Transcription

• Speaker #0

  What the 1% rule says is if you buy a property, let's say you buy it for 100 grand, you hope that it rents out at at least $1,000 a month. Usually in the beginning, you don't have a lot of money. So you're leveraging 80, 70, 80, 90, in some cases with VA loans, 100%. And so your return on equity, anything you make is a win. That's something I see is people try to push the limit, which you could do in 17, 18, especially 20 and 21. But you just cannot do that today. It is a different market. If you're using the same strategies you used in 21, now you're going to be in trouble.

• Speaker #1

  We were in negotiations, investing in real estate, they're winning, they're making money.

• Speaker #2

  What's up, everyone? Welcome to the Real Estate Educators podcast, where we provide the education you can build on. I'm your host, Kevin Amalsh. We are back with another episode. We're having so much fun with this podcast. We're helping real estate investors and real estate educators. Are you out there building a portfolio or fixing and flipping? Or perhaps you're marketing to real estate investors through education? This is the podcast for you. So today I have a Cameron Tope on the call on the episode today, and he's going to talk about property management. And I don't know why I feel so excited about this because it's not such a sexy topic as a Cameron, but you've been doing it a long time. You're managing over 300 units down there in Houston, Texas. And I know you got started with 30 of your own and you found a niche. You found that there's something missing with this property management and I'm going to go out there and fix it. So welcome to the show.

• Speaker #0

  Yeah, Kevin, I really appreciate you having me on, man, and looking forward to the conversation.

• Speaker #2

  All right. So take me back 30 units. At my peak, I was at 55. And you know when that was, Cam, I was a 2008, I was a victim to 2008. So I've had lots of properties under management before. And I can tell you that's a lot of work, man. So 30, that's pretty good. Tell me how you did it.

• Speaker #0

  Yeah, man, I started. So in 13, I got a job with BP, British Petroleum in Houston as an engineer. in And 13, 14 is when oil went from like 120 to like 30. I mean, it was in months. So people were losing jobs left and right. I'm like, dude, I've got 30, $40,000 in student loans. How am I going to pay for this? And there was these old timers, Kevin, with their feet on the desk, no care in the world. And I'm like, okay, guys, tell me, give me the secret here. And it was literally, they're like, I bought three, four, five houses, paid off. These guys were in their 50s, like, you know, good incomes, but they didn't care. they were like i'll just wait with oil will come back and then i'll jump back in the market so i was like i need to do that that that's the secret and having a good w-2 job is one of the big secrets to getting good financing for the loans so i think you know you hear the kevin you sometimes hear these people are like oh quit your job and then get into real estate i advise totally against that as a lender i'm sure it's like where how are you going to pay for this loan so um i use my good w-2 job at bp and thankfully i survived the layoffs but that's when I started buying and I started with the BRRRR method and I just kept, I'd buy a dilapidated property at 50 to 70 cents on the dollar and then fix it up and then refi out of it and rates, I've still have some mortgages at three and a quarter percent and 30 year fixed financing between, I think the highest now I did one last year was like seven, but most of those are between three and five. And so great 30 year financing, the asset value's increased. And when you get get that money back from the BRRRR. Um, it's, it's like, well, I just got all my money back so I can do it again and got hooked up with a private lender. Once I built a little bit of a track record, it was like four or five. And then he was funding about 70 to 80% of the, the, the purchase and the rehab. So it was just like, as long as I could find a deal, that was the hardest piece. As long as I could find a deal, that's how I kept scaling. And then, you know, just once you get 10, 15 under your belt, it's kind of like, you know, just keep rocking.

• Speaker #2

  Okay. So an obvious question from me, but maybe not to the listener. After 10 properties, Cameron, it gets a little tougher, doesn't it? So tell me, how'd you go from the 10th to the 11th?

• Speaker #0

  That's a really good question. So it's like most Fannie, Freddie, I forget, you probably know the rule, Kevin, but it's like Fannie, Freddie at 10 loans, you're capped. But what I found is I had a small local credit union in Houston and it was actually the BP Federal Credit Union. And they offered fantastic rates. So they would do them in-house for me. So I would refi 75% of market value. They would give me that back, do a cash out refinance basically. And they still to this day hold five to 10 of my loans. And it just allowed me to be able to grow past that 10 door mark.

• Speaker #2

  And do you still have all 30 or where are you at now?

• Speaker #0

  I, yeah, I bought one last year and sold one last year as well. So I think about like 31 or 32. Um, and I, the only one I sold was it was a, I bought it for 40,000 and the person was paying $1,200 a month in rent. I never touched it for seven years. She moved out and I sold it on her finance for 70 grand. So she paid for that house almost twice over, having it for seven years. And then I sold it owner finance and collecting a monthly check that I don't have to do the big rehab.

• Speaker #2

  Okay, hold on a second. I want to make sure I got these numbers here. You bought it for

• Speaker #0

  $40,000? $40,000, yep.

• Speaker #2

  And it was renting for? $1,200,000. $1,200,000. Rented for $1,200,000. So we were talking about bigger pockets right before we hit record here. We're both fans of bigger pockets. You know, one of the things they talk about in bigger pockets a lot is that 1% rule. Well, you were like crushing that rule. So maybe explain to the listener what the 1% rule is, what I'm talking about here. And then why would you sell something that is crushing that?

• Speaker #0

  Yeah, good question. Now, I want to say that's not the norm. This was like a one-off deal. But what the 1% rule says is if you buy a property, let's say you buy it for 100 grand, you hope that it rents out at least $1,000 a month. Cheaper properties, that's a lot easier to do. Once you get to more expensive, in our market, Kevin and Houston, it's like 250 to 300 is where that rule starts to break. Under that, you can typically still get the 1%, but that's the general rule. So 40 to 1,200, what's that? Three times.

• Speaker #2

  Yeah, it's crazy.

• Speaker #0

  Yeah. But she started when I first bought, I guess she was at like 900 or so. And then I bumped it up. I got it. I was like, hey, market rent's like 1,500, 1,700. dollars. Let's just settle at 12. And she never called me for anything. But the reason I sold it, Kevin, is because when she moved out, it was going to be like a $40,000 turn. So I was like, okay, spend 40 more and then rent it out for 15 to 1700 or just cash out. I had no debt on the property. And so, and now I, you know, the guy paid me 20,000 down and he's paying me $5,000 a month until it's over.

• Speaker #2

  So an advantage, what I'm hearing here is that when you sell it on our carry, the maintenance sort of goes away. A lot of the risk goes away, but even at your 70 is what you got for it. If you put 40 into it, you're still beating the 1% rule.

• Speaker #0

  Yeah.

• Speaker #2

  So yeah, you just didn't want the headache.

• Speaker #0

  I just didn't want to deal the four. I mean, and it was an old property. This probably was probably in the fifties. It had an addition on it. That was weird. There was a tree leaning up against the roof. And I'm like, you know, Now listen, when I first bought it, I was like, When I first started, I would take anything. I bought all sorts of different stuff, right? You're just trying to get those deals. But now I'm a little bit more picky and I look more at desirable areas. This property is in, specifically it's in Texas city. So it's a little bit outside of Houston, a little cheaper market, better cashflow, but not as much appreciation and less desirable. So I'm, you know, I just sold that. I'm like, okay, I'll take that. And then, you know, I bought that one that was, you know, nice three, two in, in Katy, a great school district in Houston.

• Speaker #2

  Yeah, I'm sort of where you are right now. I've been doing this for 23 years. And so I'm kind of at the point where I don't want those lower, harder to manage properties. Now, maybe if I had a great property manager like you, I would think differently. But I agree with you. So what my question is, like, how do you know when to give up some possible potential return for ease of business? Yeah. How do you analyze that?

• Speaker #0

  That's, you know, I think if it's me as a real estate investor. I would say it depends on how hungry and motivated you are. So if you are hungry, you're motivated, you're ready to cut your teeth like I was at 22. I was like, I will take anything and everything, as I mentioned before. But as you gain more, and like you said, I've been hitting 55 units. It's like, OK, some of these are dogs. They're not performing. There's always maintenance. It's difficult to lease. The tenants are transient. You're turning the property over, even with the property manager. I mean, the property manager can't take. I always say this, Kevin, you can't polish a turd. So a property manager can't take a property in a less desirable or really desirable area that has high crime and just nobody wants to go, especially in the supply glut we're in, and take that and put it in an A-class neighborhood and make it amazing. So from an investor standpoint, I just think it depends on the level of risk. If you're starting out, you'll take some of those more difficult properties because you want to get started. But as you progress in your career, you get a little more picky and you're like. I'm doing this for appreciation more now, less for cashflow. And that's the other thing, which market do you want to be in? And some properties, bigger pockets and there are people all over the country that bought 10 years ago. And it's kind of like, I'm sitting on half a million bucks in equity in a property, especially in Denver. Y'all's market has been crazy. It's like, okay, and I'm making $5,000 a year in cashflow on a half a million bucks. I'm either going to refi, pull that money out, but interest rates are high, or I'm going to just sell it, take my money and maybe 1031 or go into something else.

• Speaker #2

  Yeah, that's a whole different conversation, right? Return on equity. Return on equity is very different than return on investment. Yes.

• Speaker #0

  Yes. Yeah, yeah, yeah. That's and, you know. In the beginning, when you're high, usually in the beginning, you don't have a lot of money. So you're leveraging 80, 70, 80, 90, in some cases with VA loans, 100%. And so your return on equity, anything you make is a win. But yeah, as you get more experience in your career and those loans pay off, you know, that $200 a month in cash flow with 200 grand in equity, it's not as appealing or it's not the best and highest best use of money. So you either refi with people, you know, with lenders and get that money out and redeploy it to hire more. profitable assets or you sell it.

• Speaker #2

  Yeah. And I find myself getting stuck in this emotional trap. We talk about emotion and real estate and how those two do not mix well, you guys. One of the biggest mistakes you see people make is them getting emotional to a property. And I'm like, look, I do as well. I've got one now that's free and clear, which I don't love by the way, but the debt is expensive, like you were saying. And I'm having trouble making money with the free and clear property, Cam, because the maintenance is so high, the turnover is so high.

• Speaker #0

  Yeah, that, you know, and that's another thing. That's probably one of the bigger mistakes that I see, Kevin, is folks who don't take turns into consideration. So our average length of tenancy in Houston for our portfolio is about three to four years. So we delay that turn on average. I never can guarantee it, but on average, three to four years. But if you're doing a turn every year, you're, I mean, that's, you know, a couple months of vacancy. and, you know, maybe a couple thousand dollars, maybe several thousand, depending upon what the condition of the property is in. And next thing you know, it's like, why am I not making money at the end of the year? And it's like, well, you had 60 days of vacancy and you had 5,000 bucks and you're doing that every year.

• Speaker #2

  Yeah. And I want to get into some of the mistakes you're seeing people make, but I want to make this last point and see, get your opinion on it. When we're talking about the lower price points, like you really are trying to hit that 1% rule, which some people just love that. Right. And that's all they look at. So you're hitting the 1% rule. But when you have a refrigerator go out or a furnace go out, the percentage, the damage to your income percentage wise is so much higher on those lower price points. If you have a larger property with more rental income, a repair like a refrigerator is a less percentage. So you might find it even better to go on the higher end. So that's another, I mean, that's something we could probably talk about for this entire episode is just analyzing those different concepts there.

• Speaker #0

  Yeah. And I think that's a really good point. It's almost like a bell curve. It's like at the end, you have super expensive properties, really close to town, almost no, I mean, no cashflow, negative cashflow, most likely. And then you have the properties on the way cheap end and it's like, well, they look like they cashflow, but one AC, like you say, AC, let's just say it costs 5,000 bucks. Well, if you're running at an $800 a month, how many months of cashflow is that? Versus if you've got a property that rents at three or $4,000 a month, that's only a month, maybe a month and a half of cashflow. And it's funny, Kevin, you talk about that. It's like, I'm getting a 72% return. It's like, yeah, but that's $7 a month that you're making on that property. Exactly. Well, tell me the dollar. Don't give me the percentage, but yeah, I a hundred percent agree. Maintenance kills people at the cheaper prices and there's nothing we can do about that. Like a faucet, what it costs, an AC cost, what it costs. It doesn't matter whether it's in a $40,000 property or a $400,000 property.

• Speaker #2

  Yeah. So I guess my point is when you're underwriting a new acquisition, I typically will underwrite like maybe a one and a half percent, somewhere in that range for a reserve to replace for those larger ticket items. A lot of people miss this in their underwriting, but you will have larger maintenance issues. So you should separate that out in your underwriting. One and a half percent works good. Like if you're looking at a macro level, but if you're looking at an $800 per month rent, you've got to underwrite a much larger reserve to replace, right?

• Speaker #0

  Yeah, and I typically... advise a flat amount for that. So for CapEx, I typically advise a $200 a month CapEx. And I think it was either Brandon Turner or maybe it was Josh way back when did an analysis on that. They took out the roof, they took out the AC, hot water tank, windows, and they, you know, looked at, you know, they took it over its useful life and they broke it down in a monthly, and it was a little under $200. So I just say round up to 200. If you set $200 a month, outside of your cash flow for big capex stuff, usually that's proven to be pretty safe. And now if you've got a 20 year old AC system, that's probably going to happen pretty quick, but assuming normal mechanicals and whatnot that you go in when you buy the property or when you turn it into a rental, that 200 should work.

• Speaker #2

  Okay. That's great. So it's $2,400 a year, which two years, three years, and you have enough to replace an AC.

• Speaker #0

  Yeah. And you know, Kevin, when we first started, or I mean, you're, you've been doing it a lot longer than I have or much longer than I have. interest rates were paying. I mean, interest rates for loan, for borrowing were great, but interest rates for money sitting in a bank was terrible. Now you're getting three, four. I mean, at some time we were getting 5% there recently. So you could throw this CapEx into a cash account and make 3, 4%. So just let it sit in there. It's safe. I mean, if you want to put in the market, fine. But, you know, that's what I say. Like, you can actually get a return on your money. Unlike, you know, when we were buying in, you know, 09, 10, 13, it was nothing.

• Speaker #2

  Yeah. So I'm a leverage guy. Okay. So take that for what it's worth here. But, you know, a way to get a higher return is to have a line of credit on a property or two or three. Use those for your down payment. Like always have some balance there. Now borrow responsibly. Okay. Always have a small balance and put that 200 towards the line of credit. And that just frees up room on your line to handle those expenses.

• Speaker #0

  Love it. Yeah. Yeah. No, that's great. Yeah. I mean, and I would not be where I'm at, Kevin, without debt. I think, you know, growing up blue collar back in Ohio, debt was like, you know, one of those four letter words, right? But it literally allows you to do more. And I think it's like an amplification, right? If you're smart, if you're prudent, if you buy good assets, it'll allow you to do much more. If you're not. If you can't manage your salary and your income, you're sure as heck not going to be able to manage a million dollar rental portfolio or 10, 20, $30,000 a month in mortgage payments.

• Speaker #2

  Okay. So we talked a little bit about some of the mistakes you make during underwriting when you're going for the acquisition. So what are some of the mistakes you see on the management side? Because we could definitely learn something from you.

• Speaker #0

  Yeah. I think first and foremost, so I always look at this like a life cycle of a tenant. Like you have a vacant property and if you don't have a property manager, you're the property manager, right? So- Your responsibility starts, it's vacant. You need to fix the property up to bring it up to rent ready with standards to get it marketed. You market the property for a good qualified tenant. You screen that tenant, you place that tenant, you handle the maintenance and comms and have outstanding resident relations with that tenant. And that tenant should renew for multiple years, keeping them in there, keeping them happy is the name of the game. And then when that tenant moves out, handle the security deposit and just repeat the process. So starting at the beginning of that, when people get a vacant property. I think one of the big things is like a sense of urgency. You know, I see people like, I had somebody, Kevin, literally who said, my house has been vacant for two years. He's an accountant. I just talked to him like two weeks ago. He's an accountant. And he's like, yeah, I inherited this home. And it's just been sitting vacant for two years. And I really don't know. I'm trying to evaluate property management. I don't know if the cost is worth it. I said, well, how much do you think this property would rent for? And we looked at it and it was like $2,000 a month. I was like, well, you've lost $48,000 already. You know that, right? And that. People don't realize that because they don't see it as an expense. It's like, I see my property management fee, but I don't see that money not coming in. So every day that property sits vacant, you are losing money. So having your contract, if you're buying, having your contractors lined up that next day to say, okay, I got keys. I'm going to get my contractors in there, get my estimates and get moving, get my agent lined up. They can give you a rental estimate before, you know, they don't need to see everything. Tell them what you're doing. Say, hey, here's what it is. And they'll give you a rental estimate. And then get that thing moving, man. As soon as that vendor is done, that make ready is done, pictures listed, get the tenant screened, respond to the tenants or the prospective tenants, and then get them in there. Every day that sits vacant, you know, I always say it's about a hundred bucks in our market. I think you guys have a little bit higher rents over there in Denver, but in Houston, you're losing about a hundred dollars a month or excuse me, a hundred dollars a day.

• Speaker #2

  day. Yeah. And I mean, with with a let me think through this. So when you have a tenant in the property, you will have some maintenance that you might not if it was vacant, right? But a vacant property deteriorates, right? So there's risk, there's real risk to having a property sit vacant.

• Speaker #0

  Yeah. And, you know, depending upon where you buy, if you buy in a less desirable or high crime area, we had this happen a few weeks ago where somebody came in and stole the AC units. You know, somebody break in, you have squatters. And I don't know about Denver, but Houston just passed some squatters rights that, um, that were more favorable to landlords but in some of these other places i heard california it's like three years two or three years to get people out i saw an advertisement cam for a for a squatter squatter or something he called himself and what he would do like no i mean this is legit in

• Speaker #2

  california he would get hired by the property owner and move into the property with the squatter and start eating their food and playing music at night and just take the lifestyle Yeah, get in the mood because that was cheaper and faster than going through the city or the, you know, the municipality to get them out.

• Speaker #0

  Oh, I've heard. So we're members of NARP, the National Association of Residential Property Managers. And we hear the stories in California. I don't know how I don't know how you'd operate or why you'd buy property in California.

• Speaker #2

  I don't either.

• Speaker #0

  It's just too it's just too risky. I mean, we talk about a couple of months, you know, wiping out your cash flow for a year. should you imagine two years and you know those price points are a million, I mean, a million bucks is almost nothing.

• Speaker #2

  There's nothing you can do about it. It's crazy. Colorado's not far behind. So maybe we got to start selling Colorado properties and move into Houston.

• Speaker #0

  Well, you know, and I think, you know, it's funny, Kevin, that's, you know, I talked to some investors like New York or all over the country and some of them are like, well, what about, what are the draws to Houston? And what are the pros and cons? Like we have insanely high property taxes. So some people like California, I guess one of the good things they do there is the property tax is relatively low, but we've got good economy. But people get sticker shock with some of the property tax, which make it hard to cash flow. And then we do have those, that harsh weather. So I think you guys have some, you know, the hail and the harsh winters. So we get hurricanes and we've had some tornadoes recently. But overall, I think it's just it's a solid economy. People keep moving to Houston. Austin had that little, you know, run up and crash. But I think Houston is a really, really dynamic market with the medical, the oil and gas. People are moving away from the oil and gas to the energy and retail. So there are opportunities. It's just with the debt financing the way it is now, it's just hard to cash flow on anything.

• Speaker #2

  I wonder if they're continuing to move away from oil with what's going on now. This episode is brought to you by Pine Financial Group. Pine Financial is a private lender specializing in short-term rehab lending to real estate investors. Got a property that needs some love? We can help. We are able to offer funding solutions because we raise private money from individual investors. With more than 15 years of experience, Pine offers passive investors an alternative that provides stability, consistency, and security to your portfolio. If you like real estate but want to avoid the ups and downs and effort, A Pine Mortgage Fund could be a perfect fit for you. Accredited investors will experience an 8% preferred return and profit sharing. Diversify your portfolio out of Wall Street and into Main Street with a Pine Financial Group Fund. To get more information at pinefinancialgroup.com. That's pinefinancialgroup.com. Okay, so the first mistake you gave us was not moving fast enough.

• Speaker #0

  Yes, not being organized as soon as that property is vacant. The second thing, so let's just say, okay, you got the vendors, you have everything, the property is great, or it was a turnkey property, it's ready to be marketed. I see people try to list the property. If they look at the market and they think their property is going to rent at $2,000 a month, they're like, I'm going to try 2,100, or I'm going to try 2,200, and we'll just see. And it doesn't sound bad, Kevin, right? It's like, well, we'll just test it. And if I get 22, I get it, and yay, I made an extra 2,400 bucks a year. If I don't, I'll just drop the price. Well, RentEngine just came out with a study and RentEngine is a company that handles listings and tenant screening. And they have like tens of thousands of units all across the country. Their research shows that one third of all prospective tenant leads on your property come within the first seven days. So in the competitive market we're in with high supply, where the tenants have all these options and in 2015. you could put lipstick on a pig and people would rent it. You'd have 10 applications. Now you can't do that. So you're going to miss those people. They're going to look at your property and go, I can get a $2,000 a month property right over here, same finishes, right down the street. And just drive around, man. It's like rent for rent, for rent, for sale, for sale. It's a competitive market. So that's something I see is people try to push the limit, which you could do in 17, 18, especially 20 and 21. But you just cannot do that today. It is a different market. If you're using the same strategies you used in 21, Now you're going to be in trouble.

• Speaker #2

  That holds true on the for sale side too. For all the listeners, this is absolute gold. I didn't realize it was that high. You know, you always hear the first offer is your best. So try to negotiate the best you can to get that first one to close. But that's basically what you're saying here, just on the tenant side. So that's great. Overlisting. And if you overlist it by a hundred bucks and get nobody for two months, you just lost. 2,200 times two. So that's your whole year just by that 100.

• Speaker #0

  Exactly. And that goes back to whether you were coordinated and organized in the beginning, you know, is that going to take you two, three months to get this thing together or having somebody who does all that stuff and gets, you know, our KPI, Kevin, from the time a tenant moves out to the time we have a property listed is 10 days. Meaning if they move out at the end of the month, we have the property rekeyed and inspected for Texas property code. We have it. inspected for the tenant damage for the security deposit, estimates, completed work, and the property professional pictures taken and the property listed by day 10 on the 10th.

• Speaker #2

  That's awesome. So KPI, key performance indicator. That's great. So that's just a way to track the business. Yeah.

• Speaker #0

  Yes, sir. Yeah. Because if people might, again, it's the same, the just average Joe or Jane landlord could do that as well. Like, why don't I have any money? It's like, well, look, How long did this property sit vacant? And then you just. backtrack that for the math. But it's a way for us to measure. apples to apples, try to see, you know, how's the portfolio performing? How, if this property is taking a while, is there a reason? Maybe we have a $40,000 rehab. We're not going to turn that one in 10 days, but if it's a normal, you know, thousand, $1,500 turn, we should have that thing on the market in 10 days. And usually we can beat that. But that's, that's something, again, it goes back to the speed of upfront of making sure you get that property active as quickly as possible.

• Speaker #2

  So if you're, if you're diligent and you're pricing it right, you should be from tenant to tenant. or at least tenant to an application two weeks or less.

• Speaker #0

  Yes. Yeah. And sometimes, you know, if we have pictures, because again, that goes back to the presentation thing. Like we want to make sure we put our best foot forward in the beginning, but if we have professional pictures, we will list that property early. And sometimes we have at least before we're done with the make ready. But again, you have to price it appropriately. Somebody that would skip that if you had it, you know, if they could find the same thing down the street for two, three, $400 cheaper tenants aren't, you know, totally stupid. People think that sometimes. Like, I mean, I'm a renter. You know, I mean,

• Speaker #2

  we don't we don't think that,

• Speaker #0

  you know what I mean? It's like there's a there's a stigma about tenants always doing this. You know, it's the landlord tenant like grapple. Right. And I think that, you know, they're savvy. They have the same technology and tools that are available that we do. So why would they rent your property with less finishes to three, four hundred dollars over market when they could go down the street and get something cheaper?

• Speaker #2

  Yeah. Cool. All right. What else we got?

• Speaker #0

  So that was on listing. Um, the, the thing is that I, so I guess now screening and marketing,

• Speaker #2

  picking professional here, right? A lot, a lot of mistakes on the screening.

• Speaker #0

  Oh my God. So first I see people take iPhone pictures. Again, if you were in the late teens, 2020, 21, it didn't matter what you did. You could get at least or get it sold. No problem. But we're talking about 2026 here today. You have to take professional pictures. If you want to AI it up fine. But I see people with. iPhone pictures, trying to save $100, $200, it is going to cost you in the long term. And if you own this asset for hopefully 5, 10, 15, 20 years where appreciation can really help you out, then that $200 professional pictures is a drop in the bucket. It's a moot point. So that's one and starting at a good price point. And then if you're going to do your own screening and act as your own lease agent, and I started out, I did it myself, and then I realized, oh my God, I cannot respond to all these calls. Spam, crap, fraud. I mean, it's horrible, Kevin. And so I got a lease agent. That was the first person I hired out was the lease agent to get me a good tenant and deal with all those calls. But in today's environment, when it's competitive, if you're not responding to those tenant calls quickly, again, they're moving on to the next place. So that's another one is being responsive, being available for the tenants. And most of us have jobs, so we're not available. And tenants want to see the property nights and weekends. They don't want to see it at noon. on their lunch break, or maybe they can squeeze it in. But, you know, usually people are working or I'll call them later. The tenants already moved on. The odds are you're going to miss out.

• Speaker #2

  When I first got into this business, it was, it was like properties were in demand. So it's the opposite of what you're talking about. And I would have tenants not show up to meetings, you know, it's like, oh man, this is so annoying. So what I would start doing is making them call me to confirm that they're going to show up or I didn't show up.

• Speaker #0

  Nice.

• Speaker #2

  I don't think you could do that right now.

• Speaker #0

  I was just going to say, when I was doing it, I would do group showings. So I would say, yep, hey, okay, everybody, I've got three or four, we got this time. Everybody, anybody come at this from two to three, I'll be there. Boom. And that was the way. But again, it's just a different market where the tables have turned. We're looking for tenants, the tenants aren't looking for housing. Yeah.

• Speaker #2

  Those group showings work, don't they?

• Speaker #0

  Oh yeah. You can get a line of those people or all those people in. It's like, there's no negotiating on price. Where do I put my deposit now?

• Speaker #2

  Yeah. I love it. Okay. I've got time for a few more.

• Speaker #0

  Okay. So now we've screened the tenant or I guess we've went through and made sure we're responding to the tenant. Make sure you're screening the tenant well. We actually, Kevin, for any listener, they can go on our website, emersonpropertymanagement.com, and they can look at our qualifications. We put them on the website. We make it very clear and transparent, feel free to use that. We do update it. So don't yell at me in two years from now. If you're using our old qualifications, we update this based on what we're seeing with people who pay rent or we're, you know, we always do an analysis after an eviction to see, is there something that we missed? So we're updating those constantly. But use that qualification screen, everybody. And then let's just jump to actual once you have the tenant in place, being responsive, looking at it as a tenant relationship, keep that tenant in there, keep them happy. I lost a lot of money, especially early in my career. dying on the principal hill, meaning, well, this is factually correct. I don't owe you that money. No. And it just, it can, it can damage relationships. Who cares about the 50 to a hundred dollars, but you might even be right. But then they go and hire an attorney. I'm talking to an attorney, actually last week, about a five, about $500 on a security deposit. We're going to cut the check. We're going to move on or split it with them and move on. It's not worth going to court in two weeks time and trying to negotiate over this. So you I've been a principal man most of my life, but it lost me a lot of money. And actually, Mark Cunningham is the one who talks about making sure that you make problems go away. So as a property manager, one of our main key jobs is to make problems go away. I totally agree with that. And dying on a principal hill can be expensive.

• Speaker #1

  I'm doing cash for keys right now. $3,400. Get out. I don't want the headache. I don't want the problem. No tenant is better than a bad tenant. I'm sure you would agree with that.

• Speaker #0

  A hundred percent. Yeah. Staying firm on your qualifications. But then when a tenant gets in there, the number one reason tenants leave is lack of attention to maintenance. So unlike fine wine, some maintenance things do not get better with time. So you need to get in there and nip things in the bud. That leak. Oh, no big deal. It could become mold. Now you're in a lawsuit. And again, I don't like people throw that fear mongering like, oh, you're going to be sued every time you turn around. But, you know, there are litigious. It's real. It is real. Mold, especially down here in Houston, the mold is a big thing because of the humidity. So there have been seven figure lawsuits for that. And yeah, we just when you hear mold, you got to jump on it.

• Speaker #1

  Yeah, that's exactly what this is. She's complaining about mold. So it's like, OK, move on. It's probably not safe for you to be here. Just get out. Yep. Sign my release that you're never going to sue me. And then here's your thirty four hundred bucks. So,

• Speaker #0

  yeah,

• Speaker #1

  we're doing now.

• Speaker #0

  And look, think about how much more expensive it would be to go to court. Maybe you are right, but you just spent ten thousand dollars in legal fees to. save $3,400.

• Speaker #1

  I'm pretty sure we're right. We had a test and it came in clear. So the professional said it was clear, but I still don't want to deal with it. Yep.

• Speaker #0

  Yep. Yeah. Yeah, exactly. Like it's not worth it. That's not worth it.

• Speaker #1

  It's not worth it. All right. We're running up against, and I had a question for you that it's kind of controversial that I was just curious your opinion because you're so good at this, or do you have any more mistakes you want to throw out there?

• Speaker #0

  I think that, that those are the good ones. I think those are fair nuggets.

• Speaker #1

  So I think it's going to depend on what market you're in, because some markets like in St. Paul, Minnesota, won't allow this. But in some markets, you could do month-to-month tenancies, and it makes it easier to get a tenant out. So I'll give you an example. When you went through COVID, there was a lot of places where you couldn't get a tenant out, including Colorado, because there was moratoriums on evictions, right? So tenants that are smart would just stop paying rent. And they thought that well, I don't know how smart they actually are. They thought they didn't owe the money, right? So then to get them evicted, you're waiting five, six, seven months. Now, that was for a payment default. There was no rules around getting out. If the lease matured or the lease term expired, you could still evict. There was never a moratorium around that. So that's one example. But I like the month-to-month tendencies. I could get them out if I want. I could raise the rent when I want. And my experience, Cam, is that. tenants don't really care if they're in a lease usually. I mean, if they want to leave, they just do. So it's really a one-sided, if you do a year or two year term, it's typically one-sided. Anyway, what are your thoughts?

• Speaker #0

  I would say people with families that move into areas that are desirable with good schools, they want to know that they're going to be in there. We, and I'll give you an example or some times that I've run into this is we've listed a property for lease and for sale at the same time. It was very difficult. And again, the sales market's difficult. It was very difficult to get that sold or leased. And we couldn't get tenants in because the feedback was, well, you guys are trying to sell this. How do I know I don't get in there? And then you guys sell it in six months. And yeah. And then, you know, the new landlord, like we have a relationship with you, but we don't know that new person. So we actually do not list for sale and lease for that reason is tenants. We want tenants that are going to be there for a while. I mentioned and earlier our tenants down average three to four years. And by doing the month to month, I think in places like if you have a super desirable property that leases really well and, you know, closer to town or maybe on the coast of California. No problem, because people are going to stay there. There are people in California have been in there 17, 20 years in certain homes. But I think for Houston, that is a transient city that your people are moving for certain things with family. They don't want to be told because that is a unilateral or a bilateral contract where the owner could say, Hey, move out. 60 or 90 days. We do a 60 day notice period. But like you said, some tenants, we do 60 because even if they do 45, we still got enough time. We don't do 30 and then we got 15 days. Yeah. We don't like it. We'll do it in certain scenarios. Um, Kevin, but yeah, it's just one of those things that we've seen success. And when we try to do those shorter term leases, it seems to add a little bit of, you know, higher, higher turn it more transient tenant.

• Speaker #1

  That's fantastic. so mine are all one year and it rolls to a month a month, but I like it. I like getting them on the month a month as quickly as possible. Um, but you make some great, great points there. All right. I'm going to go through my notes. I don't know if you've listened to the show before, but I always go through my notes and what I learned from the episode cam. And then what I would love for you to do is give us a. final piece of advice. Maybe somebody is interested in investing. Maybe it's investing in Houston, but give me a piece of advice to help them. I didn't really get into how you overcome fear. I usually like to talk about that. Like what, what motivated you to buy those 30 units? But I know I throw a lot at you right now, but let me go through my notes and I would just love to get a final, final piece of advice from you.

• Speaker #0

  Okay.

• Speaker #1

  So your, your first piece of advice I thought was rather funny. So I wrote it down and says, don't quit your job. So. A lot of people get in there and they just want to get into real estate so bad, which is exactly what I did, guys. And it was hard, but don't quit your job. Use that W-2 to help get you going. Your lender, the way you were getting from 10 and to higher was credit unions. So we talk about portfolio lenders. Oftentimes, that's exactly what this is. Banks and credit unions that keep the loans on their books have more flexibility. So they'll do loans like that. The 1% rule, you told us what that was. And it is possible still today to get that 1% rule. Now there's some risk with that because it's a lower price points, but down in Houston, you could still find those deals. Underwrite your turns is what I wrote. So the turnovers on the property, you might have one every two, three years. So what does that cost you? And that's going to hit your NOI or your net operating income. Flat cap on expenses. So you do a cap, you do like a $200 per month flat cap, cap X.

• Speaker #0

  Yep. Yep. if you're estimating for when you're underwriting, use $200. That doesn't include repairs. That's just for capital, large, big CapEx items.

• Speaker #1

  So you do your 10-ish percent, depending on the property budget for your repairs, plus an extra $200. That's what we're talking about here. Resident relations. You talked about relations and responsiveness in a couple of different times throughout the podcast, but the relationship with your tenants is the best way to make your money because it's resident retention. So move fast on opportunity, move fast because of opportunity costs, rent too high is a mistake you see people make. So make sure you're renting at or below market. One third of your, all of your leads come in the first seven days. So capture that, that tenant in the first seven days. Professional photos, go ahead and feel free to use AI, but make sure it's professional. And we didn't get into this, but if you're saying AI, I'm assuming it's some type of virtual staging that's getting more and more popular now.

• Speaker #0

  Yes, sir.

• Speaker #1

  And then be responsive. Again, you said that multiple times and that's with leasing. So getting back to potential tenants and with your maintenance requests. So those are my notes. How did I do?

• Speaker #0

  No, I think that's great. I mean, whoever said that must be sure.

• Speaker #1

  Cam, you did a great job, man. All right. So what's the listener, let's say it's a newer real estate investor. What's some, what's some advice for them?

• Speaker #0

  It's worth it, but it's hard. It's harder than you would think. And I think looking Thank you. When real estate kicks you in the teeth and we've all had that eviction or a tenant not paying or a mold situation like you're talking about, just try to remember in 10 years, you're not even going to remember that. This is just going to be a blip on the radar. In 10 years, that asset should be twice what it's worth. Hopefully you've paid down the loan or cash out refi, which is tax free. Just pulling that money out every handful of years. It's worth it. It's just going to take longer than you think, but it is worth it.

• Speaker #1

  If you had to go back, what would you do differently?

• Speaker #0

  I would have bought more properties that were cashflow, marginally cashflowing, not looking for as much cashflow as I did. And that's hindsight's 2020 because we've been in an unbelievable appreciation run, but I have made way more money. It's probably a seven figure loss to my net worth. And that's not an exaggeration with how many deals I've passed because I'm like, that's only, you know, that's only a hundred dollars a month cashflow. That's only $150 a month. But that asset now is worth twice what it is or was then.

• Speaker #1

  Wow. That's really interesting. Most people would say the opposite of that, like focus on the cashflow because you could weather the storm. So you're saying you would have been more aggressive.

• Speaker #0

  I think I would. And maybe that's just, you know, again, hindsight, everything worked out hindsight being 2020, but I started out, I wanted the cashflow to replace my job. But I am making and still have made way more money in the appreciation than the cash flow. I mean, if you buy a property at $250,000 and in 10 years it's worth $600,000.

• Speaker #1

  in denver it wasn't that long you guys were getting i mean double digit appreciation for money multiple years yeah yeah so you're looking at making maybe 50 to 100 grand a year on appreciation that dwarfs 200 a month in cash flow yeah yeah you know what i've found the cash flow is like a myth like i should write an article cash flow rental property cash flow is a myth it's so hard i tried to do the same thing replace income with cash flow you can't do it i really think that you need some fee type of it's multiple streams right some type of fee generator And then as you said, invest in properties for the long haul. The cashflow, I know that this is kind of Debbie Downer, but look guys, the cashflow on rental properties is so hard to get. One furnace, like we talked about, one AC unit. So it's a long game, right?

• Speaker #0

  Well, and it's like, okay, cool. I've made this month is my $200 cashflow. I'm going to put that in my pocket, but next month something comes up and you're negative. And then next month you're good. And you think you have that money, but it's like, that's how your cashflow goes. That's how it looks. I do think getting up to like five or more properties as quickly as you can is ideal because you can have, if you have an eviction on this property, the other three or four kind of balance it out. Whereas if you just have one and you have one eviction, you have a hundred percent vacancy instead of 70, 80,

• Speaker #1

  90%. Oh man, there's so many places we could take this. Is it four units in one building or four single? I mean, there's all these different things to chat about, but we are out of time guys. So Cam. Thank you so much. I know you're super busy managing over 300 units and you just decided to join me on the podcast today. And it's funny, you watched a podcast I did with BiggerPockets, one of the first podcasts ever. And you jumped out here and told me about that. So I know you're busy listening to podcasts and running your business. So thank you.

• Speaker #0

  No, Kevin, I appreciate it, man. Great questions, great conversation and a pleasure to meet you.

• Speaker #1

  Yeah, you as well. And to the listener, you have other podcasts you could be listening to and you chose. the Real Estate Educators Podcast. And for that, I am so incredibly grateful. Thank you so much and make this day a great one. I really hope you enjoyed this episode as much as I did. If you did, please be sure to follow and leave a five-star review. Oh yeah, and tell a friend.