Announcer: You’re listening to Real Estate Investing Talks, a SimplyDoIt podcast. Your journey to success in real estate investment starts right here, right now. Here’s Dani Beit-Or.
Dani Beit-Or: Good morning. According to the people that I see online, as I said, good morning. Good afternoon. Good evening. Shabbat shalom, for those of you who are going for the weekend. Happy weekend to everyone. My name is Dani. I’m sure all of you know that. I’m in California right now. It’s about eleven a.m. my time in southern California.
We’ve been doing a live Facebook session on our SimplyDoIt page, our business page for the past month or so, and I just wanted to try switching it over to my profile. The purpose of this session is– I have a content I want to talk about: real estate investing related.
That’s what I’m bringing in from my experience, from my knowledge. But also, most importantly from my end is actually an opportunity for you to participate in a Q and A. Questions that you have, concerns, whatever is on your mind, I’ll try to obviously respond and answer. But my main objective is actually to get your questions. But obviously, I want to bring some content in, so it will be valuable for you as well.
What I’m going to talk about today is actually rental properties and what kind of drama you should be expecting as an owner. So that’s where I’m going to focus. I’m going to probably talk about it for about 10 minutes and open it for questions if we have any. We’ll take them. I’ll stay, at most, probably 45 minutes today, but I expect this to last for about the next 10/20 minutes or so depending on questions.
You guys are thinking about investing in real estate. I’ve been doing it for about 16 years now on a very large scale. I’ve helped, personally, a lot of rentals, many flips. I’ve helped others in the purchase of about 3,000 rental properties. Those are the actual numbers. It’s not a makeup number. It’s not a number to impress you. It’s an actual number.
Many times, I think the investors are coming into this ordeal without really knowing what to expect. On one hand, we all have a lot of concerns and fear, concerns of what we don’t know. And that actually may block us from taking action. On the other hand, we see that people have unclear expectations.
What will happen after the fact or after the purchase once the house is purchased? Even if he was a property manager, they have unclear expectations. So I want to make some clarification based on my experience about those aspects of ownership. I’m going to talk about the realistic. Not the extreme cases, but the realistic expectations that you should have from owning rental properties. Primarily if you worked with property managers, I’m probably going to touch on that as well. It’s what I call the typical drama.
First of all, if you’re buying real estate as in rental property, and you’re going to own it, and you’re going to hold it for several years, maybe three, maybe five, maybe 10, I would expect the following– Maybe more than 10, I would expect the following things based on my experience.
Number one. This one I call the drama. You will have vacancy. Expect vacancy. Now, if you are buying a rental property in some part of the country or maybe in other countries, some areas behave a little bit differently. For example, if you’re from Silicone Valley or the Bay Area, the demand for housing is so high, the chances of you actually encountering vacancies are very, very small. But if you’re not looking at the Bay Area which is not how most of this country works, and let’s say you buy a house in Nashville, Tennessee or Dallas, Texas or in that area or whatever, you should prepare for and plan for vacancy.
It could take two weeks between tenants or from the time you purchase to the time the tenant moves in. That’s usually the quick thing. It could take a month. It could take even a month and a half. It also depends, when are you buying? When are you closing? You may end up during the holidays, like right now, and you may see this is going to take you a little bit longer, and you may buy and close during February or March where it’s a little bit easier to rent over the summer months. Usually, a little bit easier or quicker to rent the properties.
That’s not a guarantee to accrue rent quickly, but what is important to understand is when you do the analysis on your investment, factor in some vacancy. Be ready for it. That’s easy. The challenging part I see from investors is when they’ve purchased the house, especially beginners. They’re putting the house on the market, a property manager or leasing agent is putting into the market, listing it, and all of a sudden, months have gone buy, and it’s still vacant. They’re getting very nervous, and they’re starting to doubt themselves.
Now, I’m going to tell you something. By the way, I’m thinking now to give you some pointers at the end how to mitigate for vacancy. I’ll come back to it when I’m done, but what I want you to understand is that– Maybe I want to say this. Over a period of about 16 years of investing, especially the past 14 in which I’ve been extensively investing myself and for others.
In the type of properties we are buying, I can’t vouch for every property, every market, anything you would do, but when we buy, the type of properties we are buying which are, by definition, the most boring real estate you can probably find, in good suburbs, in good schools, they’re not crappy houses. They’re not luxury homes. They’re not AirBnB. They’re just nice suburb, bedroom communities. I call it the most boring investment you can find.
By the way, for me, boring, when it comes to real estate, I find boring super sexy. The type of properties we buy, they rent. Eventually, they are going to get rented. I have never met a house that didn’t get rented. For me, I always tell my investors that we work with, expect a month, but it could take a month and a half. That’s realistic.
Anything above a month and a half could happen, did happen, but it’s what we say, the abnormal. We have to look into why this is taking. Sometimes, there are good reasons. Sometimes, there are things beyond our control. Every year, I have one investor. Once a year, I have one person that– his or her house, they’re just going to take three months to rent. It happens every year. But that’s one per year that we’re seeing. It’s not something that we see very commonly.
So long vacancies can happen. Expect vacancies. Be ready for vacancies. Don’t be afraid of it. I’m telling you, just from the point of a conviction of experience, these houses do rent. When I say “do rent”, it doesn’t mean we started with $1,500 rent, and then we dropped it by half to 700; no wonder it rented. No. We start at 1,500, for example, let’s say in Nashville, and then we see that a month’s gone by, and it didn’t go. No interest and no applications, and we may drop it to 1,450 and even 1,400, and, you know what, even 1,300 if we need to, and we will get that house rented. It will happen.
Trust yourself. Do your due diligence when you’re buying to make sure you’re avoiding potential issues. Some areas along the country, I don’t know of them all, but some that we know, we still wait because we know the rental market is a little bit softer now. So we still wait. But, there are ways to mitigate. But even if you buy in an area that is considered good rental market or good rental pocket, it could still be sitting there a little bit. Bottom line, expect vacancy. This is drama number one.
Drama number two, you will have repairs. It’s going to happen. Repairs typically look like this. For the first month, nothing. Second month, nothing. Nothing. Nothing. Nothing. All of a sudden, six months in, you have $150– some plumbing. Then, a few months, nothing. Then, all of a sudden, another repair, another $200. Usually, they look like this. Every few years, they’ll be a peak.
For example, during a turnover, we have to do a little bit more things to the house. Maybe every seven years, the water heater needs to be replaced. It’s not that expensive, but that happens. So every once in a while, there is going to be, all of a sudden, like a thousand dollar expense, but ongoing, usually, if you’re not buying an old home, like really in bad condition, those houses do not break left and right.
So be ready. There’s going to be repairs. Actually, plan for it. We analyze properties, and we allocate funds for repairs. We know it’s going to happen. We’re not hiding. We’re incorporating that fact. Drama number two. There are going to be repairs.
Drama number three. If you work with a property manager, just know, there’s going to be some miscommunication. Sooner or later, it’s going to happen. Now, miscommunication doesn’t mean termination of relationship. Usually, it looks like this. You said one thing. He or she heard another thing.
The property manager made a decision on your behalf because he was thinking he’s making the best decision for you on your property, and the results are not ideal for you. Not necessarily horrific, but then it ending up costing you 500 bucks or something like that. Those things, the miscommunication, will happen sooner or later. Be aware of that. Expect it. It will happen.
Rarely, do I see someone go through years of ownership without some sort of a miscommunication or a little friction with the property manager. Again, that doesn’t mean an immediate termination. It means someone had good intentions, not ideal results or someone made a mistake. We’re still dealing with humans. It’s going to happen. It’s not catastrophic. But still, it causes some stress level, especially for the beginner ones. Drama number three is the miscommunication with the property manager.
By the way, many investors, when they start the process and they’re working with a property manager, their mindset they’re coming into this journey of ownership is, “The property manager is me when I’m not there.” If this is your mindset, let me tell you, you’re not incorrect, but this is not the right mindset to go in with because the property manager is not you when you’re not there. He’s going to attempt to do that, but it’s not going to happen. There is more content. There is more substance to that aspect of it.
What we do is every investor who works with us, we give them what we call the “owner crash course” when they buy their first property with us which teaches them what is the proper way to conduct yourself as an owner. It’s not just for the beginners, even for experienced ones. What is the proper way to conduct yourself as an owner, especially when you work with property managers? What are the classical fail points and how to avoid them to begin with?
This is something that we teach our investors when they actually buy their first property with us, and we give them access to it for life. That means that anytime they want to revisit that course, they can always do that, and we remind them too to revisit. That’s drama number three. We talked about the property manager.
Now, number four. Once every decade. Maybe once every seven to 10 years, that has been my experience, you will have an eviction. The tenant doesn’t pay or not fulfilling his or her side of the contract. We have to evict them. We have to go to eviction court. Go ahead. File the paperwork. Put notices on the door of course, and go through the entire process. Eviction is going to happen.
A couple of things about that. First of all, it’s very, very easy to do eviction when you’re not doing it, but a property manager is doing it for you. That’s number one. Second thing I want to tell you. My career with multiple properties, multiple states, multiple years, I have had about four and a half evictions. Not a bad number if you think about it, so I wouldn’t expect it in the type of areas we are buying, those boring properties I talked about, evictions are happening, but they’re not frequent.
By the way, if you, like us, buy in states where the laws are favoring the landlord and not the tenants– California, the laws are favoring the tenant. Places like Texas and Florida etc., the laws are favoring the landlord. Two things happen in states like this. Number one, just because the laws are favoring the owner already sets up the tone, the setting for a tenant to avoid issues to begin with because they know they don’t have the upper hand. If someone lives in a state, and they know they can actually play dirty tricks with the owner, they may use it.
If someone lives in a state that they know it’s not in their favor, they should probably avoid it to begin with. That already puts them in a different mindset and position. They know they don’t have an upper hand. That’s number one. Number two. Even if we get to the eviction, if you are in a state that favors that landlord, the process of eviction is rather quick and cheap. I can tell you that from experience on all the situations and others that my investors did.
Some of the stories I hear from my friends and my colleagues and my peers about, for example, in California- I’m using California as an example- it can take several months, and it’s very costly. That’s just something to think about when it comes to eviction. I hope we’re going to avoid it, but you know what? I’m just working under the assumption that we will have evictions. It will happen sooner or later or hopefully later. Not too frequently, but it will happen. Don’t be afraid. It is especially easy when someone else is dealing with it for you, and you don’t have to deal with it.
Now, if you are asking yourself, “Which states are landlord-friendly and which states are tenant-friendly?” My rule of thumb would be color-coding. Blue states, red states. Typically, red states, AKA republican states, are favoring the owner, and blue states favoring the tenant. That’s just going to be my observation. If you are trying to figure out which is which, look up a map. It will probably tell you what is going on, and always ask.
By the way, before I wrap up, if you have any questions, please post them. I will be very happy to take your questions of course, so feel free to do so. I just want to say, circling back to the point of vacancy, especially I’m going to make this point for beginners that are very nervous. Just earlier this week, I spoke to a new investor. “New” being that she’s never invested in the past. Her biggest concern is vacancy. She told me outright, “My biggest concern is vacancy.”
If you are someone who’s concerned about that primarily, one of the things we started doing more and more- We’ve always done it, but we’re just putting a bit more emphasis about it recently- is that we are targeting or trying to target houses that are already occupied with a tenant.
That means it’s a rental property. It’s already occupied with a tenant, and we are trying to buy those houses. Many times, those houses are actually very attractive to us investors and unattractive to homeowners because a homeowner doesn’t want to buy a house occupied with a tenant. They want to buy a house and move in, usually. Investors are the opposite.
Sometimes, owners with occupied properties, with rented properties, they put it in the market. They’re saying there’s a tenant inside. Then, they’re offering it, and it’s more attractive to us. If this is a major concern to you, maybe it’s not, then definitely consider focusing on that.
My experience has been like this when it comes to vacancy. Beginners, when their house is not rented, and it takes a little bit longer, they’re very nervous, very, very, very nervous. I need to call them and calm them and cuddle them and tell them, “It’ll be okay. It will rent.” Guess what. It always does. I’ve never seen a house, never, that did not get rented. It may take a little bit longer. Experienced ones, once they know it’s working, and they’ve been through the process at least with one house, maybe more, they’re less concerned about it. They have more confidence in the process and more confidence in the strategy and what we’re doing here.
That’s it. That’s what I wanted to share with you about the drama. Just to recap, I talked about the typical drama of vacancies, repairs, communication with property managers and evictions. Those are the main dramas that I’m seeing. Of course, there’s more things to real estate than just those four, but when you’re talking about rental properties in good, nice areas, those are the main things you should be expecting. That’s it on my end. I’ll now see if there are any questions.
Do you, as the investment property owner, purchase insurance in the event of damage or repairs for the property? Absolutely. First of all, if you’re buying a property with a mortgage, the lender will not let you close on the property, own or purchase it without any insurance. They have to be added to the insurance policy as well.
Also, relatively cheap insurance. It could be anywhere from several hundred dollars a year to a few thousand depending on the house, the size, the price, the value of course, but obviously, I think insurance is a very necessary evil. Of course, we all know that. I wouldn’t buy a house without it.
I had an investor once. He bought cash, and for some reason, he let it slide, and he paid for it. There were damages to the house, and he was uncovered, and he ended up paying for it quite a lot. Insurance is mitigation. We are shifting the risk to someone else. For me, it’s a no-brainer. I would do that for sure. Thank you for the question. Hopefully, that answers it.
If you have more questions, I’m just going to go through here, maybe wait a few seconds and we’ll see. Alright, you guys. I don’t see any more questions. Like I said, it’s going to take about 20 minutes. We are just exactly at the 20 minute point, so that’s fine.
If you have other questions offline, if you’re watching the recording, feel free to post a comment, to contact us for something a little bit more personal that you want to ask but not in a public forum, by all means, we’ll be happy to.
I want to wish all of you a great weekend and only success with your investing. I, hopefully, will be there to help you with that. But I just want to wish you all tons of success with whatever investing you do with us or by yourself, of course. Have a terrific weekend. Thank you for taking the time. Bye-bye, everyone. Bye from California.
Announcer: Congratulations. You are one step closer to success in real estate investment. You’ve been listening to Real Estate Investing Talks with Dani Beit-Or. To learn how SimplyDoIt can guide you through the real estate investment process and achieve nationwide success, visit us on the web at simplydoit.net. Thanks for listening.