Bullet Proofing Your Rental Portfolio How to buy high performance rentals Curt Smith, http://mygareia.org Board Member, mentor Buy-and-Hold Investor since 2011 chsmith@speakeasy.net / 678-948-7151 (prefer text)
Our Company s Investing History and Portfolio Our real estate investment company consists of my wife and myself. Quit my day job 6 months ago thanks to my rental income Spend around 2-3 hours/month self-managing current properties (this can peak to 10 hrs/month occasionally). My wife spends 5 hrs/month on bookkeeping and rent rolls. Own and self-manage 36 single family rentals (scattered in metro Atlanta and north GA with a few south of Macon) Bought, rehabbed and rented 33 of these rentals with full-time job over the past 6 years. Averaged buying 6.1 new rentals/year Average portfolio cap rate = 18%, just the SFRs = 14% Current portfolio LTV = 23% Use solo-401ks for 38% of rentals and the rest are taxable
What buying goals allowed us to have it all Our buying goals: High appreciation High cap rate (like 13% or better) 3 bed/2 bath or better Nice, safe neighborhood Decent schools (GreatSchools.com >= 6 is best, can buy down to >=5) Low rehab costs (<$15k) Low all in costs (drives up cap rate) Low effort to manage (from good tenants) Low turn over, tenants stay many years typically Few competitive rentals on the market, so it rents fast Good deal flow. (I.E. enough raw houses hit the market / yr to meet your needs). Low ball offers get accepted. IE raw houses have little competition when buying.
What happens when you give up the most desirable rental quality goals? Buy too low priced rentals you may end up with high management costs, turn over and low net income and slow appreciation Buy too high a priced rental and your cap rate sags but you often get appreciation Buy in high competition areas and your deal flow and cap rate sags Buy in low (Great Schools) rated school systems and you can t attract high quality tenants. IE under Great Schools rating of 5 Buy an ugly houses, on a busy street, and its tough to find good renters Buy far from transportation and you ll take longer to re-rent due to a much smaller renter pool Add a few of the above together and performance plus ease of management drops fast.
Set business goals and your business will improve And you likely CAN accomplish what you previously thought impossible Resourcefulness is your #1 resource. (Tony Robins) Just do it. (Art Williams, Original Art Williams speech) You ll be 100% successful at NOT accomplishing a goal you never set. When I talk to landlords mostly I get told their latest war story. Why compete in that contest?? Set A LOT of great goals, work toward accomplishing as many as possible and your portfolio will improve Your rental business can only improve by setting ALL of the above goals, right?
HOLD, HOLD IT We ve got the landlord success criteria BACKWARDS What is your primary capital asset as a landlord? I.E. what is MOST important? Your rental house? Asset or Liability? Your tenant? Asset or Liability? Most investors focus 99% on houses right?
What is your main capital asset as a landlord? The tenant!!!!! An empty rental is what? A liability. Your tenant your main asset. Learn to make one of your most important business goals targeting YOUR ideal tenant. Know what they want Know where to they want to live Know how to market to them (The rental ad copy and subject line). IE do they want to see a rental ad subject in all caps and see 1 st month free??? You need to make your rental business TENANT focused
What good tenants want They want many of the same things your business wants: Attractive house in a safe neighborhood Good schools Convenient to freeways and good paying jobs (buying near good jobs is important) Nice rehab with a clean attractive look. (sometimes this means some laminate floors, upgraded fixtures, freshly painted cabinets, nice backsplash etc) Fair rent Quick response to maintenance requests Being treated fairly. (This is very important to me. I have a great relationship with all my tenants. Positive attracts positive --- it does work! Create a positive rental ad, mentioning the things good renters want and you ll attract good renters)
J-O-B-S Underpin all real estate especially rental portfolios Landlords who buy in the metro counties don t even think about why some rentals rent easier then others, or at least one factor most don t think about. Access to good jobs. Near by plentiful good jobs are key to an easy to manage, low turn over rental business. The farther a renter has to commute to work, the fewer choices of jobs, the weaker the tenants jobs skills the more likely you ll have turn over, late rents and evictions. Doesn t this make sense? The linkage between good jobs, a short commute and a good rental business? For example: there s fewer good paying jobs South West of Atlanta VS straight North. Areas matter a lot! An even BIGGER tail wind for a rental (and renter) is to buy in the path of GROWING JOBS. Which I ll get to.
Our current business rules circa 2017 Our current rules are not the same as the day we started. Our rules have changed through trial and error. So yes we own some houses that don t meet all of these rules. This is what we currently look for: Blue collar dual working parents with kids and dog(s) are our target tenants. (Dogs..why? Because most landlords are now turning them away, I WANT (smaller) dogs!!) Cute house in a nice, safe neighborhood, 3 bed/2 bath (a garage and fenced yard even better). Our all-in-costs vs rent yields a cap rate of 13% or better. 10-15 minutes to a major freeway or road, 30 minutes to good jobs. GreatSchools.com rating of 5 or better Low competition. We search craigslist and zillow for areas with few rental ads. And our newest rule is 30 min to nice restaurants and entertainment (If we re going to be working hard and staying at hotels we want really good meals and something to enjoy). Plus areas with great restaurants tend to attract good renters.
Over view of tenant types we target We buy nice rentals, fixed nicely in nice areas and we do not take Sec-8 We do tend to screen OUT white collar workers. They never stay long and are more of a pain, can t do simple maintenance, break leases to buy houses. We target financially stable blue collar workers who can t afford to buy a house, are permanent renters, they just want to create a home in our rental and stay forever. I screen for: moving back to be close to relatives, in same school system or near their job Our written requirements are (Re HUD/Fair housing you need written requirements): Dual income, has a bank account with a balance of > 2x rent plus utility deposits 3x take home income vs rent Long term rental only. IE I say during the face to face that my typical renter stays 5 yrs. No evictions or collections We are ok with pets. IE dogs not on the dangerous breed list and under 25#. We take the most qualified applicant not necessarily the first application. End result: they never leave, fix things, never call, treat my house as their home.
How to target GROWING JOBS areas Find employer PR announcements: Atlanta Business chronicle Georgia.gov use google advanced search on this domain: term=jobs, number > 500 Indeed.com use locale search and set radius to 5mi. Use same sized city names to get total jobs listed top right. Right jobs down. Indirect indication: no rental ads for same sized population area. Growing blue collar jobs soaks up all the rentals. IE if indeed.com says there s more jobs vs other cities and there s no rentals,,, this is a great area to buy rentals in!
Just South of Chattanooga Rossville through Ringgold I-75 I75 all the way up to Cartersville, 10 min to The freeway I-400 I-85 I-316 316 from Lawrenceville East on 316 All the way to Athens I-20 I-20 RULES: see all the goals - 10 minutes to a freeway - 30 minutes to good jobs - Cute, in a neighborhood - All in meets YOUR cap rate needs - Good schools I-85 Blue collar job growth areas I-75 Henry co, 10 min to the freeway
Buying criteria we DROPPED because we chose to go after our goals as mentioned Buying near where I live. Paying market price or upping my offer to a highest-and-best Chasing low prices into bad areas I gave up owning rentals near my home for: All of the goals given early in this presentation **** Deal flow ***** High cap rate IE >12%. All of my 2016 purchases are >=13.5% *** Low competition to buy and then to rent. IE zillow neighborhood heat range for where I buy is blue (cold to stone cold, a sliver of blue) These areas do exist, just NOT in the metro area
Summing It All Up Believe in yourself and drive yourself to set high goals! It _IS_ possible to buy rentals that have more positive qualities than you previously thought. Challenge yourself to buy better rentals!! All of the goals given at the beginning we are achieving for the past few years. Not at the beginning, but certainly now! Top performing and LOW management effort rentals are possible. But they probably will NOT be in the metro area. You need to get out of your comfort zone for location.
Additional topics I could not have achived quiting my day job last July without being a member in GaREIA http://mygareia.org. They have the deal makers google groups and face to face groups and a ton of experts giving free education. Click the calendar off the above URL. How to buy houses below market Writing rental ads Screening tenants How I remote manage houses >1hr away with little effort. 2hr 10hr per month 98% via text. How I find contractors in small towns. How I pay them. I post a lot on these topics on http://biggerpockets.com Curt Smith: chsmith@speakeasy.net / 678-948-7151 (prefer text)
Where we own 36 rentals bought over 6 yrs Rossville/Ringgold I-400 I-85 Toccoa area I-20 I-75 Norcross, Duluth, Roswell And Dekalb area Commerce And area I-20 Covington & Stockbridge area Byron/Warner Robins I-75 I-85