All Forum Posts by: Michael Kalis

I really can appreciate this situation and it's great to hear an owner that is concerned about the well being of tenants.  I thought I would take a moment to get other's thoughts on the topic of home warranties.   We manage thousands of homes and this situation is very common.  The homeowner has to choose between getting work done quickly and paying out of pocket or going with the warranty company and providing a poor experience for the tenant.  

Who would rather just not pay an insurance premium and handle and expense when it comes up?  Who believes that these plans are a good value?  I welcome your thoughts.  My preference is to simply pay out of pocket.

@Greg H. - Thanks for reaching out.  I always appreciate learning.  

In Texas it's called something else, but you can keep going after a tenant to have them answer questions on financials every 6 months or so I recall.  They have to do so under oath.

Anyone that knows how that works or the proper terms let us know.

Sometimes it makes sense to pursue these, sometimes it doesn't.  I do not know all of your situation, so you will have to make the call.  I have a rule of thumb to pursue legal matters with tenants and I figure I'll share it;

1)  Am I right (sometimes I make mistakes and I dodn't pursue)

2)  Do I have over a 50% chance of winning (I can be right, but still have a decent risk of loss)

3)  Do I have over a 50% chance of collecting (I can get a judgement, but does the person have money)

In the case below, you would likely meet 1 and 2... but 3 can get tricky.  Here are some ideas that I have tried out;

1)  File in Texas, they likely won't show.  As such you will get a default judgment.  You can really rack up the costs if this is the case... ask for $20K.

2)  File for a creditor's exam in Texas - Now if they don't show up a bench warrant will be put out for arrest if they come back to Texas they will go to jail if pulled over.  If they show up, great... you can ask for bank account numbers, job history, tax id number to file taxes, cars, etc.

3)  File to have the judgment moved to Arizona and go after them in Arizona.  This might mean you need to pay an out of state attorney.   Also file for creditor's exam in AZ.  

The thing here is this, be committed.  If you want to fold and move on, do that quickly.  If you want to pursue them... go after them.  Commit to put in months (or years).  Pay the legal people, pay the courts, travel to AZ if needed... but go all the way and get the funds.  The people that lose are the ones that sorta pursue it and stop short of victory.

I wish you all the best in getting the funds back you are owed and I am very sympathetic to your situation.

Regards,

Mike Kalis

Marketplace Homes

My name it Mike Kalis and I have interests in and manage about 3,000 homes and started from my basement.  During that time I have seen issues with wear and tear come up and I certainly don't have the final answer, as we have a few of these coming up this month as we speak, but I thought I would share some experiences I've had;

Paint / flooring / cleaning - What should paint look like 5 years later?  What is reasonable for flooring to look like 5 years after the fact?  Generally, the tenant thinks they cared a ton and it's great.  Generally, the owner thinks it was the cleanest home on the planet prior to the tenant wrecking it, so what gives? 

Getting pictures up front helps.  Getting a move in checklist upfront helps.  Having a team document the condition helps... but still, people will disagree.  It took me many years until I learned THE SECRET!!  

The Secret - We side with the owner 99.9% of the time now.  Because the owner takes away the home if we don't.  So even if we disagree, we will always withhold the security deposit and give to the owner.  

The Secret #2 - Most property managers don't understand secret #1.

The Secret #3 -  By withholding the security deposit, we are able to charge more for repairs because it isn't your money.  The tenant is repainting and recarpeting your home for you.

Sooooo... why don't most property managers understand the secret?  Because the tenant is louder, has less money, writes awful reviews more often and threatens crazy stuff.  This gets into most property manager's heads and they forget who hired them, the owner.  

So when you hire a property manager, you need to interview them on how tough they are.  Ask these questions;

1)  How many times have you gone to court to evict a tenant, won and then collected all the funds owed through garnishments payroll, taxes, assets?  How many times didn't you collect?

2)  How many tenants's have asked to have a restraining order placed on you due to your diligence in collecting?  (hehe... yeah... I got a pile of those... street cred for being out of Detroit)

3)  How many tenants have gone to court and beaten you over security deposits?  (Never) 

4)  How many times have you settled with a tenant?  (the answer should be an unequivocal ZERO!)

If a manager is not on your side, why hire them?  We explain to tenants that we do not represent them.  If they want a Realtor or legal guy, go get one... we represent the owner, they pay us.  

Great question and good point.  Many mentioned that your numbers are a bit low, but I thought I might post on a different topic. 

Do you need investment ideas for money or do you need a salary? 

- If you have $500K plus in investments and want a great return, buying real estate in an IRA or for your long-term goals is a great strategy.

- If you have limited reserves or funds to invest and need a full-time job, that is different.  Typically, that would be geared towards making a commission upfront on deals or flipping so you get the income now.

Both great strategies, but it depends on the stage of life that you are in at this moment.  Thanks for the question, I hope this helps a bit.

What a wonderful and practical question.  It seems like you are asking a very rational question based on experience and it shows.  All I can offer is my experience, I do not know if it is right or wrong for you but it is my story.  My story was a rather slow progression that seemed to take forever while I was in it, but looking backward kinda seems fast!  

I started working at the largest builder when I was 22 years old until 25.  During that time, I learned a lot about the business from the company I was at.  On the side, I flipped one home and bought two more.  The flips worked, the rentals didn't.  I also started going to investor meetups and connecting dots on deals. 

I did about 35 deals for investors without making a dollar while employed and learning from the builder.  I started finding deals and sending them to investors.  I didn't ask for a commission.  I was just soo excited to learn that it was fun for me and I also had a full-time job so I didn't NEED the money (I certainly wasn't rich, but I could pay rent).  Eventually, one of the guys I kept sending deals to thought I might be on to something and offered me a job to work for him... in his basement... for 1 quarter of what I was currently making.  So I, of course, took it!  (That was me jumping in after 3 years of practice and 35 deals I set up without getting paid on).

I started with him and invested over a year working full time to buy homes for him as an investor.  I put together a ton of deals and eventually, he offered to let me purchase the company.  I was grateful, but the company was a couple team members and a website.  We started buying homes in Michigan, then we grew to Chicago, Indiana, Ohio, Atlanta, Florida... just one market after another eventually hitting the INC500 list.  

Then 11 years later, we have this lovely team of 80 W-2 team members that manages 3,000 homes and flips properties in a couple dozen markets with over $10 million in capital to put to use to buy homes.

My story (and it is not the only way, just happens to be my story) was a slow progression of learning and doing at the same time until eventually, I became an expert at what I was doing. 

If you become great, there will always be a place for you.  The real question to ask is are you willing to become great?  If you are willing to get there, then likely, it's a good idea to dive in and get going.  If you have a feeling in your gut that you are not great yet, then you might want to take an angle and work it until you are a little further along the learning process.  Very likely, you may find that your experience will place you in front of 90% of the industry out of the gate.  I wish you prosperity and I hope this story helps as you continue to build yours.

@Mark K. - I think it's great that you stop by to pick up the checks.  I used to do the same thing.  Funny thing... apparently, the tenant's didn't love having me swing by.  Eventually, as we added homes, we needed to get some processes in place to collect methodically, but with two homes... if you are willing to put the effort in to collect old school and it works for you I think that's great.  

Happy investing!

@Brant Garner - Great question!  You get the tenant's bank account and routing from the check they pay rent with.  You can then pull from that account going forward with the proper authorization.  You are right, it would not be a great idea to give them the landlord's account!  

@Tom Gimer - I have learned that I should not buy in Philly as an outsider!  The city of brotherly love loved my checkbook!  I think I was taken at every corner, from the attornies to the seller to the transfer tax (I think it was over $4K for a $100K home)... the only saving grace was I got an awesome cheesesteak while I was out there.  They really are darn good there and I can't put my finger on why... but they just are.  But yes... on the east coast, I think title issues are VERY different then from new or newer developments in the south.  Certainly a different level of risk.  Conversely, there are no cheesesteaks in the south... so you just can't win on all fronts.  

First of all... you are doing AWESOME!!!!  STRONG FEMALE rocking out the investment world and even in the military.  Thank you for your service and for starting in real estate young!  I had a baby prior to getting married... baby is great, have another one, finally got married and all is well!  

Couple thoughts that may or may not assist.  I can not tell you what to do, but I can share my experiences and if something in that helps, well then awesome! 

---------------------------The Bad News First------------------------------

1)  I bought my first home on a 100% financed loan when I was 22.  It was 2004.  I had no idea what I was doing and figured hey.... zero down, let's get a few more!  I had a weird period where all tenants moved out or stopped paying.  One tenant actually died (she was 75) so I of course didn't ask for rent... but the family took a month to get things back in order and it took me a few more months to fill it.  At the same time, the other units went vacant.   All of a sudden I was floating $3K/mo in mortgages plus winter utilities and couldn't so I fell behind (perhaps I didn't have the saving you do).  I never caught up and let them go.  It took me 7 years until I was able to get traditional financing and I had to rent my personal home for my kids during that time.  Not optimal.  If I would have waited to save up a little in cash reserves, I might have made it work.  

2)  I wanted a home badly for my new kids and wife.  It's hard to explain how strong that desire was, but I had zonked my shot on an investment home.  I wish I had thought of my own family first.... locked up our home THEN looked at investments.  

3)  I bought silly homes... looking back there was zero reason to buy as rentals.  I really had no idea.  BiggerPockets was not around so I had SmallerPockets.  I wish I had researched a bit more to know what made homes good investments.

-------------NOW THE GOOD NEWS ----------------

1)  Because (like you) I dove in young, I am now 36 and have over a decade of experience.  Those couple bad deals, led to me assembling thousands of good ones.  Thousands.  I have lost on many, won on may but how else do you learn?

2)  Because (like you) I was willing to do the dirty work... fix up the homes, find the deals, handle the rent etc etc... I learned how not to do and how to do it.  It also gave me huge appreciation for the skilled trades we hire now and for the rolls that go into this business.  Now we have a team of 80 W-2 employees plus hondreds of skilled trades... all because I started and just dove in.   

3)  Because (like you) I had a reason to make it work, I made it all work.  When I became committed to something, nothing could stop me.  When I "experimented" many things set me back.  Being all in changed it all. 

In summary, I have had my ups and downs but I love this industry.  The more I know, the more I know I don't know the answers.  I am excited to see someone entrepreneurial like you asking the right questions and looking to take a risk.

If you wanted my opinion and I was in your boat, I might have got a duplex with the VA loan. If the tenant doesn't pay you can still float the payment and live in the other side, but if they do you are pulling a nice little house hack and living on the cheap. Stay for a year, have the baby... get settled and then start looking to buy the home for you.

 I wish you success and a healthy baby!