All Forum Posts by: James Klafehn

When I was first starting out I sent letters and my resume to all of the local property management companies that I wanted to work for. I got a call from one of them and went in for an interview. 

I have been an assistant property manager for two of the largest property management companies in my area. I learned a ton and Id strongly recommend working for a company first. You can learn and make mistakes on their dime.

It sounds like you will need to replace the flooring at some point so you can bring it all to the same level. How is the flooring? Is it old? New?

If its new and you dont want to replace all of it you could build a ramp.

Study your area.

Make sure your credit history is sold!

Make sure your personal finances are in order.

Once you have done all of that, start looking for houses in your target area. In my area 3-4 unit houses are your bread and butter. Find out what makes the most money in your area and find one.

You probably will want an FHA loan because you only need to put down 3%.

Buy the place, clean it up, rent it up and start collecting checks. Buying a house is expensive (lawyers fees, upfront tax payments, upfront insurance payments etc). Once you get all your bills paid and your house is rented you can start thinking about another one. Dont grow to quick though. If the house has differed maintenance make sure you address that FIRST before you buy a second one.

When you are ready you can refinance the first house to a conventional mortgage and use the FHA program again on a second house. Then you do it all over again.

I had a heck of time getting started and then climbing out of debt because of issues that came up.

The seller and I came to terms in January 2004.

I had great income and great credit but I had a really hard time getting a loan because I was so young (22). Months went by and the sellers were getting antsy. They wanted to pull out but my agent and I were able to get the mortgage broker to write us a letter guaranteeing that I was going to get a loan. It really is unheard of! Brokers and lenders never do this. Im glad I got the letter because at the end they tried to back out and we said nope, not happening. Make the deal or were going to sue you. The threat worked and I finally closed April 2nd. 

Unfortunately the loan was for 9% and I had PMI but I didnt really care because I knew the house was going to make me money. I just needed to get my name on the deed and start collecting those rents. I dont remember how much I put down but I think it was close to 0. It was an FHA loan and I wasnt required to put much down if anything.

Then comes the bad part. 3 months after buying it there was a basement flood. It was the wettest year for decades and the water just backed up into the basement. Half of the basement was a 2 bedroom apartment. The carpet was ruined. I had just signed a lease but the tenant hadnt moved in yet. Luckily she was very cool about it because she wasnt planning on moving in until later in the month. She gave me the time I needed to have new carpet installed ($4000) and I dont think I even needed to prorate any rent to her. Unfortunately I had spent all of my money buying the house and had to put the $4000 onto a credit card. I also had to add a sump pump which cost me thousands because I didnt know how to do it myself at the time. I hired a plumber who ended up taking me to the cleaners because I was green and didnt know better. Come to find out later, he had a coke problem which didnt help the situation.

Then, about 3 months after that I discover that the septic system went bad and needed to be replaced. That was another $12,000 and went onto another credit card.

It took me about 3-4 years to dig myself out of that hole and refinance the house. It sucked but I learned a ton in that time.

4 years later I found my second house which is a 4 unit downtown. It was under rented and because of the location I knew I could increase rents and make a lot of money on it. 

4 months after buying in I discover the main waste lines were completely rusted through and all of the waste from the entire 4 unit house was sitting under the floor of the basement apartment. It didnt stink because the area below the floor was evidently sealed off from years of paint and layers on top of layers of flooring. I only found it because I was taking the floor out in the bathroom because it was soft. I just thought I would pull the floor up and replace it. I was royaly ****ed!!! The whole apartment needed to be gutted, **** shoveled out, and plumbing repaired. Again, I had no money because I spent everything I had to buy the house. I was so screwed! 

I started contacting contractors for estimates and no one would touch the job. It was too ****ed up and literally no one wanted to deal with it. One person finally said they would do it but to fix it and rebuild was going to cost me $75,000!!!

I sued the previous owner because it turns out she knew about the problem but I didnt have enough proof that she knew about it and I lost.

I had no choice but to gut the whole place myself, pay a plumber to fix the waste lines and then I had to let the apartment sit for about 6 months while I got my finances a little more under control. I remember thinking that I just need to think of the house as a 3 unit for a while because I had no way of getting money together to fix the place.

Then over the course of the next year I hired an architect to get a plan for the unit, poured a new concrete floor, and rebuilt the entire apartment myself. It was a slow process because I had a full time job at the time and I was living paycheck to paycheck buying supplies each week and just getting it done in my time off. It took a long time and it was a TON of work but I learned so much!!! It took me another 4 years to climb out of that hole.

The story continues but thats how I got started. (sorry for the long post)

Never heard of them. I use Buildium and they are great. Ive used many programs and I like buildium the best.

Id have some if people actually showed up to their appointments. 

You can use an FHA loan for up to a 4 unit. It is a great way to get started when you have little cash.

I started out with an FHA on a 3 unit, had some issues along the way, refinanced, bought a 4 unit with an FHA, and the rest is history.

Keep in mind you will pay more because you need to pay PMI "Private Mortgage Insurance" but I didnt care. I was in an area with high appreciation and high rents. I knew I just needed to get into the house and I would be set, 11 years later, I was right.

No way would you rent that for $1200. MAYBE if you included all utilities and water but I wouldnt hold my breath. That would not be a safe investment.

There is a similar thing going on where I invest in Ithaca, NY. Its home to Cornell and Ithaca College and lots of money. My second house was a 4 unit downtown, 2 blocks from the Commons, (which is a very desirable area). I paid $233k and today, 6 months later, I could probably sell it with a phone call for $650k. If I put it on the MLS I receive 5 cash offers within hours.

I tried buying more houses over the last 4 years but I was priced out of my own town. So many investors were coming to town and buying properties up. The first day on the market a house would get 5 offers and many of them would be cash. To make it worse, most of the houses were old and needed a lot of work. Example: last year I tried to buy a 4 unit down the road from my current property. Asking price was $400,000. I offered $425,000 and I was 13th lowest out of 14 offers!!! The house was trashed and in my opinion, needed to be gutted to live up to my standards.

I decided to buy land a couple minutes out of town and build brand new passive solar duplexes. Unfortunately the location isnt the most sought after but I cured that by catering to the people who care about the environment and by making it a pet friendly environment with a 3 acre dog park. Ithaca is a very green area yet landlords in the area dont care much. To them its only about business and its not worth spending the money on solar hot water and solar electric systems. I care about being green and I think there will be plenty of tenants who will want to spend their money on my apartments because they believe in what I am doing.

So in a nutshell, find a niche and market it. You will find better tenants who will probably stay much longer than average.

Hope this helps

Are you sure your ready for this? How large is your real estate company? Do you do enough business to pay yourself?

I have been in business for about 11 years. I quit my full time job about 6 years ago but I still work part time for something to do. I own rental properties and have plenty of cash flowing in so I dont need to work and I live quite well. All of my apartments are fully renovated so I honestly dont have much to do most days. It actually gets a little boring because all my friends still have to work.

I now have Obamacare but I havent had any health insurance for years until this was released. I use Buildium for my property management businesses.