Blue Collar or White Collar Landlord, Advice or Discussion

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Blue Collar or White Collar Landlord, Advice or Discussion

Don Coumbs
Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes

I'm a hands-on blue collar type landlord thinking about changing my business model to scale up my number of rentals. I would appreciate thoughtful input about how you decide on rental scaling and business modeling.

About the tree, On November 17 we had a major windstorm in Eastern Washington State.  This is one of my rentals. Another of my properties had a less dramatic tree blown over and a third had a wind damaged roof.  I tried to hire a tree service for this place, but they were all way too busy.  You may have seen in the news that arborists and linemen from all over the country were brought into our area.  Anyway, I wound up renting a boom and taking it down myself.  In a nutshell, my out of pocket for all three properties was less than $500 and a busy few days.  That is good because I had just raised my deductibles on my insurance to $5,000 to save premiums.

So that is the upside of being a blue collar landlord as I see it.  Low overhead.  But as I add properties, there is a limit to how much I can do.  The downside is I was recently outbid on a triplex in this neighborhood.  As I evaluate new deals, I am looking for better and better returns because I am thinking about the limits of my labor and the cost of hiring things out. The guys who outbid me for the triplex (nice guys, who may be biggerpockets members) appear to be white collar landlords with full time jobs who don't do much hands on and don't have the cash flow requirements I do.  If you don't take down your own trees or roof your own houses, your business can scale much easier. And although your overhead will be higher, you are free to do something else most of the time...

So, that is how my thoughts are going.  I wonder if anyone else is mulling or has mulled the same kind of thing.

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Darren Budahn
Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
10y
I have the same discussion with myself all the time. I have a hard time paying someone to do something I know that I could do myself. However, if you really want to scale up your business, I think you will eventually want to work more "on" your business instead of "in" your business. Your costs will certainly go up in the short term but unless you want to be a full time handyman and landlord I would lean towards outsourcing some of the tasks that could free you up to find more deals.
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  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y
    I have the same discussion with myself all the time. I have a hard time paying someone to do something I know that I could do myself. However, if you really want to scale up your business, I think you will eventually want to work more "on" your business instead of "in" your business. Your costs will certainly go up in the short term but unless you want to be a full time handyman and landlord I would lean towards outsourcing some of the tasks that could free you up to find more deals.
    4Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Darren Budahn Thanks for the response.  That is exactly what I am thinking. 

    I'm not too proud to be a full time handyman. On the other hand, I wouldn't be heartbroken to let someone else unclog the drains.

    Here is another wrinkle: I am at 9 Mortgages now.  If I add many more places, I am going to have to do some commercial or creative financing.  Am I justified in adding that risk when I have enough to support myself?

    Does that kind of question enter into your thinking?

    0Reply
  • Lauren H.
    Investor · Colorado Springs, CO · Member since 2014 · 77 posts · 54 votes
    10y

    This is an interesting question. My husband and I are staying 'blue collar' about our rentals while maintaining 40 hour per weeks jobs. We both work four ten hour days and typically devote one full day to rest or pure fun and the other two free days to rentals. The reason we do it is primarily because we have to strike a balance between 'rehab, raise rent and hold' and stashing cash for the next purchase. If I paid a contractor to do all my work it would suck me dry of cash that I'm trying to save to by my next multifamily.

    The reason we are able to devote so much time to doing our own remodels is because we can see the end in sight. That is, having enough money to flip the bird at the boss, walk off the job and start traveling the world. We've built our own retaining walls, replaced 16 windows, repaired appliances, sprayed exterior/interior paint, learned to set tile and cut countertops ourselves. We aren't flipping, so it only costs us rent loss to take a little longer to do it ourselves.

    The bottom line: do the math. Can you get employment for double per hour (or higher) than you would pay the contractor to do all your work? We don't have that luxury, so we do our own work. The only thing we don't do is carpet, since we can't save money by installing it ourselves.

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  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y

    @Don Coumbs

    I understand where you are coming from. I suppose it all depends on your long term goals. I am not opposed to using commercial financing to grow my portfolio. If you can find good deals, and have adequate reserves, I say keep on growing. I like to think that the more cash flowing properties that I can buy below market value the easier it will be to justify outsourcing the handyman duties. As long as you use leverage wisely, you should be fine. But I am like you in that I won't miss unclogging drains. 

    2Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Lauren H., Thank you for the response.  I think you put your finger on a key piece of the puzzle when you talked about what you can make on a job compared to what who have to pay someone else work on your rental.

    I haven't had a "job" for some time.  I think my calculation needs to be what @Darren Budahn said about working on my business vs working in it.

    What is your strategy for when you fly your boss the bird? Will you hire a management company so you can travel the world? Do you have an equity/cash flow figure you are working toward?

    1Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Darren Budahn Maybe this is a sign of my small time thinking, but a 20 or 30 year amortization on a 5 year loan with balloon just makes me sick to my stomach. How could a person have adequate reserves for the problem that could be waiting?

    I was all set to go to 10 mortgages when the crash hit and Fannie and Freddie changed to rules to 4 mortgages. I was at 7 mortgages at the time and so I couldn't even refinance to get the  better rates.  That was a bummer, but not a tragedy because my 15 and 30 year mortgages were not getting called.   

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  • Linval T.
    Investor · Bay Shore, NY · Member since 2014 · 1k+ posts · 688 votes
    10y
    Originally posted by @Don Coumbs:

    @Darren Budahn Thanks for the response.  That is exactly what I am thinking. 

    I'm not too proud to be a full time handyman. On the other hand, I wouldn't be heartbroken to let someone else unclog the drains.

    Here is another wrinkle: I am at 9 Mortgages now.  If I add many more places, I am going to have to do some commercial or creative financing.  Am I justified in adding that risk when I have enough to support myself?

    Does that kind of question enter into your thinking?

     Actually, you will need to assess your financial situation to determine if your current holdings are sufficient or expansion of portfolio is warranted.

    I recently listened to podcast 151 and they talked about determining your freedom number, which is what you are referencing.

    https://www.biggerpockets.com/forums/12/topics/257738-freedom-number (Freedom number + listen to podcast 151)

    2Reply
  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y

    You are correct that the terms of commercial are not going to be nearly as favorable as conventional and the balloon in 5 years is always hanging out there. But if your properties are performing and you are paying down the mortgage, you should have no trouble refinancing when the ballon comes due. I understand the pitfalls (market tanks, etc) and I wouldn't get 5 year ballons if you are undercapitalized or paid too much to begin with, but I think the pros outweigh the cons if you want to Expand the portfolio once you are tapped out on the conventional side. otherwise you need to wait until you payoff one off your conventional loans.  That's strategy could work too but it is more conservative 

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  • Lauren H.
    Investor · Colorado Springs, CO · Member since 2014 · 77 posts · 54 votes
    10y

    What is your strategy for when you fly your boss the bird? Will you hire a management company so you can travel the world? Do you have an equity/cash flow figure you are working toward?

    We do have a Net Monthly Income that we need before either of us stop working. For us, that amount includes health care, which spending reduces taxable income anyway. 

    I would rather have a contact person locally who is 'on call' for emergencies or posting nonpayment notices while I'm traveling. I don't trust a company to do the quality of work that I would do or have it done in a timely manner. In the event of major trouble, I would just have to fly home. 

    We made our first purchase 2.5 years ago and think it will take about 5 more years to go full vagabond. As for the boss comment, see if your local library has Early Retirement Extreme and read what Jacob Lund Fisker says about strategy! Real estate isn't on his radar, but he knows how to trim the fat off the North American lifestyle! http://earlyretirementextreme.com/about 

    1Reply
  • Kyle Hipp
    Investor · Appleton, WI · Member since 2012 · 1k+ posts · 464 votes
    10y

    I am a trade man for my day job and have 8 properties crrently which I self managae. I hire out a lot but will pay for carpeting, roofing and big tree removal, and windows. I switched to commercial mortgages after 4 properties with a 5 year balloon and 15 year amortization. I have always gone with a 15 year amortization anyway so it wasn't a big difference.  I do like to do my own work as I have the tools and skills but I don't feel bad hiring it out more and more as I can afford it either and I have other things to do.

    2Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Linval T. Thank you for the tip. I have downloaded that episode but not listened to it yet. Sometimes I get frustrated with the podcasts because they seem to me to be more focused on the white collar sort of landlords - even people buying properties which they never see. Maybe that is a great idea, but it is so different from what I do that I have a hard time relating.

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  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Lauren H.I followed your link to the early retirement site. I noticed he sites Helen and Scott Nearing and the voluntary simplicity movement. I read their book when I was getting into rentals about 20 years ago and it had a big impact on me.  I have often thought that a blue collar sort of landlord is analogous to a self sufficient farmer of a previous era. 

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  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Kyle Hipp Thank you for your reply. If you are using 15 year loans, you are obviously aiming at paying things off and not using a maximum leverage strategy. Paying off some things has a big appeal to me too.  I have flip flopped a couple of times about what my ultimate goal is.

    At one point I stopped buying to focus on paying things off (that move coincided with the market and the 4 mortgage limit.) Then I took a look at what I could buy things for - its really hard to not buy a place for $30k or more under market. Most of my recent purchases were made with the idea that I might rent them for a few years and then sell if I can make a profit.

    Do you have a long term strategy? Are you headed for a number of properties or a certain income number?

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y

    Nice to see a few DIY LLs still remain!  Gotta invite our fellow DIY friend with a career @Jerry W. into this. Also @Michael Boyer who also wrote a great book on it!

    I used to do everything.  Learned a lot over the years, including what not to bother with anymore.  Tree removal, digging, cleaning, painting (depends- I kind of enjoy it), concrete, roofing, laying carpet, etc I don't bother with anymore.  Spent time finding quality folks to call on as needed.

    Kind of always wondered what the work 'on' your business folks do when they need 5 different little trade tasks completed on a make ready.  Do they really hire a separate plumber to install a fixture or clear a drain? An electrician to do a wall heater or change a little plug/breaker? A separate .... at $150/hr to come over for 20 minutes?  I'll be working 'in' my business for those always, thank you.

    As an aside, I am with @Kyle Hipp as to paying things off with 15-yr loans.  Did you know most 30-yr loans are only 25% paid-off when our 15s are completely done?  Plus we get lower rates. For the couple hundred less in CF, it's the route for me.  Cheers!   

    3Reply
  • William Jenkins
    Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
    10y
    Couple of things to consider: 1. Hired work can be written off on taxes but your time cannot. For example if you are in a 35% bracket then you are truly only paying 65% of what your are writing the check for. 2. Value of your time. Do you enjoy the work or is it a PIA? Do you have other more productive income producing things you could be doing? Is it taking away from family time? 3. Tenant exposure. The more you are at your properties the more tenants will suck away your time. If you go over to fix a sink many will spend an hour showing you other things that are wants and not needs since they know you are the owner. They generally won't bother a hired repair man. I am not saying one is better than the other but these are things to think about. Some enjoy the work and feeling of being close to their properties.
    2Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Steve Vaughan I completely take your point about an easily hired task like carpet laying vs. a punch list of things.  I think that is the way I am going to transition to doing less: pick the low hanging fruit by contracting the things where my labor has the least advantage.

    I have a mix of 15 and 30 year mortgages. my thought was to concentrate my fire on 5 mortgages for properties I know I want to keep, and maximize cash flow on the others - sort of like a debt snowball. At the time I got these later 30 year loans, the interest rate premium didn't seem attractive enough to go with the 15.  I'm not arguing. I may have been wiser to do something different, but that is what I did. 

    1Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @William Jenkins, 3 Good points. They speak to the difference between the landlording styles.

    1) Since I don't have a regular job, and I am still depreciating my rentals, even the paid off ones. I am not in the 35% tax bracket. But your point still holds. On the other hand, I write off my equipment, mileage, etc.

    2) Strong point. I think the value of my time is an open question. My ego says I am big time financier, but my modest success may have more to do with my ability with a hammer and a paint brush. My sons do quite a bit of the work with me and I think they have learned more and they certainly have had better part time jobs with me than at McDonald's. It is hard for me to take extended time off, but I can generally take a day to go fishing when I want, volunteer at school, make it to all the kid's sporting events, etc.

    3) Another strong point. My market is mainly college students and I think on balance that I gain more by being around than I loose. But your observation is apt and obviously made by someone who has been there.

    0Reply
  • William Jenkins
    Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
    10y

    There is no shame at all in being the type of landlord you are.  Many on here are more focused on the "white collar" side of the game as opposed to the "blue collar side."   

    In the long run, it is the eye for the deal and your business sense that will make you the most money not being the repair man.  

    I think the best part of doing it the way you are is your kids involvement.  What they are learning is better than anything that can be taught in school.  I worked with my family on a lot of rehabs when I was younger and I look back on those days fondly.  

    1Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    10y

    @Don Coumbs, I have about 30 doors in my town.  I also have rentals in 3 other states and a rental in a neighboring town.  Here is my perspective since I also have a full time job.  On the local rentals I have a handyman who I send out to unclog drains or even look at a furnace or boiler.  It may not fly in some places but he can change a thermocoupler as well as any plumber.  He can usually tell me if I heat sensor out or if a motor has problems.  He also knows when to say call a plumber or HVAC guy.  My problem is he has his own business and is hard to get to do things.  I change my own hot water heaters, and so far do my own roofs, and 95% of my electrical.  I only use 15 year loans.  My reasoning is that I don't need the extra cash flow to live on.  The money I save from doing a lot of my own work keeps my company pretty cash flow positive.  I did4 and 1/2 roofs last summer.  I hired some day labor to strip them, and 2 pretty decent helpers who worked on weekends when I was off.  My total cost was around $2K per roof so I saved about $4K to $6K per roof.  I didn't have the cash flow to pay to have that many done in one year.  I could pay a plumber to replace a water heater for $1,200 but I can do it myself for about $450 and it takes an hour.  Rentals around my area do not cash flow that great so to be competitive you need to keep costs down.  I try to do my own painting as I can do a room in a couple of hours and do better than all but professional painters.  I try to use my handyman when i can and day labor when I can if I am there to supervise.  I would love to get to the point where I can hire it all to be done.  I do not make enough cash flow to do that yet.  Perhaps when I hit say 50 doors I can hire a full time guy and not use contract labor, but I cannot afford that yet.  

    When I find a house I want to buy I go to my portfolio and see what house has enough extra equity that I can refinance it and get enough money for the down payment.  This way the extra $200 per month I would be putting in the bank from a 30 year note is being used to pay off equity until I need it, not in a .25% interest account.  I have 5 year ARMs on my 15 year loans and it is a local bank that does not resale their loans so there is no limit on numbers.  I do have 12 units in a slightly lower end apartment building where I have a property manager who shows and rents apartments and collects rent, calls for people to fix plugged sinks etc.  They require a LOT more time than my single family houses.  My handyman carries a $1,000,000 liability policy.

    So you can upgrade your business to a lot more units and still do some of the work yourself.  The time will come when I need to hire it all done, but I will avoid that as long as I can.  I am also aware a lot of cities will not let you do some of the work I just mentioned, and force you to hire plumbers or electricians, etc.

    3Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Jerry W., thanks for the post. I have read several of your posts and had hoped that you would comment as I remember you saying you do much of your own work.

    I wish I lived close enough to use your banker.

    Do you have specific cash flow or equity goals? Do you have an end game in mind?

    I'm not sure that I do.

    0Reply
  • John Arendsen
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    '6 of 1 half a dozen of another'. If you're the hands on type you'll always be regardless of the color of your collar. The real question and challenge will be, to add another adage, where's the line you draw before becoming 'penny wise and pound foolish'. 

    Having been a "white collar"general contractor for the past 3+ decades I've always made money because I've, as my wife and kids have so aptly stated, had a very sharp and pointy finger. That is to say I've always been a better delegator than an hands on, strap on the tool belt and jump in the trenches type albeit I've never had a problem rising to the occasion when necessary.

    I now have two sons who are both contractors, one has followed in my footsteps and is very successful. The other is successful as well but is slowed down because of his passion to work and create with his hands as he is a very talented and creative type and loves hard work and produces a beautiful and qualitative product in his niche. Hope this helps.

    My 3 cents adjusted for inflation.

    2Reply
  • Jeff Wallace
    Rental Property Investor · The Woodlands, TX · Member since 2014 · 345 posts · 288 votes
    10y

    @Don Coumbs

    I am the same type of landlord.  I was fixing a plumbing leak on the morning of Dec 24th.  I also recently took a look at overhead and scale.  My decision may not be popular here on biggerpockets with the number of members looking for massive income and empire building strategies using leverage.... My focus is more lifestyle oriented.... I like to have my time free to use as I choose.  As my portfolio increased, I found that I couldn't maintain my hands on management style without sacrificing my free time... SO... I sold several properties over the last 10 months to pay off debt on the remaining properties.... overall cash flow went up and the time it takes to manage went down (obviously).  I couldn't be happier with my decision.  I will continue to build - but more slowly with cash purchases until I am ready to hand everything over to a management company.

    jeff

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  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @John Arendsen, thanks for the three cents. For what it's worth, I think you are entirely right. I don't always like doing the hands on, but I like having it done by me - or to my specifications.

    My worry is that I am being "penny wise and pound foolish". I guess that's why I asked the question. I could certainly grow faster than I have  been if I changed things up.

    Another open question in my mind is what my two sons will do. I am encouraging them to do whatever they want. They both have lots of potential. On the other hand, if they should want to go into real estate in some way...

    1Reply
  • Don Coumbs
    OP
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Jeff Wallace, Thank you for the input. I often feel like I must be doing something wrong since other people have gone to 200 doors in 2 years or something.

    I take your point about lifestyle. Am I reading too much into your comment if I say risk avoidance is a big part of your decision too? I know it figures into my thinking.

    I am also thinking about deleveraging. My problem is that if I sell the places I want to sell, I really won't increase cash flow enough to compensate for my lost appreciation and owner's equity gain as those mortgages pay down.  My current thinking is to wait a few years until there is more equity to tap by the sale.  Was your picture more clear cut? I read that your cash flow went way up.

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    I can do everything inside a house myself, and I mean everything, maybe with the exception of being very good at charging up AC units. I have personally built a house myself and did nearly all of the work personally. That is one of the reasons I got involved in this in the first place, as I was able to trade knowledge and sweat equity for cash, i.e. I don't have to pay someone for every little thing.

    Now, having said that, I pay people today to do either the crappy jobs that I don't want to do or the ones that require a lot of expertise and time to have a nice product, or the ones that are highly dangerous. I worked my way through college as a plumber and have had a lifetime's fill of having raw sewage drip on my head or crawling through rodent-infested crawl spaces. One fall off the roof could be the end of my "regular" job, much less my "handyman" job. 

    So I save my own personal expertise for either the little things that will nickel and dime you to death - a loose outlet, a bad switch, a bad light fixture, a dripping drain line under a sink, etc - or for the things I actually like doing - woodwork, for example - or for the initial rehab work that doesn't require one to work around tenants or their belongings. 

    I think there's a place for both approaches. Blue collar all the way when you're starting out, as you will learn much and save cash, and white collar when you have enough of a business to start thinking about it instead of fixing a busted sewer line. 

    PS: While I think renting a boom and cutting up trees is pretty bad-***, I also personally feel that is a very dangerous line to cross. Your ability to procure good properties led you to this point, not your ability to hang 50 feet in the air with a chainsaw. Don't jeopardize it to save a few bucks. 

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