Welcome to Cleveland real estate investor. On this podcast, you'll hear about every aspect of the real estate investment business. You will talk to your rockstar investors about their businesses, how they built them, where they came from, and where they're going. Who am I? I'm Joe Lieber and I've made millions of dollars from the real estate investment business over the last 20 years. If you're ready to hear the good and bad from a guy who's learned this business from the school of hard knocks and get educated by some bad ass entrepreneurs, then put your helmet on, strap on your chin strap. Let's ride.
(00:36): Yo, what is up everybody? Thanks for tuning in with me for another episode. Hey listen, I'm going to jump right into it today. This episode worked on talk about making your rental properties predictable and this is all stemming from a call that I received from a colleague and friend about his rental properties that they're not performing as well as he expected them to perform. And he's upset because he wanted to use this cash flow to pay for, you know, all the fun stuff, all the toys, the extra vacations, the other cars and all that good stuff. What a lot of us want to do, that's the whole idea, right? Maybe even get enough cash flow to pay for all of our personal expenses and that is the idea of investment. Real estate, at least for me, is about the cash flow baby. So I talked to him for a while and I want to share the details of that conversation with all of you and figure out how you make your rental properties more predictable.
(01:30): And let's dive in. All right, so here's what, he's got 15 single family homes here in the Cleveland area and he just feels like the main seat and them alive, the big expenses, what we call capeX in this business is eating them alive and turnovers. Eviction, just always stupid stuff is going on and he just cannot get predictable results. And he's really getting frustrated because look, let's face it guys, we buy these things. We do all this stuff for cash flow. Not all of us, but a lot of us do. I mean there are other things such as, you know, amortization and depreciation appreciation and 10 31 I get all that. But his reason like most of us is for cashflow and nothing gets you more upset. And then when you lay out all this cash and you're, and you're not cash flowing.
(02:14): So here's why I told them how to get these properties predictable. So let's start, let's start first. Let's talk about the properties. I told him, so what's going on? He's like, well I had to put a roof on this one and this other one needed a furnace and AC cause it was like a B class neighborhood. And I'm like, Whoa dude. All right. When you bought these houses, did you know you needed a roof? Were you buying wholesale and did you kind of skim it a little bit and not do the roof and kind of deferred the maintenance? Or did you buy a turnkey and what just turned a blind eye to it? And the answer is a little bit of both. And here's here it is. So you have to do, in my opinion, do the cap X out of the gate cap ex Eris major things.
(02:54): It's like roofs, windows, siding, furnaces, AC electrical boxes, hot water tanks. Do that stuff out of the gate cause basically you can finance it, right? So if you're buying a house wholesale, you pay cash, you 30,000 in rehab and you want to do that burse Ridge or we talks about you can refinance, pull all that money back at a low rate of interest. So you're borrowing the money to low rate and it's all done. The cap ex, that's going to save you down the road later because if you don't do it and you don't need a roof in five years, you can lose a whole year of cash flow by having to do the roof. The thought presses, Hey I'm kicking the can down the road, I get it right. I'll do it in five years. But guess what? In five years comes, you're pissed because you got to write a five K check, but you don't really want to write for a roof.
(03:38): So either a budget for that when you get the property or do it initially do it out of the gate and finance it or just use it as a, or if you're not financing, you're paying all cash. Just Hey, that's part of the expense of getting this property. It saves you a lot of headache and a lot of screwing around later. Finding contractors, telling tenants, you're gonna be there three days doing a roof and nobody really wants to deal with that stuff. And when you start looking at your P and LS for the month or a year, you're like, damn, I put a roof on, I think didn't cash flow and excuse me, your mindset all up and your, you're just pissed. So do that stuff. Maintenance issues, right. The next thing is to get a lot of maintenance calls. Well, like what are they? Well, a new furnace wasn't working newer furnace to come to find out.
(04:18): They get over there and it wasn't working right because it was dirty, it was filthy. I mean, I'm not a furnace guy, but I don't know some of the thermocouple, if that's even a word for a furnace. But something was wrong and the basic issue was it was cause it was dirty. You know, we like to go out once a year and show the tenants we care and we'll replace the first filters, we'll put batteries in smoke detectors, we'll paint little things that are chipping on the outside of the house, show them you're engaged, show them you care. It truly goes a long way. I've had better conversations with tenants when they see that I'm engaged and I care than when I just turn a blind eye. I don't like that landlord verse a tenant kind of thing. You know, she is more like landlord with the tenants kind of thing.
(04:59): You just do better. And also if you take care of your outsides a little bit, it keeps the city off your butt. And man, those guys are out. They're out more now than ever. I'm a West side guy. So Parma, Parma Heights, West Cleveland. If the CDC is out there, city inspectors out there, there, dude, if you don't have a cleanup outside, they're going to be on you. So it just goes a long way. It'll help you with property values and everything to just be a little bit more engaged. The next thing, so the next thing is section eight when to use section eight and when not to. I'm going to have a whole episode on this in the next couple of weeks about section eight section eight is hot. It's awesome. I love it. It's really exciting. Now during coronavirus, the only, only ones that are paying, relatively speaking, but yeah, section eight is great and you can get predictable results with section eight the government has never not sent the check to me and now more than they're paying more and more, they're paying higher than market rents because they're trying to really get independently on the roads, excited about the housing choice voucher program, and they're enticing us by paying a little bit more than market rent for these properties, which is awesome.
(06:10): And they're paying more of a percentage, right? I mean a lot of my houses, 80 plus percent, their pain of the rent cm a section eight rather. It's Parma section eight or Eden or CMH or whatever subsidy you're working with, but phenomenal program. The thing is is you need to match the tenant to the property, right? If you have an a, B or C class asset, you're probably not going to do section eight probably don't want to do section eight but if you have C minus or D, texting is great, everybody's happy. Attendance will be happy. The owners will be happy. The neighborhood we'll call for that and it works. It works very, very well, but this is why I was trying to do it. This man is trying to figure out ways to help him get more predictable results. When your screen, when you're screening tenants, you know, how are you screening?
(06:55): Are you looking at income? Are you getting income docs? You better, they better be making the money. Are you pulling credit? It's a waste of time. If you are, why? Why go pay to pull credit? Let me tell you a secret. They all have bad credit. Okay? They all do. Wasting your time. Do other things give you a great tip? Have you ever thought of driving past a place they live in now? Going to visiting their house too? This says a lot, and if you go past there and it's a wreck, catch him off guard. That's what you're getting, right? If you can go in, great. If you can't at least do a drive by, it's the least you can do. You might be surprised calling references. I mean, I don't know. I've done it. A lot of times it's an uncle or a brother's phone number or hell, they even give me the landlord's name and he lies.
(07:44): He just wants him out of there. That's happened to me more times than I want to admit to, Oh yeah, so-and-so is a great tenant. Yeah, right. You just want them out of your freaking house. I don't really do that. Check the evictions. Check the website. Cleveland municipal court.org look to see if they have a current eviction case. There's a ton of that. People come make a rental application. I look them up online and they're in the middle of a freaking eviction case. I don't want that. Just a little bit of due diligence. No, they go crazy. And if you look at anything under a microscope, it's going to be ugly. So if you continue to push, push, push, and never find the perfect tenant, or you have a lot of vacancies, if you try to find the perfect person for your property and be a little bit forgiving, I don't do violent crimes.
(08:30): If you have a felony, it's a violent crime. You know, I don't do that. I don't any of that stuff going on, but just make sure they make the money. Maybe do it just to drive by. Have a where they're living now, a little bit of due diligence. It will go a long way. You will get a better tenant. I'll just sign two year leases with people. I used to do a lot of rent to own stuff. That's a whole nother podcast. I love the rent to own game. I think that it's a lot of awesome things that come out of that, but I saw a lot of turnkey and too many folks can be blown away thinking everybody's going to buy the house and really they're not. I wish they would, but unfortunately it's fiscally, it's not going to happen, but it's another great way to increase predictability, right?
(09:06): You can get a nice little down payment from someone, you can push repairs onto them, onto the tenant and it works. And I know some of your listing, you're going to say, Oh, state Ohio won't do this and that, and you're right, they won't. So I'm not going to go down that road right now. We're just, we're just surface talking on ways to get more predictability. So, you know, these are some of the ways dialing in, it's a little bit better. Taking care of the property limit, better hitting your cap ex and screening just a little harder. Real estate is not a passive passive investment. Real estate is an active passive investment and the minute it becomes passive passive for you, you're going to lose money. Lumber. Leasing agents have a vested interest in leasing this property quickly. They want to get their commission check so they want to plug units.
(09:52): A little bit of due diligence wouldn't hurt if you're using a property management company to lease. Just maybe take a quick look at the applications. Who are you putting in here? You know, I don't need turnover again. I'm sure a lot of managers, I have no problem making it a co-op kind of relationship and working with the landlords and finding the right tenant. It's a little bit, a little bit of time to find the right person. It'll serve you much better than just trying to plug plug units, make it real estate. It's what it is. It's an active passive investment. That's what it is. And when it becomes passive passive, like I said, you're going to lose money. Nobody's looking after your money the way you are. Things change if on the line things change. You know, two years of property manager never hears from you.
(10:37): Do you think he cares if your furnace is 1400 or 2,400 Oh so-and-so don't care. He got money. Oh crap. Watch money. Stay after it. Be a little bit engaged. I'm like this gentleman, he has 15 houses managed by a management company. Like, dude, you could at least be a little bit, engage with it. Show him your care. Be a little bit active. Hell, it's fun. And I got the real estate because it's a fun business to be. So that's it. That's all I want to talk about today. Hopefully you picked up a couple of tips and tricks and can use some of this stuff to make more predictable results that you got into it right. Make your BMW payment. Hey, thanks for tuning in. I'll see you in another episode.
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