If I have any readers left, I have been busy with a handful of things and the blog has been left out.

I wanted to post a review of what we did in 2012.

Let’s start with the review of the goals post from last year.

Landlord Goals for 2012

• December 2012 gross rent collected to be $83,334 or more

• Add 20+ new properties

• Buy 1+ apartment or commercial building

• Convert all tenants to pay online ACH, deposit at the bank directly or pay by mail

PASS: I am so glad this one was achieved early in the year when we added our full-time property manager.  I have not picked up a rent or seen very many tenants in the last 6 months and I am quite happy about that.  

New Purchases

• 37 new rental properties
  • 4 condos
  • 28 single family houses
  • 1 two houses on a lot
  • 2 three unit
  • 1 fourplex
  • 1 – 22 unit apartment
• The most affordable purchase was 39,000 and is rented for $800
• The average purchase price for the single family houses is $79,500.

As we continue to gain more experience as landlords we have noticed the amount of time and money spent making a new-to-us rental property perform at optimum levels is a lot longer than we originally anticipated.  The performance of our 2009 purchases compared to our 2011 purchases in substantially better.  So we are looking forward to having more and more stabilized units.

The exciting part will come in the next post.  The 2013 goals. God willing, we have big plans. 

Bahumbug!! December is probably the worst month of the year to try to rent a property.

Finding qualified new tenants in December has always been a challenge for us.  Think about it, if someone didn’t plan ahead enough to move their family before Christmas/New Years or cannot wait until after they are probably not going to the best tenant either.  Of course there are some exceptions: moving from far away, damage to their existing residence, etc.

We’ve added a lot of properties in 2012, I will post a summary after the year is over.

How did everyone else do in 2012?

So I just got an email blast from a real estate agent:

“I have a buyer in need of a SFR property in Moreno Valley or Perris. 3+ bedrooms and 1,400 sq.ft. or more. $140,000-$160,000 price range. Buyer is qualified w/ a Conventional Loan.

Please let me know if you have anything available or coming up soon.“

Agents are usually desperate to find active Buyers, but the market has so little inventory right now that they are having to actively solicit for inventory.

I heard another stat that really put things into prospective.

If you compare the California residential real estate sales industry to the car sales industry.  Imagine going to a car lot with 20 cars for sale and 40 cars salesman.  There are literally 2 active real estate agents for every house on the market right now. 

When you’re ready to complain about how tough us investors have it, just be glad you aren’t a real estate agent right now!

Sometimes tweaking your business is more about the small things than the big things.

Here are examples of some small improvements that we have recently made, that make a big difference:

A. When we hired our property manager he asked my why we didn’t take rental applications via the internet.  We had a web site, with a link to a PDF application. He explained to me that many of our prospective tenants could fill out the application via their phone or had a computer but no printer making the PDF application useless.  I wasn’t as convinced, but thought I would give him a shot.  Ever since we set it up I would say 75% of our applications have come from the new online application process.  I was dead wrong on that one!  As part of this improvement we have also moved our Maintenance Request process to an online form (making it much easier to track which tenants have the most requests).

B. Many of our landlord friends have told us how their preferred method of collecting rent is having the tenant going directly to the bank and deposit it.  We now have about 80% of our tenants pay rent this way and I must say it is great.  I don’t get to see our properties as often, but I also don’t get the nagging requests every time I show up.  My time is becoming more valuable and this really saves me a lot of time every month.

C. Partnering and joint venturing on deals is a great way for extra growth.  This year we have bought a couple notes as joint ventures, bought a 22 unit apartment as joint venture and done two major rehabs with partners who have sourced the deal.

Every step of the way you gain more momentum and pretty soon your business will be impossible to stop.

Welcome to September everyone.  I am hoping to have more posts this month, but I have a quick one for you today.

For those real estate investors hiding under a rock who still haven’t had the time to sign up for the greatest Real Forum, Bigger Pockets, now is the time to do so.  It is a great resource and free to participate in.

Josh, the founder, does a great job of keeping the content fresh and the spammers away.

Sign up now!

Some of my favorite recent threads:

• SFH vs Multi-Family Rentals
• Homeowners getting 30k to do short-sales
• How many rehabs have you done at one time?
• Strategies for Home Ownership as a RE Professional
• Maximizing your Time

If you have been following this blog for a while, you know I self manage my rental portfolio and for the “full-time” investor I am a big proponent of doing it yourself versus hiring a property management company.  You may also know that one of our goals was to hire an assistant to do be in charge of this process once we got to 60 houses.

To update you, we broke 60 early this year and on May 1st we hired a full-time property manager.

What we put him in charge of immediately:

• All tenant phone calls
• Advertising and marketing for vacancies and new acquisitions
• Initial tenant meeting and application process
• Basic maintenance (minor plumbing issues, bug issues, etc)
• Rent collection and follow up
• Posting 3-Day notices
• Data entry in online system

What we still do:

• Review tenant applications and approve/reject
• Approve/Negotiate payment plans

After 3-months we have been pretty happy with the results and really think we achieved the best of both worlds.

The Hiring Process:

We were looking for some specific items: property management experience, bilingual and someone who is relatively self sufficient (we have enough tenants to babysit).   We put an ad up CraigsList and got about 30 applicants.  We did a phone interview with 5 or 6 candidates that we felt best fit our style and requirements.  From there we did an interview with the top two applicants and discussed many tenant issues we deal with on a daily basis and asked them how they would handle it.

We decided to provide a base salary and a bonus per house that he rented.  I would eventually prefer to tie his bonus to our overall loss rent/vacancy rate but that is a lot harder to track so we wanted to keep it simple.

What we provided him:

• A laptop
• A multi-function printer, scanner, and fax machine
• A monthly cell phone allowance

It is still pretty early, but we are very happy with the results.  The goal was to save time so my partner and I.  I estimate we managed our portfolio of 70+ houses in 10 hours a week each, so it’s not like it was a full-time job for us, but it really affects your mood.  Dealing with 10+ tenant inquiry phone calls a day is not fun at all.  Now we can figure out how to buy more properties to keep our manager busy, instead of spending 1.5 hours round-trip to drive and meet a tenant.

Now if we compare this option to hiring a professional property management company, I think we are way ahead!  We could hire a second manager and it still would be cheaper than a 7% management fee.  We also get to train him on our requirements, aren’t worried he is steering the best applicants to another landlords properties and we can easily replace this position with a different employee.

Can you tell I’m glad not be taking all those phone calls?!?

As I was reading a real estate blog, somehow I ended up at Waypoint Homes web site.  If you have been involved in real estate or read real estate news you probably have heard of their name mentioned.

The Chicago Tribune recently wrote:

The strategy of the 4-year-old company, formed by Brien, a former National Football League place-kicker who played for the Bears in 2005, and Colin Wiel, a former Boeing engineer, is to purchases single-family foreclosures in areas with a stable employment base and rent them, creating a stabilized, profitable portfolio for investors. Waypoint owns more than 1,800 rentals in California. It entered the Phoenix market in May.

After some quick sleuthing, they currently have 162 Active homes for rent in Southern California.  Let me say that again 162 homes for rent!!!

Could you imagine the team it takes to deal with 162 vacant houses at one? Break-ins, tenant phone calls, weed abatements, etc.

The active for rent listings ranged from: a high of $2,499 for a house in Corona on a golf course they paid $240,500 for; to a low of $1,249 for a house in Banning that they paid $50,100 for at the trustee sale. But everything seems to be priced $200-300 above “top dollar” for the market rents.

The typical for rent MLS description reads:

Waypoint Homes offers tenants a standard 12 month lease or our Lease Plus Rewards Program. The LPR program is a 24 month lease that allows residents in good standing to accrue up to $5,000 to apply toward the purchase of ANY home on the market at the end of their lease term or take 25% of that money in cash at move out!! Call for more details! Waypoint Homes has an A rating with the BBB.

Lease Plus Rewards – an Innovative Idea

I have heard for a while that Waypoint planned to use lease options to “juice” their rents.  The details of this program seem to be called Lease Plus Rewards.  It basically gives their occupant an incentive to stay longer and it also gives them a bigger security deposit in the event something bad happens.  They offer to refund 25% of the $5,000 but obviously if the house has any damage, or the landlord is short any rent they are going to subtract that from the refund.

Not all seems to be smooth sailing:  they advertise an A rating with the Better Business Bureau, but a search shows they have slipped to a B with 8 complaints in the last 6 months.

A friend of mine just email me the attached graph.

To complete a lenders foreclosure process the bank must go to an all cash auction at the court house.  The opening bid is typically simply the loans outstanding balance, but since 2008 the banks have been “dropping” their opening bid to sell the asset directly to an investor.

Purchasing homes at trustee sales come with a lot of risk:

• You buy the property with no warranty
• You are responsible to get the occupant out of the house
• You are responsible for back taxes and possibly other liens

According to the chart in April buyers paid 92% of retail value at the trustee sale.  On top of paying 92% the buyer has to catch up taxes, remove the occupant (usually by paying cash-for-keys) and repair the property. Paying 92% essentially means the buyer will have a total cost over market value.

Clearly these are landlords… but how long can this last?

I’ll be honest I stole this title from another blog post (relating to a different industry), but I think it is very applicable to real estate investing.  Another quote I often think of is: “When is the best time to start? Five years ago, but that’s too late, so why not now.”

Most of people I respect most in this business are not people I would consider to have far superior intelligence compared to the average person.  They have just found a way to consistently set goals, pass the obstacles in front of them and start accomplishing tasks one simple step at a time. Before long they got miles ahead of everyone else.

Sit down and make a list of all the things holding you back from getting started and an associated action to accomplish them and before you know it you will be moving forward.

Back in early 2010 I wrote about my favorite spot to find prospective tenants.  Can you tell I am not very creative in finding them?

I am still renting 80% of my properties via the For Rent sign in the front yard.

But the important question is, once you an application or applications how do you decide if you should rent to the tenant or not?

We are flexible with most aspects, but here are the most important factors:

1. Income Qualifications

If monthly rent is $1,200 and the tenant only makes $2,000 per month, the process is over.  They are never going to be able to pay.  Their credit score or the rest of the story doesn’t really matter.  As a general rule of thumb, we hope for 3x rent (which would be $3,600) but will settle for 2.5x.  I do take into account all income for this calculation.

2. Criminal Background / Eviction Check

I always prepare a criminal check and eviction check (the criminal charge is called an unlawful detainer).  San Bernardino County, where most of my rentals are in, offer this search for free.    Evictions, hard drugs and theft usually will completely eliminate the tenant.  If we see domestic disputes and other crimes this is a red-flag and we usually discuss them with the tenant.

3. Security Deposit

Our typical deposit is $100 above rent.  Again, if rent is $1,200 our requested deposit would be $1,300.  Very rarely are we flexible on the deposit.

 Other Factors to Consider

• Length of Previous Residency: we are looking for tenants to stay at our house for a long time, if they move every year that is a red-flag
• Rental History: we are looking tenants that have experience renting/owning a house before versus apartment
• Length of Employment: the longer the better
• Ready to Move in Quickly: a tenant that is willing to move-in within two weeks is a definite positive
• Pets: we prefer no pets, we do take them and charge a bigger deposit
• Previous Rent Amount: if a tenant is currently paying $800 and applying for $1,200 that is a concern we usually discuss
• Number of Occupants: many of our houses have quite a few occupants, our max is 2 per bedroom, but we like fewer

As you may have noticed a high credit score is not on this list.  We rarely check credit… typically only when something else on the application seems fishy.  Most of our tenants have credit scores in the 500′s anyways, how does knowing that help us?

What we do if we see Red Flags

Many tenants meet criteria 1 through 3 but the one or multiple other factors bring up some red flags.  We will still extend an offer to rent to the tenant but we will ask for an increased deposit.  By California Law you can collect a maximum of 2x rent for a security deposit.  This has worked out with great success for us, if the tenant is unsure about their ability to pay the rent they probably won’t be willing to hand over additional funds.