
Al: But we ended up with a three-plex that worked out really well for us it was a Victorian and we just loved it. So we bought it of course and we moved into it and we did that play of renting out the other units to offset our living.
Josh: Got you. Sorry go ahead Brandon.
Brandon: I was going to say I started kind of the same way I mean after my first single family house which I sold, my wife and I bought a duplex and moved into it and the other unit offset the living expenses. So we were living for free for that year and it was awesome. And it’s a great way to start.
Al: It is, it’s like the best piece of advice for someone who wants to do a little bit more especially wealth building while you’re young that’s an awesome move.
Brandon: Yeah no I agree because I mean now that I moved out of that place and probably the same for you, we have that fixed rate, low interest rate, owner occupied mortgage but I don’t live there anymore I just get to keep that. I think I’m at like four or 5% on that one and I’ll have that for probably the next 25 years.
Al: There you go, it’s a great way to step in because you can step in with a low percent down right?
Al:So that was great but I don’t still have mine it blew up on me, it quadrupled in value and I did a 1031 exchange.
Al: Take a little bit off the top there.
Brandon: Yeah that didn’t happen to me. I think mine’s dropped $20,000 in value but it doesn’t really matter because it’s fixed rate mortgage and it cash flows.
Al: There you go, that’s it.
Josh: Hey what Al is a 1031 exchange for those people who are not aware?
Al: That’s how you can move your equity without having to pay taxes, but you can move into, you have to take out a little bit more debt that you currently whatever your mortgage is has to be bigger and you can exchange your properly for something that’s larger, has more debt associated with it without having to pay that 25 long term for capital gain.
Josh: Got you and of course anybody who’s hearing this and wondering about 1031 exchanges, please seek the advice of a professional before trying to go ahead and do one of these things and there’s plenty of information about 1031s on BiggerPockets. But okay, you got into real estate, you bought this multi now and now you’re living with your tenants.
Josh: Let’s talk about that because for me I never did it because that was a huge fear. I did not want to live next to my tenants, I didn’t want to bang on the door at two in the morning, I don’t want my tenants to know where I live, I don’t want to deal with that headache. What are the pros and the cons of living next to your tenants?
Al: It really depends on your personality and how you’re going about it. Because I definitely how you feel about it, but for us, I was learning the business, I fixed everything myself at the time and I liked it. I enjoy fixing thing so that they don’t break again. So, if I touch it and I do it once and it’s going to last me for 10 years.
I ended up working all the problems out and there was no issue with my neighbors, my tenants. In fact it was a small, I don’t know how it turned about but I realized I was able to kind of create a little community there where everyone was taking care of each other. And when we moved out we were able to bring someone to replace us into our unit.
And also fit into that little community that we had. And it was great, they ended up not even wanting us to, they just sent the rent. They really wanted to take care of the place themselves, they wanted to take care of each other. So they had a big stakeholder type of mindset. But in my case that’s what happened in my case here in Sacramento. So I don’t have any cons at all.
Josh: Got you. And that’s one of those things that I definitely wanted to talk about with you. I know you tend to, I guess preach is maybe the right word I don’t know about…
Al: That’s a good word.
Josh: Okay, okay. Preach about the community and building a sense of community and taking care of your tenants and being a good landlord and that’s phenomenal. We’re all about that, we want more people to be doing that because anyone who knows me will know that I’m really big on we as an industry need to work better.
We need to try harder, we need to really do our best to build a better image and not just for PR sake but because we need to do better by one another. So I think that’s awesome. Why don’t we talk about that; why don’t we talk about what’s your philosophy just what landlords need to do to be good landlords; what’s a good landlord in your mind?
Al: Okay. I think most landlords especially the ones I read and follow on BiggerPockets are great with their tenants and taking care of their units and their properties. They don’t fit into this landlord thing at all. What I really get passionate about is beyond your property line. As soon as you step off your curb you’re part of the rest of the neighborhood.
There’s all kinds of interconnections there. Everyone’s is depending on you as the property owner to participate in the civic activities on that block. So if you check out, your tenants check out and the community has lost a great opportunity to grow and to strengthen that block. So it starts a downward spiral if the landlord is not interested.
If the landlord has an ATM philosophy about their property and doesn’t care as long their roof is not leaking they don’t really care what’s going on around their property, then that sets the stage for neighborhood decline.
Josh: I agree with you. It’s funny I had some property in the inner city and I ran a nice property and of course the properties around mine started to kind of decline. And it was horrifying to see this because I’m doing my best I’m trying to keep this up. I was an absentee, I was a long distance landlord but what I had zero control over was what happening in the community.
So, unfortunately no matter how hard I tried, no matter what I did to be a good landlord, if the other properties are falling apart and the landlords aren’t involved in what’s going on, that’s exactly what’s going to happen. And I had to bail, I had to get out before I was bleeding so much that I was broke. I couldn’t do that so I had to bail.
And it was unfortunate because there was an opportunity for this to really turn around and become a great area and a great investment but I totally agree with you on that. That’s a great philosophy.
Al: Let me add a couple more things to this; I think if you’re in the inner city what I’m talking about as inner city things. If you’re in a middle class or affluent neighborhood, then disregard everything I said. Those guys are close communities, are taking care of themselves, it’s a healthy environment especially as you go to an affluent neighborhood, they don’t really care about landlords, they can live without landlords.
But if you move to the inner city, they’re dependent on landlords. That’s where the owner occupancy rate is low and the percentage of renters is really high. And landlords have all the levers at that point. So if landlords who have all the biggest stakeholders, if they’re not interested in the community, guess what it’s all kinds of disorder. And that’s going to attract all kinds of things that you don’t want to happen there.
Josh: Okay so how does a landlord make sure they’re not a slumlord then? It’s one of those like hey if you don’t know who the slumlord is in the room, you’re him.
Al: No it’s not what I’m talking about at all. I think generally all landlords are taking care of their tenants and they’re fixing things at times, it’s very few that are slumlords. I’m talking about talking to the landlord that owns the property right next to you; making sure that you guys are watching out for each other. Making sure that litter doesn’t stay on the ground for prolonged times. I mean you don’t have to picksmen all day picking it up but you’re responsible for making sure it gets out. Often times and I’m talking about inner city, things go unresolved because no one steps up as a leader and things languish because no one’s operating as a leader.
Brandon: Okay. Yeah no I agree. I think in my own investing I think I’ve seen that as well. There’s a neighborhood where I have an apartment complex and it was a pretty rough neighborhood to start with and it still I mean it wasn’t the worst but it wasn’t real great. So by buying the apartment and fixing it up and trying to make it look good and painting and landscaping and just garbage duty like you just mentioned was huge.
Just kind of taking a leadership in the garbage pickup in the neighborhood, I mean the entire neighborhood has increased in value because of what we’ve done so far just at that one property. And I’m pursuing another one on the same street so I can try to take over the whole area but.
Brandon: Yeah it’s not a bad idea but I like what you’ve said. You and I talked once before and you mentioned and you just brought it up again is talk to the guy who lives next door. Like that’s where you need to go and that’s something I have not done, I’ve never really gone and talked to the landlord who owns the rental property on that street.
So, that’s really good advice. I’m also wondering with your first deal, like when you started out were those all inner city?
Al: No I started off in the, well it was kind of a seedier part of Sacramento which is now one of the best parts of Sacramento it’s called Midtown Sacramento right next to Downtown Sacramento. Now it’s filled with coffee shops and great cafes and great places to eat. By the time I was getting it in, it was just going through a neighborhood revitalization process. And it was okay but no one was giving it the neighborhood credit. There was always a lag time before the outside community recognizes what’s going on. So I got in at the lag and then I caught some winds that helped out the property values.
Brandon: Okay but now you probably do a little bit more with the inner city it sounds like?
Al: Yes. No as I put everything together and start reflecting about what was happening I saw some trends and I saw hey if I want to buy low and I love exercising, I like being a leader especially in places that need someone to step forward and be a crossword guard. And say, “Hey you guys can go, you guys can stop come on,” that helps everything flow and that creates value. And I’m all about creating equity. So that’s what it’s about, just the equity play that is very cost effective.
Josh: No that makes a lot of sense. I want to take back to the point about talking to the neighbors. As a landlord, I’ve actually found that absolutely even as a home owner first of all when you’re going to buy a house or you’re going to buy a property, before you even buy, talking to the neighbors is absolutely at least what I found the single most important thing that you could possibly do in term of learning about this potential property that you’re going to be purchasing.
Learning about the neighborhood, friendly with neighbors; neighbors love to gossip, neighbors to talk. So if you could go and knock on the door and say, “Hey I’m looking at the property next door, I really love this neighborhood, I love the property here’s what I’m looking to do. What are your thoughts, what do you know about the property?”
It’s going to give you so much insight so that hey maybe you’re going to end up picking up these tenants that you might have to dump as soon as you get in because they’re doing bad things or whatever else it is. But I just wanted to mention that because it came to me and I was like, “This is so important is dealing with these neighbors.”
Al: Yeah absolutely.
Josh: So let’s talk about that first deal; what lessons I guess did you learn in that first deal?
Al: Well lessons learned there was it really pays off to know everything about your property knowing all the components; that was really helpful. I ended up having pipe leaks and I learned about the restoration process from a flood restoration company coming in. so that was good, it was good also that I spent some time on the first one to do some learning instead of running out and grabbing me three properties because I could.
And that was great about that. Also I let the equity build up on this first one. So that was really nice, I was able to, I did economic conditions at the times in the mid 90s through 2000. It was just building up so I was able to exchange into an even nicer property than if I tries to skim off the top right away. So patient equity is I learned the power of that for the first one for sure.
Josh: Okay and you said mid 90s, sounds like you’ve been in the business for a little while including the bubble.
Al: Yes, yes.
Josh: Did you experience the crash firsthand of the bubble popping; were you protected?
Al: I did.
Josh: Oh you did okay.
Al: I did I was and like in 98 or 2008 yeah I was laid off. I stopped working for this in California I was an engineer I was doing some nonprofit work just because I wanted to give back a little bit. And I got laid off from that job and also my tenants at the time at my eightplex and also my other units were having issues as well with jobs and income.
So I ended up with big vacancies and also functional vacancies where people were living there but are having struggling to pay. So I ended up with some of those so that was very painful, just going through your savings just to keep it afloat but it ended up working out. But that was tough, that was tough times. I guess from there I learned that I didn’t want to be dependent on tenants for my rent.
That’s kind of shaped my philosophy in general. I started looking for other sources of income. Getting me to thinking, “Hey I shouldn’t be fully dependent on rent,” so even though that’s what landlords do, but there’s so much more that you can do; we think laundry and then okay great we can do laundry, but what else could I do to make some income working with the tenants? So that really opened my eyes to that opportunity, mother of necessity right?
Josh: Yeah, no definitely. Well what are those things I mean off the top of my head I think laundry I think vending machines. What other income sources I guess there’s a garage, there’s storage. What are you doing in innovation?
Al: Yeah so I started collecting ideas to see which ones I could use. And you’re right; garage, storage just parking spots you can rent them out during the day to local businesses things like that. There’s also working with your neighbor if you guys both need your lawns mowed then go for certain group discount on your landscaper so lowering your expenses.
If you need snow shoveling things like that; going with groups and I actually tried out an experiment, I was working through with my blog and I saw that opportunities for Wi-Fi because people were paying like $50-70 and everyone works in their silos with Wi-Fi. So I started to try to crack that code of how could we work together save each other $50 per person?
And so I tried an experiment which failed, I couldn’t get my Wi-Fi signal out far enough to a premium or a collection of customers. Now I was using a –I’ll be real quick here- I was using a coffee shop model where you can give your Wi-Fi complimentary in exchange if someone comes to buy a cup of coffee they can use the Wi-Fi right?
Al: So that’s how that works. So I was actually giving them a newsletter and providing complimentary Wi-Fi. So that’s how that all worked and I was going to grab a bunch of customers and I was going to cover my mortgage for my rental. So it had a lot of potential it just didn’t work.
Al: But as you guys talked about before, you got to pay your learning tuition right?
Al: So I ended up going the haul just about three, almost $4000 but I’m still going to do them again, I’m going to keep doing the experiments until I figure out how to pay for my mortgage for eightplex without relying on the rents that come from it.
Brandon: It’s kind of cool.
Josh: And if you can succeed I think a lot of people are going to listen I will tell you I am absolutely 100% skeptical, I don’t think it can be done. However man if you can do it, you’re going to revolutionize the income for multi families.
Al: That is my goal, you just said it right there.
Brandon: Yeah that’s cool. I’m your... Oh go ahead.
Al: No, that’s what I’m devoting my career to, is to figure that one out.
Brandon: That’s cool. Yeah you talk about it on your blog I read something the other day that said, you calling $100 Expense Reduction Challenge and I know you just touched on that a little bit but I’d like to talk a little more about that. Because it’s often times landlords look at ways to increase income and we say well we can raise the rent a little bit or we can charge late fees or we can whatever rent the garage out.
But I really liked that you talked about expense reduction so can you just talk a little bit more about that kind of challenge and some of the ideas you’ve come up with?
Al: I’m just starting this challenge but yeah I’m going to look through every piece of my expenses and try to brainstorm ways that I can reduce them. And basically the goal is to find $100 of savings. This is the flipside I did $100 Income Challenge for alternative income now I’m doing the expense reduction to see what comes out of it.
I don’t know, it’s like the beginning of a math problem I don’t know what’s going to fall out but I’m putting myself out there and having my people hold me accountable, it puts the pressure on and that’s when I’m the most creative, when I’m under the gun. So that’s you will know, I’m going to keep it up on my BiggerPockets blog what comes out of it.
Josh: Wow that’s great. Hey Al let’s talk about financing a little bit. What type of financing are you using? It sounds like you’re mostly a multi family guy are you also doing singles or?
Al: I have one single I had to buy because it was right next door to my multi.
Josh: You had to.
Al: Well for defense yeah I didn’t want the wrong person moving there would have emptied out my eight-unit yeah. So I bought that one. So it’s a mixture of family loans, I have some families with a little bit savings at low interest rates I can give them a much better rate. They’re really happy with that so I do that and then like for the single house that I have, I had a little chunk of change and a bunch of friends with even less chunk change.
So I to making promissory notes for them for friends and secured by the single family house and we just bought it outright. So it’s a combination, I pay them. Now that you have online bill pay and things like that you can pay hundreds of monthly interest payments per month to different people and they’re happy with that seeing a cheque come to them every month. And it’s just a matter of using the new technology to manage all those things.
Josh: So I mean this is all private money at the point then that you’ve been using then.
Al: Yeah for that house it’s all private money. Small amount , $5000 loans and things like that. And also when people know that they’re a part of even though they don’t have an equity stake in it, are part of the house, they drive by and take a look at it and they keep an eye on it and it feels good. So it’s just more accountability.
Josh: How many partners do you have on that house?
Al: There’s 10.
Josh: 10 partners wow that’s…
Al: Small loans yeah.
Brandon: That’s kind of cool.
Al: I can buy anyone out at any time so I haven’t over extended myself I’m still the biggest cash lender in there.
Josh: And how does that work because I’ve never heard of anybody doing this on a small scale like this. Obviously on large scale projects you’ll hear syndications and things like that. But with folks you know pooling together as your friends to finance a deal, I’ve never heard of it again on such a small scale with so many people. What are the challenges that you face in doing that; beyond just like managing 10 people? Are there personality problems or?
Al: No, there’s no problems whatsoever. I did it so that I have a track record to do larger things, you guys talked about it your shows before. Now I have five years of experience when I go, I’m planning on making a jump in a few years from now to a much bigger property. But I have this track record of making payments to the people and 10 investors that are happy.
Also, I got them to agree to when the place is vacant, no payments go out and I will catch them up later. That’s key if you can get your investors to say hey especially in small places, if it’s vacant; I’m going to hold off on vacant payment and I’ll catch you up down the line.
Josh: Interesting. Now man, you’re twisting me up man. This should be the Al Williamson like how to do a landlord, what’s the word?
Al: How to hustle.
Josh: How to hustle the unconventional landlord I guess I don’t know.
Al: That’s exactly what I would love to be considered as yeah.
Brandon: Yeah that’s cool.
Josh: Okay so I can totally see that on a small scale you put out like five grand okay cool no biggie. But like now when you’re talking about larger scale and it sounds like you haven’t yet had the opportunity to test this on a larger scale.
Al: I’m moving there.
Josh: Again I wonder on the success rate that you’re going to have on people saying, “Yeah no you could hold off payment until you got a tenant in there.” If it were me I’d say that’s not happening man. The mortgage payment is due on this date, here’s the deal. I mean I get it and I think it’s cool and shoot I wish as an investor I could find people to agree to it.
And it’s astonishing that you’ve done it and I guess it’s worth trying. It’s I guess the advice that I’m getting from this is you don’t know until you try.
Al: Now Josh I’m going to push back on you just a little bit.
Josh: Push away man.
Al: You have all kinds of credibility and you’ve been in this game and people around you have watched you do things and struggle and make it and continue to climb, they’re going to make that type of loan for you especially if they have a little chunk of change.
Josh: But you’re talking about, take me out of the equation this isn’t about me. This is about the thousands of people who’re sitting listening to us debate this here. Now this is about them and …
Al: If they have a track record; that’s the key and they work with integrity and people know that and folks are having 1% interest rates in the bank it sounds like a pretty good option to me. Especially if they say, “I’m going to buy you out anytime.”
Josh: Interesting, what’s your take on this man; get in on this action come on.
Brandon: What it brings up in my mind is Kickstarter, the website Kickstarter where crowd funding and all that.
Al: That’s it.
Brandon: Yeah it’s like a small version of that and I know that there’s rules being changed right now and I don’t claim to understand all of them but I know that the government is becoming more and more open to this kind of thing for real estate investors. Before it was syndications were a real complicated this and you had to get SCC regulations figured out and it was a mess.
But, I believe that they’re opening that up so I’m interested just to see how that’s going to turn out for you and if you can do it on a bigger scale. I mean Brian Burke a few weeks ago I think it was show 003 I mean that’s what he did, he went in with, what did he say; he got half a million dollars.
Al: Police officers.
Brandon: Yeah police officers he went and got 20 police officers or whatever and they raised half a million dollars just like that. So I love the fact that you’re willing to try this stuff and kind of make yourself the test dummy.
Josh: Hey take away dummy he is no dummy that’s for sure.
Al: I’m up to the task. I actually had called Brian before your show a few months ago he was generous enough to give me some advice because I’m thinking about exchanging my eightplex before I’m 50 in three years, I want to switch styles. And he gave me some great advice I’ll share that with you guys. Because going from eight units to really you need 30 something units to kind of get a good onsite management company to keep up my label of integrity and what I want my rentals to look like.
I have this thing in my head about it’s a physical representation of me so I can’t just have my rental look any type of way but that’s me. So I’m going to need to have to pay a quality management company or onsite management company. So one thing he said is to start interviewing management companies well ahead of time before you actually go make that purchase.
Before you’re into 1031 time zone, build a relationship with that management company. Get them looking for properties for you and take a look at how they handle their portfolios and then go from there. So that’s kind of where I am now in the next three years I’m finding out who’s the players for that 16 to 32 unit who specializes in that.
Josh: That’s good and yeah definitely. And you said 1031 time zone just to clarify for people who don’t know. When you do a 1031 exchange there is a set period of time in which you actually do have to do the exchange. Otherwise I don’t know the exact legal behind it.
Al: Yeah something bad happens.
Josh: Something bad yeah.
Josh: Yeah and the other thing I want to bring up also is it’s really important for anyone listening who is thinking, “Hey I can go out and put out ads and say hey guys give me your money and let’s put all that money together and buy a house.” there are SCC regulations and you definitely need to know what you’re doing before you start putting people’s money together. Al did this with folks that he knows which basically gets him kind of under the radar so to speak. But this is not legal advice so definitely jump in and talk …
Al: No? I have so much in there. Not a lawyer.
Josh: And nor are we so definitely talk to an attorney who can advice you on these matters because you definitely don’t want to get in trouble with the SCC. That’s a transition. So you’re currently managing your properties now, right Al?
Al: I am, right now I am.
Al: It has been real easy for me at this point.
Josh: Yeah everything is easy with you, I don’t know. It’s like every, Al what about this; what are your challenges? “No I have no challenges it was easy.” What about this? “Oh it was easy.”
Al: It is now; it wasn’t always.
Josh: Alright so what were the biggest challenges for you as an up and coming landlord in terms of property management?
Al: It was learning to be tough but fair. I’m pretty a nice guy but you got to kick people out at times. And I ended up, I hate the eviction processes, it’s just painful for me to have to take off work and to go to court and all that. And I didn’t want to hire anyone so I’ve come to now just buying people out.
Brandon: Yeah cash for keys.
Al: Cash for key; I want you out of my place I also have some pretty strict lease clauses about hey if you got anything shady going on and if you’re disturbing the other tenants that’s breaking our lease. And here’s some money, I bring them boxes, I rent U-Hauls for them.
Josh: That’s cool.
Al: Just get out.
Brandon: That’s not a bad idea at all.
Al: I really don’t; maybe I take it too personally but my children have to be able to live there at any of my units at any time otherwise I don’t really want to be a part of that. So if I need to get someone out quick that’s what I do.
Josh: So what does that look like; an eviction is going to cost you how much?
Al: It costs like $500 so if you’re lucky with legal fees and filing fees.
Brandon: And that’s something you do yourself right?
Al: Yeah you could do it, but with the lost income because tenant’s going to pay during that time and they may trash your place or flash things down so I’m happy to pay people out and put on a smile.
Josh: Hey what’s your buy out because I want to move into your unit and stop paying the rent?
Brandon: Yeah hopefully your tenants don’t listen to this a get any ideas.
Al: That’s funny.
Brandon: I do the same thing.
Al: I feel like I’ve failed a little bit if someone gets through my screening, through all my- I have a lot of deterrents and things like that. Like I have signs that say, smile you’re on camera different things like that.
Josh: Now is there an actual camera or you?
Al: I don’t talk about this.
Josh: Look around there might be…
Al: It’s a deterrent, and I try to stack deterrents on top of each other letting them know, hey I’m the neighborhood watch captain here on this block. When I’m screening people they know that.
Josh: No, that’s great. And we put together on BiggerPockets this ultimate guide to tenant screening which anybody listening can check out at BiggerPockets.com/tenantscreening. And it’s got tons of really awesome information about screening a tenant. But I’d love to hear from you particularly because of the demographic. What’s the biggest challenge in screening tenants for you?
Al: For me I want to make sure they have three times the income; their income be three times the rent.
Brandon: Yeah I do the same thing.
Al: And I’m also looking for assurances that they’re going to be able to make that into the future. And I’m maybe a little lenient if I hear there are problems or what happened and things have changed, then I’m going to work with them a little bit. But lately it’s where I am right now with the place I have a neighbor who’s going.
It’s looking at a much better quality of tenants. So all those excuses and things I really don’t have to deal with anymore. During the lean times like ‘07/08 when everyone was getting laid off and the housing was going down and jobs were going away from Sacramento. Sacramento was hit pretty hard so you had to deal with the grey market a little bit more.
Brandon: Well and I think another part Al probably is the fact that you’ve improved your properties and you kind of build a reputation right. I mean people start to know in the neighborhood that you run a tight ship and this is a good place to live. Have you noticed that as well?
Al: It is and our neighborhood’s better, I have this thing called the Landlord Lid where other landlords kind of keep your property values down. That’s the lid they place but working with other landlords and working with my neighbors and doing the community building things like National Night Out and always being the Crosswalk monitor. Telling people, “hey you really got to clean up.”
Or, “I need to talk to your landlord about what’s going on here.” I don’t have a problem putting myself in that position- has made our neighborhood better. And it’s nicer and more people are attracted to it. It’s also become, it’s so nice that it’s become a political football where they’re trying to redistrict my neighborhood into another person’s district.
They’re kind of fighting over the section. That’s what’s happened so it really works talking to your neighbor and saying hello. It works.
Brandon: That makes sense. I can hear your, is that your daughter in the background Al?
Al: Yes it is.
Brandon: Year what?
Al: It’s a two year old; two and three months and so right now. She’s exercising her independence and…
Al: Learning how to talk and becoming less frustrated so.
Brandon: Actually yeah why don’t we go into that a little bit about you’ve got a family obviously you’ve got young kids at home. So a lot of our listeners I’m sure have kids at home and they think, “Well I got a 40 hour week job and I got kids and a family I can’t invest in real estate I don’t have time.” So maybe we can talk about that a little bit of how you balance that.
Al: I kind of end up juggling with them more so than balancing them. When it’s crunch time like when I’m flipping over a unit, I let them know, “Hey I got to get on this or stay on this so daddy is going to be not here this week.” So that’s how I focus I don’t really try to balance it. I’m a poor balancer I lack work balance.
Brandon: Juggling works I do the same thing, I focus hard on one thing at a time and move things around.
Al:Yeah and tell people what’s going on, like, “I’m trying to get this project done I’ll be with you at this time.” That’s worked for me.
Josh: Well I can speak to this Brandon shut up because you don’t have kids. You got your cats.
Brandon: I do have my three cats.
Josh: Listen, kids will make for a challenge that’s for sure and anyone who’s got kids knows that there is work and then there’s kids and then there is the grey in between and you do what you can. I mean I think that’s kind of the bottom line is when you got to get to work you got to get to work. But for me, my family is number one.
And Brandon certainly knows that, we work every day very closely. And when my kids need something at least for me, work stops. Everything stops, work stops and I go and I take care of my kids. That’s my philosophy. I will give up being Uber-Uber successful to have a better family life and to make sure my kids are taken care of.
And I think anyone listening probably would agree that you got to put those kids first, period. And obviously if there’s things that you got to do like what you’re saying Al you got to go and do it but when the kids come crying something’s wrong I guarantee you, you’re back at home taking care of it right.
Al: Yeah, violently nodding my head with you.
Josh: And we’re watching your head violently nod or not. Hey so I know you and Brandon talked about something that I’m curious about and Brandon quoted this thing in my notes here. It’s the term magnetizing a place. What is that; what is magnetize a place?
Al: There’s a lot to it. There’s some nerdy side to it so I got to try to keep it interesting because a magnet works when these electrons are flowing and increase of a force field. So I won’t talk about that. I will talk about being… I went into a very problem that was how I did my eightplex and how I do some other things.
It’s I go in and I’ll buy the most problematic and largest property I can that’s close to the edge of the good and bad neighborhood. And then I’ll spend time there to get my personality to magnetize the place so that people what my standards are and then know I’m not going away. And then know also that this is not acceptable.
And it has to reflect me. And then what happens is it repels people who don’t want to go with the program. They won’t feel comfortable with people watching me putting up signs saying ‘you’re on camera’ and keeping the place clean and making the other neighbors look at what’s going on and point to it. And they don’t like me walking across the street and talking to the neighbor about getting to know them. They don’t like that we talk to the police officer as he’s driving by, me knowing his name, them knowing me from a neighborhood meeting. So they will leave and I will end up attracting, it could be still people in the same demographic, people with the same income but with a different sense of priorities different sense of honor.
So that’s magnetizing; you’re attracting people that fit with you and repelling those who’re not with it.
Josh: That sounds like what we do in BiggerPockets which is magnetize good solid people who’re trying to run good businesses and help one another versus those folks who’re looking to take advantage of other people, who I guess by virtue of the way the community is and by the leadership that we’ve set that they don’t want to be there because they know that the community is going to run them off. We’re not going to run them off, the community is going to run them off. And that’s a great philosophy and I think between what you and Brandon were talking about I mean it works. When people know that you’re a good landlord, they’re attracted to it. Hey really quick and then we got to run to the end of this thing.
You had talked about buffer zones. And that to me is something I always wanted to do when I had these challenging properties I just couldn’t get through it quick enough. I didn’t have the resources. You see a buffer zone potentially for this big multi that you’ve got with that single family that you’ve got next door.
But now what’s the buffer between that single family and the one next to it that might potentially get overrun by somebody? At what point do you have to keep buying the property next to the next property, next to the next one to create this buffer zone in these tougher neighborhoods? Is there a line or how does that work?
Al: Well the way I see it is it’s a relationship with the owner. If there’s the one that was next to me was just to close and at the time I just had to get it. And plus I wanted to try that group investing crowd source thing. But I do know the neighbor next to it, he’s on my speed dial, I can contact him on Facebook when his gets tagged, I let him know if trash is in front.
He’ll see me pick it up and I’ll say, “Hey I know you would have done the same for me. And we have that sense of, it’s a lot of reciprocation going on. The same with all the neighbors across the street, I know all the owners whether they live there or not. They hear from me once a year if not more. Especially I’m always touting this neighborhood I mean this National Night Out.
So every landlord that I know in my area they’ll get a note from me saying, “Hey I need you to contribute $30 and I raise money for that and we have a really nice time. They invite their tenants like it’s so I kind of manufactured a reason for me to contact them for something that’s not bad. So when I do reach for them, to have to tell them something not so bad it’s much easier and we can get results.
Josh: Got it. Hey, really quickly what is National Night Out for those people who don’t know?
Al: National Night Out it happens the first Tuesday every year, it’s ran by the national town, I can’t remember the name of the organization that runs it but it is also part of the sheriff’s association. It’s just an even to encourage people to come out on that day and meet their neighbor and create some type of neighborhood safety that way.
And it works together with Neighborhood Watch because once people know each other they start talking about neighborhood watch and things like that.
Josh: Awesome. Alright man well we’re very quickly running out of time so let’s get to the big final questions we know you’ve prepared for. Al, first before we get to that I know you’ve got a book, tell us about that in 20 seconds , what is it and what can people get out of it and where can they get it?
Al: Well it’s live on Amazon right now. I linked it up last night and there is a website called Catalog Landlord that they can buy one for either Kindle or they can by a pdf a Catalog Landlord and there’s workbook that goes along with it, helps you write the action plan for your community. So I basically tried to transfer the questions that I wish someone would have helped me walk through into a workbook.
Josh: That’s great and we’ll point to that from the show notes at biggerpockets.com/show008 definitely make sure people can get their hands on it.
Brandon: So speaking of books Al, what is your favorite real estate book out there other than your own of course?
Al: There’s so many. Previously mentioned I want to say the same things that everyone say with Kiyosaki and all the great ones out there. But the one that really did it for me when I first started out it’s called The 36 Hour Real Estate Investing Course and it’s just a book I got from Barnes and Noble. But that walked me through the basics and that was really good.
So that probably has the most memories for me because I went over that one so many times.
Brandon: Okay cool. I haven’t read that one so I’ll look that one up.
Josh: What about business book, what’s your favorite business book?
Al: I like everything regarding leadership because leadership and my real estate kind of are tied together. So anything by John Maxwell I like, he’s got a lot of good stuff but the business book that kind of really did it for me that really triggered me was a book by Edward De Bono called Serious Creativity and helped me matched to my natural ability to want to be a problem solver with business and understanding to be a creative problem solver. So that really did it for me.
Josh: Nice and outside of real estate, I understand you’re a bit of a geek. I think you’re a trekkie in fact. I know we were dropping some Star Trek references right?
Al: Guilty as charged.
Josh: Any other hobbies or anything interesting outside of real estate?
Al: Well Brandon busted me out about my yoga.
Al: So I was a gymnast growing up and all through college and I kept doing, I did marathons, biking but now for work I’m traveling I’m in a hotel quite a bit and for some reason just kind of got thicker. I had to figure out how I could work out in a hotel room. So therefore the yoga started up.
Josh: Versus Brandon doing his 30 minutes of P90X in front of the computer.
Brandon: That’s Insanity, much more hardcore there. Alright so last question Al; in this industry there are millions of landlords out there and a lot of them come and go, a lot of them fail and a lot of them succeed. So in your opinion what do you is the ones who are the most successful, what sets them apart?
Al: Really understanding why you’re doing it I think is key for me, I mean why are you trying to build this wealth and why are you working this method for it. and we kind of talked about it before, I’m about the real estate I enjoy helping people and I enjoying creating wealth for my kids and that’s really why I’m in it. If I was in it for some other reasons to create a fortune or to create a certain image I think I wouldn’t have the staying power that I’ve had.
Josh:That’s good. Well listen, where can people find more about you? You’re on BiggerPockets, you got a profile on our site, you’re blogging on our site, you also have your own site Leading Landlord. You connect on Facebook obviously you mentioned earlier so we’ll point people to that. Twitter, G-Plus anywhere else or?
Al: Yeah G+ I’m learning my way around there and if people want to get a hold of me, BiggerPockets blog is probably the best spot. Just hit me up there and we’ll chat.
Josh: Awesome well Al it’s been very educational I’ve learned a lot about the hustle landlord right I mean very unconventional but lots of interesting stuff and hopefully we can explore some of that maybe we’ll broach some of those topics on the forums on the site a little bit so we can get people chatting about it. But thanks for coming man.
Al: My pleasure.
Brandon: Yeah thanks Al.
Josh: And that was our show with Al Williamson I hope you picked up some great ideas and ways to help you better your landlording skills. If you want to check out the show notes, with links to all the stuff we talked about in the show, head over to biggerpockets.com/show008. As always I just wanted to remind everyone who’s not a member of BiggerPockets, to come, check out biggerpockets.com and get plugged into our awesome free community.
Also don’t forget to hang out with us on Facebook at Facebook.com/BiggerPockets. Until next time, this is Josh Dorkin signing off.
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