On today’s episode of the BiggerPockets Podcast, we talk with real estate investor Darren Sager about his fascinating business model involving buy and hold real estate, live-in flips, and managing properties with minimal hassle.
This show is crammed full of awesome, actionable ideas, tips, and lessons – so don’t miss a second of it!
Read the transcript for episode 48 with Darren Sager here.
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In This Show, We Cover:
- The college professional who got Darren started
- When to use the 1% rule
- How Darren bought his first property for almost nothing down
- The $400,000 live-in flip
- The #1 most important characteristic Darren looks for in properties
- The secret to renting property to people with children
- How to save thousands of dollars using YouTube.
- And a whole lot more
Links from the Show
- The Real Estate Agent’s Ultimate Guide to Working with Investors by Brandon Turner
- How I Found, Analyzed, and Bought an Ugly Purple Rental Property
- Brandon Bought a “Waldo” Rental Property…. But Should You?
- Allure Vinyl Plank Flooring
- PayNearMe
Books Mentioned in the Show
- Rich Dad Poor Dad by Robert Kiyosaki
- The 4 Hour Workweek by Tim Ferriss
- The E-Myth Revisited by Michael Gerber
- Millionaire Real Estate Investor by Gary Kellar
- Millionaire Real Estate Agent by Gary Kellar
- All You Can Do is All You Can Do, but All You Can Do Is Enough by Art Williams
- Hamburger America by George Motz
Tweetable Topics
“If a deal doesn’t at least meet the 1% rule – run away.” (Tweet This!)
“It may be cliche, but when buying real estate… location is everything.” (Tweet This!)
“The worse condition a property is in, the more I’ll love it!” (Tweet This!)
“The most successful people are those who failed the most.” (Tweet This!)
Connect with Darren
Darren’s BiggerPockets Profile
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79 Comments
Great podcast!
I really wish I would have been able to hear about the flooring back in April, as I had to pick a normal vinyl and then had to call the contractor several times to to fix the vinyl flooring they put in for me.
Thanks for listening, Bobby!
the question about what do you do if a tenant dies while leasing to you….
in my standard texas trec lease I use it gives the landlord 1st access to the property, it is a blank space on the lease that calls for a person to be named in charge of the estate within the address/property….and I always write my name in there …and my tenants haven’t ever had a problem with it…but i haven’t ever had to deal with it in actuality…
EXCELLENT!! Very down to earth kind of guy. Great job.
Thanks James!
In Atlanta few rentals get marketed on MLS, 99% are via craigslist which works great. For apartment buildings, some of them have 3rd party marketing websites. SFRs are all on craigslist.
I’m a new investor looking for his first deal and have been working with Darren for the past 2 months.
The amount of confidence that Darren brought to my life is invaluable!
I had the “pleasure” working with other real estate agents before I met Darren (the first great outcome of using biggerpockets forums). The fact Darren is an investor opens up a world of opportunities for me as a junior investor.
a. He would hook me up with his contractors and any professional assistance required.
b. Visiting a property with him will point out easily the cons and pros of the property from an investor point of view(a lot of other realtors lack of this valuable knowledge)
c. Always available for questions (trust me I have a lot of them as a newbie 🙂
d. And to the most important point, he is an awesome guy to hang out with!
I hope that we will nail at least one deal by the end of the year.
Great job Darren!
Thank you Lior for the kind words and I feel the same way. Its a pleasure to be working with you and Jamie. I’m sure we’ll get many deals done so no worries!
Great cast Darren. Even though I invest in rrrrrrual markets, our businesses sound similar. Love the focus on “tenant proofing” the property. That is a key focus that we strive for.
Thanks Tom! I enjoyed your Podcast as well! It was the reason why I said that I wrote down the word rural to see if I could get Brandon going on it. We both have strategies that are working and its great. It’d be good to catch up more with you.
You mentioned about tenants paying for their own home warranty. Do you roll it into the rent or is that something separate they put in their own name? How do you word it in the lease?
Hello Ben. I literally have it worded into the lease that its a requirement of the lease. Its gotten so common here in our area now if you list a property for rent even within the MLS system there’s now a check box for if repair insurance is required as part of the lease agreement. As for the wording in the lease itself it goes something along the lines of:
“Tenant is required to pay for 24 hour a day PSE&G service plan which covers the repairs on the boiler, washer, dryer, gas range, hot water heater, dishwasher, wall oven, etc”
If they don’t pay and I have to cover it its considered additional rent of which they’re responsible for. Its not a lot of money. I think around $30 a unit. For that its worth the price of never getting a phone call in the middle of the night that the heat is off. And it helps you run a more efficient business.
Thank you Darren! And Josh and Brandon too. This was a great Interview, and I got a ton of great info out of it. I am looking to follow a similar strategy as Darren’s; buy and hold forever. The rent increase on that first property was unreal. I’m sure the increased value of the property has made it very tempting to sell, but he’s not giving up that golden goose, or changing strategy. I’m curious though, what ever happened to the care-free Professor? Did he sail off into the sunset?
And do you factor economies of scale when calculating properties/numbers? In expensive markets does the 1% rule ALWAYS apply? At what rent roll over the PITI would you feel comfortable even if it didn’t reach 1%?
Travis
Thank you Travis for the nice words. The rent increase that we were able to achieve there has been incredible. As for Peter, he’s still teaching because he wants to. He’s well liked by the students and has positively influenced a number of them who’ve passed through his door. As for deals we look at each one individually and it must stand on its own. The 1% rule was what Peter instilled in me as a benchmark and I still use it today. Are there properties that will be considered that don’t meet the 1% rule based upon asking price? Yes, however it doesn’t mean we’re going to pay the ask on it. Other things to take into consideration are what expenses you’ll have on the property after PITI. If you’re not having to pay for any utilities that increases your bottom line. We always look for ways to make tenants pay directly for all their personal use of any utility. Condition on the property matters as well. If we don’t have to do anything to it other then routine maintenance for at least 5-7 years and the tenant pays for all direct expenses the 1% rule can work on higher priced properties. Am I going to drop below the 1% rule? Nope. Never had. If I did I’d be acting emotionally on a purchase and it would mean I wasn’t investing properly.
I see some rentals on MLS every once in a while in Milwaukee, but it’s only like 2 out of like 163 results in a particular zip code lol.
alex anderson -> to my knowledge : agents were able to list rentals on mls the start of 2013
A lot of agent have not yet used this tool, but give it a few years.
Milwaukee County currently has 31 rentals active on mls.
Waukesha County currently has 14 rentals active on mls.
Racine County currently has 6 rentals active on mls.
Kenosha currently has 20 rentals active on mls.
Ozaukee County currently has 7 rentals active on mls.
Dane County currently has Zero rentals active on mls.
Sheboygan currently has rentals Zero active on mls.
Another great podcast packed w/ useful information. Thanks guys!
Thanks Greg! Glad you enjoyed it!
I am wondering.
How do you insure they renter gets the home repair insurance?
Great question Darren. First off again we do our best to have the tenant understand and agree to what they’re responsible for and what we’re responsible for before they sign the lease. The point about the repair insurance is covered multiple times along with the fact in general they’re also responsible for the first $150 of any repair. Its explained to them as its really beneficial to them. Having someone on call 24 hours a day to make sure if anything happens they have a team of people ready to make sure they’re not without heat or any appliance is very nice. And when they know that its a direct call so response time is much faster most like it. Ahead of moving in we provide a sheet of information of what they’ll need to do before the date to make sure they’ll have all their utilities and garbage service. On the list again is what they need to do regarding setting up the repair service. Lastly we follow up to make sure its been done a month after they move in.
If for some reason they don’t do it the lease says that if they don’t they’re solely responsible for all the repairs and replacement of those items. If we (as landlord) decide to step in and pay it its considered additional rent of which they’re responsible for. If they don’t pay it then there’s steps to all the additional costs that they’ll pay regarding legal fees to enforce the agreement and again they agree to it ahead of time.
Find a responsible tenant and from the get go it won’t be an issue. If they complain about something like this from the start then again its a barrier to entry if they don’t want to pay it. It amounts to 1% of the total rent they’re paying on average so its not big ticket item.
Very valuable podcast and worth a listen if you are a buy and hold investor! Tips on materials, leases, and several books. I, too, don’t have goals of being a billionaire, just to live comfortably and travel. =) Thanks Darren for sharing your experiences.
Thanks for listening Julie!
You’re very welcome Julie! I’m glad you found the podcast beneficial.
Listening to it right now and pretty interesting so far.
Wanted to tell Josh and Brandon that the Tweetable Topics don’t seem to be working. They are just opening another copy of this show notes page for me.
Thanks Shaun, and I guess that makes sense now why I’ve seen no Tweets! I’ll fix that ASAP. 🙂 Thank you!
FYI Seems to be working now.
Is there anyway I can get a copy of your 20 page lease?
I’m working on making it available!
Yes, I would be interested, too!!
Yes! I was wondering the same; would love a copy! Thank you! Or if this is already available, can you let me know where? Thanks!
I just listened to this podcast and would be very interested in looking at your lease. I’m working on my first buy and hold deal and would love to have something to go off of.
Would love to get a copy of your lease as well as understand what other things specifically that you are doing to tenant proof your houses.
If you could share your standard lease agreement that would be greatly appreciated.
I would also like to read any blog posts on your part, love the attention to detail, and your implementation of prevention, prevention, prevention.
Keeping bad tenants out is not via the application or the lease, nor by using a screening service like mrlandlord.com or NTN. It’s in the face to face interview and trick questions and the importance of the prospect’s answers. I follow the prospect to their car,,, it has to be neat! They must want my place because their relative is near by, kids need to stay in this school district. Family and schools are the best sticky factors to keep a renter. The lease can’t fix what was screwed up by letting a bad renter in. 🙂
I forgot to mention that my latest least:
– never expires. I no longer chase renters to resign each year. Just give me 60 days notice, leave any time, even in the first year. No unhappy renters in my places allowed. LOL
– The lease says every year will have a rent increase. I may tell them no increase but it;s int he lease. No howling renters either so I solved that.
– houses we own in taxable entities pay rent through a paperless service. Like erentpayment.com or similar. No checks. Unfortunatley this is not possible with SD-IRA owned rentals. Lots of paper..
I really enjoyed this podcast, great information. I am looking to start this type of business in more rural Central PA, but the communities are great and the people are pretty handy. It might work to model my lease after Darrens.
Thanks Shayne! Glad you enjoyed it!
Lease! Lease! Lease! Lease!
After the holidays I’ll make it available to all!
Darren, You are not just a landlord >>> you are an ARTIST!!! I am so wowed by this podcast I’m going to listen again when I can jot down some of the golden nuggets.
Josh & Brandon, GREAT questions. This is one of my very favorites.
BP . . . bringing class to the industry. Thanks so much.
Thanks Melodee very much! I’m glad you were able to get some “nuggets” out of it. That’s how I’ve felt about listening to the other podcasts when I heard something good.
Darren,
Thank you for being on the show. It was so good that I have listened to it three times already. You provided a lot of great information, especially for me as I am planning on investing in small multi-families after I have a little more hands-on experience.
Thanks again,
Nate
Thanks Nate very much. I’ve found myself listening to a number of the podcasts multiple times because they’re so full of great information you can’t absorb it in one pass. Happy to hear this one was that way for you!
Darren-
Bottom line is….you are the Man!
Amazing Podcast. Homerun.
I had never heard of Triple Net Leases prior to the show…Now I am doing some investigating and they look like something I would love to get into (some years down the road after all our SFR are paid off). Can you suggest any websites?
Again, podcast was a blast!
Craig
Craig –
Our last show, BiggerPockets Podcast 047 with Joel Owens was all about Triple Net Leases. Check it out!
Great interview Darren! I appreciated hearing your perspective on duplex investing (it’s an area I’ve been trying to pursue as well). Your humility was refreshing as well. Thanks for sharing your wisdom with the BP community.
Thanks Seth very much! I enjoyed your Podcast as well! One point that I brought up was the fact of the more time I’ve spent on BP that its showed me how little I know. Your Podcast showed an aspect of investing I’d never considered but it gave yet another example of how to be successful at REI if you commit to something. Keep it up!
Great Podcast
I have a duplex right now that i am trying to wholesale, instead i may look to buy it. Great information, thank you
Thanks Gerald very much. Hopefully its in a great location that will produce for you your entire lifetime!
Great info, Darren. Curious, why only duplexes and not tri or 4 plexes too?
Also, do you have any referrals for durable and reasonably priced carpet products?
Brandon or Darren, when you refer to the 3X income requirement, are you guys talking gross or net income? I’m assuming net, but wanted to make sure.
I do gross income, though I might change that to Net on my lower income tenants. 3x gross when you are only making $1200 per month gross ($800 net) on a $400 apartment doesn’t quite cut it.
I’d think it would be more of a pain then it’d be worth to net it out.
Maybe say that for rents less than $500 (or whatever makes sense) you require 4x gross income.
I’m not concerned about determining what the net is because it’s already calculated on their pay stub, which they submit with the application. I have always done net because I want to know how much “actual” money they have every month to pay their rent, other bills, etc. If someone makes $2800 gross, but then has deductions for health insurance, 401K contribution, perhaps a child support wage garnishment, that gross amount that looked good at first blush may not be looking so great any more. But I was curious what others do, since I rarely hear it clarified. Thanks for the feedback guys!
That’s not really Net though, you could say that is their “take home” pay.
That would only capture things they have taken directly out of their check. That won’t tell you if they have a car payment, how much their cell phone plan is, how many credit cards they have and what the payments are or any other recurring obligation they are paying. You’d have to dig thought the credit report to put that information together.
Even for some of the stuff you mentioned if they work for a place with out a 401k and they fund an IRA you’d miss that. If they pay child support or alimony but they aren’t a jerk that tried to get out of it that won’t be on there. And you might not be able to figure any of that out without them volunteering the information.
Not saying it isn’t a good idea to look at all that kind of stuff, just that it is way too much work for a basic screening tool.
Hello Sharyn! For me it was a means to avoid rent control and that reason alone. Two family homes were considered “mom and pop” businesses and not necessarily for large landlords. I didn’t want to deal with the local municipalities dictating how much I could raise rent and actually depress the book value of my rental property because their monthly rate were below market value.
Why can’t I say net pay? I want to know what they take home after their taxes, insurance, 401K, and any other miscellaneous items are deducted. All their other obligations, like a car payment, etc. are on the application to help give me an idea if the applicant indeed has the necessary funds to easily meet rent every month, and yes, I do use their credit report as a back up to make sure they’ve left nothing major out.
Having said that, every landlord can use whatever criteria they want and account for as many of the potential tenant’s expenditures as need be so that they are comfortable with the tenant’s ability to pay. You may rely solely on the 3X gross rule. I’m not comfortable doing that, and don’t feel it is a lot of work at all to dig deeper, and quite frankly, any more I have my property manager do that anyway (but I used to do it myself).
However, what prompted my initial question and what we are talking about here is a pre-screening tool that is advertised in the listing. If I say “tenants must make 3X the rent in gross income” and when I see their paycheck they have a bunch of deductions, because I’ve said gross, I couldn’t legally turn them down for not making enough. Perhaps in the ads one doesn’t specify at all?
Great Podcast! Was inspired to take notes throughout. Thoroughly enjoyed it, Thanks Darren, Josh and Brandon 🙂
Thanks very much for the kind words Armaity!
Darren, great podcast! What part of the New York market are you in?
Thanks, Michael
Thanks Mike very much. Glad you enjoyed it! I’m in the Northern NJ market and soon to be in the five boroughs of NYC.
That is awesome Darren. I am in the NYC area as well and I love your investing model!
Do you attend any REIA events in the NY area?
Hello Mike. Thanks again. We’re going to have another meetup looks like March 11 for members of BP. Look me up on the main site and send me a colleague request.
Great info.
Judging from all the comments, I’m not the only one who found it helpful!
I’m looking to invest and hearing what you said made me think that working with a RE agent that understands investor would be really key.
I hope you don’t mind I’m going to send you a colleague request to ask you some questions about investing in your area.
Thanks!
Thanks Dan very much! Glad you enjoyed the Podcast!
Fantastic podcast Darren. Glad you pointed out that I missed it, well worth the listen and probably re-listen a few times!
Thanks Keith!
Darren Sager I just listened to the podcast. Very good job. Did you make the lease available? If so where can we get a copy? Thank you Lee 🙂
When you get a loan to purchase the duplex is there a certain time frame where you have to live in the home or can you immediately rent out both sides?
Hey Jay,
It all depends upon how your structure your loan. If you do it as a straight investment in most cases the lenders will require you to put down 25% to allow you to rent it out fully from the get go. If you are going to live in it (which will get you a lower interest rate in most cases) you’ll have to occupy one of the units within a certain number of days to qualify for that loan. You’ll have to stay in the residence for certain period of time as well before you’re allowed to rent it out both units. If you don’t move into one of the units you’re lender could require you to put more money down and charge you a higher interest rate.
@Darren Sager thanks for the information. Does your credit score matter?
My pleasure Jay. Yes credit score always matters. The better credit scores get you access to the best rates available. Over the life of the loan it can be significant!
Awesome podcast Darren. There was a lot of useful information in this podcast.
Thank you Deshan! Glad you enjoyed it and there was some gold to mine in it!
Awesome awesome podcast. Even though its an older, it’s by far my favorite so far.
Thank you Ayodeji! Very kind words. I’m happy to hear it’s one of your favorites!
@Darren Sager I know this Podcast is from a while ago, but its my favorite BP podcast. There is a “no nonsense” approach to your management and approach that comes through strong in the Podcast. You mentioned offering a sample of the 20 page lease agreement. Is it available? I am most interested in the nontraditional elements like Paint Codes and other little details that make managing property more efficient. Thanks for your time and effort on BP.
Hey Ryan,
Thanks for the kind words. I’m glad you enjoyed the Podcast and found it to be your favorite! My lease is ever evolving, sort of like the constitution. Laws change so the lease changes. I have a good base lease I can send you, you’ll just need to make it your own based upon local laws and your particular situation. Send me a message through BP and I’ll make it happen.
Hey Darren-
I actually live in the Philly suburbs…bought a rental property in Philly in 2007 and it has been the worst experience ever (too many evictions/fights/deadbeats to mention). I almost gave up on the idea until I discovered Bigger Pockets and realize what a moron I was, and that I broke every rule in the book. Though it has been a money pit, I am convinced that there is a better way! Along those lines, I would be very interested in looking at your lease, if possible, as well. It may not work for this property, but in the future I think it could come in very handy! Thanks for all the great info…let me know!
Tim
Darren would you consider working with an out of state investor?