We made our fair share of mistakes on this rehab.  We have plans for the property down the road, so we went a bid overboard on the repairs.  Things you don’t normally see in rentals such as backsplash, side by side refrigerator, matching overhead lights. Sadly we went 30% over budget.  That’s what happens when we don’t stick to our scope.  I also missed a few key repairs when first looking at the house.  Some I should not have missed, others I couldn’t have seen unless I ripped up the floor.  That said, I am very happy about the outcome.

Before                                                                                                                                          After
 
 
 
 

I leave you with this quote “Learn from the mistakes of others.  You can’t live long enough to make them all yourself.”  Eleanor Roosevelt

In extremely minor news in comparison, we got our 4th rental property under contract last week as well. The plan is to close by the 28th. I’ll detail all that in another post.

I got a scary phone call from one of my property managers yesterday.  A soon as I picked up, I knew this was going to be one of those calls.  I could tell from the tone of his voice.

The water heater went out on one of my rentals.  Same water heater I repaired 2 years ago.  It didn’t just go out, it sprung a nice big leak.  Total replacement.  Thankfully this tenant called right away to let us know of the issue.  No water drying service this time.  The water heater was not the scary part.  The scary part is the handyman got shocked when he went to work on the water heater.  Not good.  To see if it was just a built up charge, he tested it again and got shocked a 2nd time.  He’s alright thank goodness.

Many if not most electrical systems are grounded to the plumbing in older homes.  Its nothing new.  If there is an issue it should trip the breaker and not electrocute anyone.  Essentially the electricity will use the plumbing instead of a person to find the quickest way to ground.  This throws the breaker.  Unfortunately this house like many built in the 50-70′s has Federal Pacific Breakers.  They were cheap breakers back then and folks got what they paid for.  Federal Pacific breakers are what almost burnt down my last house.  Its obvious there was a fault and the breaker did not trip.  I’m will not take any chances, all those breakers are being replaced.  Quickest decision in my landlord experience to date.   When it comes to the safety of my tenants, there are not shortcuts or chances to be taken.

Total cost ended up being really good.  $1100 for new water heater and panel replacement.   Unfortunately, I still have not been paid on this property.  Denver Sec8 has drug their feet on processing the paperwork.  They have 60 days to send out the approval and even more time to process our signature after that.  My PM is footing the bill until we are paid on this property.  The bill will come from the back rent collected.  I also hope this will encourage him to get after Sec8 a bit more.

That’s it for now.  I leave you with this quote “Safety isn’t expensive, its priceless.”  Author Unknown

I have had a rather frustrating experience with sec 8 so far. For the most part, the tenants have been good. The entire struggle has been with the Denver Sec 8 office. Rather than focus on that, I will be focusing my energy to avoid the need for sec 8 in the future. That means once again, my properties need to shine. Also, If I have to lower rent to attract non sec 8 renters. It will save me money. Sad, but true.

It is a powerful lesson though. Never ever ever allow your business to be controlled by others or have a weak link with no backup plan. Sec 8 dictates my rent, my repairs, improvements, my rent increases, and even controls my pay day. I have very little recourse against the office itself. They have become my linchpin for those properties and that is unacceptable. I will share the story why at the end of the post for those that wish to read on.

In positive news, today is the official day that all three rentals are rented again. +2k income each month not counting expenses. Huge swing for a small portfolio landlord.

If you wish to read the rant, scroll further. Just venting a bit.

I have two rentals under the Denver housing authority sec 8 program. It took until March 15 to get two months back rent for rental #2 from them. The back rent goes all the way back to June and July 2010. Also missing is Aug back rent from them which I will not see. (They sent that payment to my fired PM who cashed it. “Not their problem.”) I called weekly and often times several times a week. Calls were either ignored or not returned. Over a dozen messages were not returned to myself or my new pm. I went to their office several times and was treated with disdain on 3 out of four occasions. I’m the big bad landlord. They then sent another missed payment to the fired PM in Dec after I specifically setup the new PM in Sept. Luckily that one was not cashed. Finally Early March I got confirmation the payment would be sent forward after some fuss. While they refused to print out any paperwork with the tenant info, they gladly print out the paper with my info without even checking my ID. Scary. Finally got payment Tuesday this week. I probably spent close to 40 hours collecting $1100 in back rent.

Next it took 3 weeks to get an inspection on rental #1 and 2 more weeks to get a reinspect. To make matters worse they lowered my asking rent by over $100 to “fair market rent” even though I have proof of other exact same model homes renting for my asking rent and higher. To make matters worse, the poor gal I will be renting to could not move in. She has been put out for over 4 weeks for their delays. How does that help improve housing in our communities? Between the delay and rent reduction, my reduced income will be nearly $2000 for this year on one stink property. That does not take into account 1 extra month of utilities. After all the delays, I would have nixed using them, but it would have cost me more to find another tenant this late in the game.

The final straw, its taken them 3 weeks to get an inspection on one property for a rent increase. It will be 3 more weeks until I get the reinspect on a 5 minute fix item. While the rent increase lost time and rent will not be as significant, it only adds to this problem. BTW, I will be writing them a letter asking why any landlord would want to stay on their program giving my experience.

Now I have a theory. Their funds did not get increased this year. By stiffing the landlords, they can save on costs. These delays are so egregious they almost seem intentional. I hope my theory is wrong.

These setbacks have only strengthened my resolve to have better properties.

On that I leave with this quote. “Nobody trips over mountains. It is the small pebble that causes you to stumble. Pass all the pebbles in your path and you will find you have crossed the mountain.” ~Author Unknown

Never ever lose momentum.  My wife and I worked day and night on our new home.  We worked till 3am on several occasions.  Getting up at 5am for work was not fun or smart.  But, it was a fantastic learning experience.  I am very glad we went through it.  The problem with doing work on our own house and working full time is time itself.  We used every waking hour.  I dropped everything else in real estate.  I lost all my momentum.  I have been fighting like hell to gain it back.  Never lose momentum.

As anyone in real estate knows, it takes months to build up momentum to that first deal.   I will be working hard on getting those deals in the works again.  I have lined up 3 hard money lenders, got my Realtor on board with my plan, narrowed my farm area, and started walking through properties again.  Its all numbers from here on out.  With the new financing lined up, I will be shooting for 3-6 more rentals this year.  I’m ready.

In other news.

After I made the last post I almost had to eat crow.  The renter backed out of the good rental.  I kept his hold deposit.  I wasn’t worried about this property re-renting and for good reason.  It rented two days later.  I will admit, it helps to have an all time low 2% vacancy rate in the Denver metro area.

I leave you with this quote “Success comes from taking the initiative and following up… persisting… eloquently expressing the depth of your love. What simple action could you take today to produce a new momentum toward success in your life?”  Anthony Robbins

It was the best of rentals, it was the worst of rentals.

Let me compare two rentals I have and share my mistakes and lessons learned.

Rental 1 is a 1630 sq ft 4/2 brick with a 1 car garage. Fully finished basement. The lot is about 6400 Sq ft. Moderate traffic street, low end neighborhood. Asking rent is $1200.

Rental 2 is a 1030 sq ft 3/1 aluminum siding with 1 off street parking driveway. No basement, crawlspace only. The lot is 6300 sq ft. Slightly higher than moderate traffic, low end neighborhood. Asking rent is $1050.

The first rental has been vacant since Aug 1st 2010. Finally a new renter will move in March 1st. 7 months vacant. What went wrong? Simple, we didn’t fill a need. The core principle of any business. What our folks looking for when making this “purchase”. They are looking for a home for a reasonable price. This unit failed to meet that objective. The yard is ugly, horrible curb appeal, the neighborhood is not greatly desired, the rent was high for what we currently offered, bars on the windows gave an unsafe feel, no window covers, and the property had only 2 conforming bedrooms out of 4 thus making most sec 8 tenants out of reach. Inside, the house looked okay as it was recently remodeled in 2008.

House #2 rented in just 8 days. What went right? The house has phenomenal curb appeal, the bathroom is newly remodeled with custom tile work, trim and walls freshly painted, outside trim freshly painted, great landscaping, window coverings, security system and no bars, all 3 bedrooms are conforming, has well designed closet hangers. Fact of the matter is, it looks and feels like a home. That is exactly what our buyers want. They want a home, not a unit.

The big lesson learned here is we must fill the need of providing a home, not just a unit. It must look and feel like a home. That means the yard must be tip top, the house must have great curb appeal. It must show pride. The interior must present a home. That means we will furnish window covering to help prospective tenants see themselves living there. Bare windows are very cold to look at. The rent must be priced for what we offer. I am confident on a competitive rent, so if it is not renting, we need to fix what is wrong with the property or drop the rent. If my wife and I would not be willing to live and this property, then it is not ready to be rented.

The 1st rental will receive many landscaping improvements this spring. Repair sprinkler system, sod, landscaping that I would desire. When the current tenants move out, we will add window coverings. We will also spend time and money ensuring the inside is a home. That may include closet organizers, slightly better appliances, and small renovations here and there. Either way, we will strive to not repeat our same mistakes.

That is it for now. I leave you with this quote “Judge of thine improvement, not by what thou speakest or writest, but by the firmness of thy mind, and the government of thy passions and affections” Thomas Fuller

Needing a new property manager I interviewed 5 different companies. I spent quite a bit of time looking into each. I got the names from references and internet searching. I settled on a new company around mid August. I had the agreement signed and was planning on taking the info over after work. Around noon that day, they called to inform me one of their PM’s quit and they could not take on any more clients.

For one, I’m glad they did and am still willing to use them in the future, but it put me in a pickle. In a rush I choose a secondary management company that came recommended. I did not do enough background check on this company. While eager and willing, the new pm was fairly new to the business and happened to be taking over the majority of my old PM’s disgruntled clients. Plus, he took over another some clients from another management company that went bad as well.

Now I became one of many that needed several issues resolved. The new pm simply had to many fish in the pan. After signing the agreement we settled on rent for the area. After two months of several showing per week and no bites (a couple bad ones that I wisely rejected. ie: no job, income or down payment etc. etc.) we determined that the house needed to go sec 8. Unfortunately the basement bedrooms were non conforming. I paid $2600 to have an egress window installed. As luck would have it, this is right around Thanksgiving. It is very difficult to rent late in the year due to holidays. Showings dropped off.

BTW, I have talked with my PM each week since Aug 1. While I don’t have the results to show, I will say that you cannot be passive in managing even your managers.

Fast forward slightly to today. The property is still vacant and I have not had a renter since Aug 1. Plus all the other issues costing me money with the other PM. Yes, I made a ton of mistakes. Everything that has happened so far is a direct result of my lack of knowledge and lack of preparation. That said, had I not had reserves in my account to cover this time frame, I would be up a creek. Don’t for a minute think you won’t make a mistakes or have things happen to your properties. Without the reserves, I likely would have 0 properties today, instead of 4.

Looking ahead. I will be sitting down with this PM and discussing a time table with him on getting the property rented, lowering rent, or finding a new PM. It will all depend on his responses. I’ll let you know my plan with him. Also, we will be out of this house in 2 weeks. We will get it rental ready and will talk to another PM company or take on the rental ourselves. I will be doing a bit of research this week and decide with my wife. Many lessons from the school of slow learning, but we will get it figured out.

I would like to add, when working with PM or tenants, document, document, document. Always have backup records for later use. You may need them for a new PM, for a court date, for taxes, and especially to run a much smoother business operation.

Till next post, I leave you with this quote. “I’d rather live in regret of failure than in regret of never trying” MJ DeMarco in The Millionaire Fastlane

Every landlord has a closet full of horror stories on problem tenant, property managers, houses, cities and anything else under the sun that may keep you up at night. This is my story. Around 6 months ago, my wife and I married and were off to our honeymoon in Napa. Shhhh, that’s not the horror part. I had a longtime tenant at house #1 that was late on rent. June 2010. I was assured by my property manager the rent would be in shortly. (mistake 1) I still believe it was. When we returned from Napa I never verified the rent was deposited and mistook a similar size deposit of mine as the rent deposit. (2)

Next issue, my PM has switched brokers and has applied for address change with Sec 8 housing authority on house #2. It will be 3 weeks before I get my rent from them.

I call and write my PM after the honeymoon to find out why my rent still isn’t in from the housing authority. I’m told they lost the paperwork (very believable with the inept housing authority) and it has been submitted again. 2 weeks later, “they have lost the paperwork again.”(3)

At this time (now July) I get notice from my pm that my tenant will be vacating the lease early on house 1. Checking my lease right away I notice a glaring error. My PM had N/A’d the lease termination fee. (4). Why, I have no idea, but certainly a big no no in my book. I call my pm to start getting the property ready for market. At this point several errors start showing up, responses get slower and my frustration mounts.  I don’t fire people quickly, especially when they have been good in the past.

We chat one last time on getting house #1 ready for market as soon as the tenant us out July 31. That is my last contact with my PM. I called 4-5 times the next two weeks. Agitated no response, I finally get an email telling me the issue. Okay, I am not unsympathetic, but why are no backups in place?  After several more weeks of no responses, I get a email from my buyers agent.  It turns out, I’m not the only one who is having these issues.  Many of his clients have used this gal and he’s trying to help us out.

Head to mid August and I send a termination letter to my PM.  and begin the process of hiring a new one.  In the mean time.  I am out June, July August Sec 8 rent, June rent on house #1 and have a newly vacant unit.  My troubles are only half over. My next post will go into the 2nd half of issues.

I leave you with this quote. “Nobody trips over mountains. It is the small pebble that causes you to stumble. Pass all the pebbles in your path and you will find you have crossed the mountain.” ~Author Unknown

Finding a new Property Manager

There are two main and very obvious ways. Google and word of mouth.
Google can be very useful when finding information on property managers. I took 15-30 minutes per firm researching before I even called them.
-check out their Better Business Bureau rating and see if there are any logged complaints.
-do a search for reviews on the company. While this is all subject to reading another persons opinion, check for complaints stemming from the same problem.
-check out their website.   Some smaller companies may not have a website, I actually hold this against them. In this day in age, there is no excuse for a customer oriented company to not have a place for their client owner and tenants to gather information. Read all you can. Many of the questions you can ask are already listed. Many companies will go as far as putting their contracts online for you to read.
-Check rental listings and see who has the best approach in your area.

Word of mouth is by far the best way to find a good pm. While many have web pages, their SEO (search engine optimization) could use some help. Hence, you may not find them in a standard search.
-Ask your realtor
-Ask your local REI club
-Ask other landlords you know. Specifically those that have been around for awhile and have several properties.
-As your driving your target neighborhoods (you better be doing this at least weekly), look at the for rent signs and who the PM firm is.
-ask on forums you use. Meetup.com or biggerpockets.com as an example.

Honestly when your looking, you should be doing all these things. Remember your 100K + investments are at stake, are you really going forward on a whim?

Next post, I’ll talk about what you should be looking for in a manager.
Till then, I leave you with this quote “Any man worth his salt will stick up for what he believes right, but it takes a slightly better man to acknowledge instantly and without reservation that he is in error. ” Andrew Jackson

I have talked at length with the hard money lender. They are very interested in funding the deal at this point. I still need to give them an itemized cost scope of work. I’ll get them one when all my bids are in. I want a better idea myself.

I have now gotten 1 property under contract with the PM. The vacant rental was left in pretty good shape. Some minor damage, but considering 5 kids lived there, this is pretty good. The new PM will be cleaning it and getting it rent ready very soon. 75% 1 months rent for lease up and 10% Pm fee. A bit steep, but it will work for now. Denver PM fees average 10% btw.

I got word that the 2nd lender will be reviewing the file for our personal home within the next week. It seems they are moving quicker then normal. Not sure why. I am sure they will likely counter us, but we will play that card when we get to it.

For now, I will leave you with this quote “Success always comes when preparation meets opportunity” Henry Hartman