Report: What's Working Now
WHAT'S WORKING NOW:
10 Battle-Tested Tips to Help Landlords and Investors Survive
& Thrive through the Recession
By Cynthia Hale & Joshua Mettle
Josh and I currently own and self-manage 92 houses and apartment units in the Salt Lake valley. We made it through the last two recession years in good shape. We made all our mortgage payments on time. We have awesome tenants, great properties, no deferred maintenance and no outstanding service requests by the end of any business day. Plus, probably at least 90% of our tenants have 700+ FICO scores.
So we think we have some knowledge and battle-tested systems that might be worth
passing on to help other income property owners, and we’re going to share a few of our
secrets in this special report.
But, we had to work our fannies off the last two years. It wasn’t cake.
Originally, I wanted to talk about how we did it ... how we acquired all these units
and made it all work. But Josh thought that would not be helpful, because the market has
completely changed from the market we bought in. So instead, we are going to talk about
how we do it ... in this recession, and how we’ve adjusted to the changed market rules we
are dealing with now. The recession didn’t kill us, it made us stronger!
1. Develop a Complete Intolerance for Vacancies!
The pro marketing companies are trained to do a three-day-turnover: day one:
maintenance; day two: prep, paint and reassemble; day three: cleaning. Get tough on your-
self and get as close to that as humanly possible. An important part of this task is cultivat-
ing a relationship with good vendors. You have to get that unit back on the market
A.S.A.P.
The professional management companies who are managing the big apartment com-
plexes are also paying for slick, expensive advertising. This is our competition. Most of us
do-it-yourself landlords don’t have that kind of budget. We have to do it better and
smarter. We have to be guerilla marketers!
We use free ads on Craigslist and KSL.com. Not because we’re cheap, but because
that’s what pulls ... that’s where the tenants are looking, and “free ads” are in our budget.
Be hot on the advertising job constantly. You want your ads to be at the top of the
list as much as possible. I try to renew my Craigslist ads every three days (because they
won’t let us renew them more often) and I try to renew my KSL.com ads every two days.
By “renew” I mean erase the old ad and re-post it in a new unit of time. If you leave your
old ads up and just top-post, it makes you look like there’s something wrong with your unit
because it’s been advertised so long, and it makes you look a little desperate. It takes more
time to take the old ads down before you re-post, but do it anyway!
Get a little digital camera and learn to use it. Post the best pictures you can take to
show off the best you can of your property inside and out. You can’t rent the apartment if
prospective tenants don’t get inspired to see it through your ads.
We use “Open Houses” for both houses and apartments. You don’t have time to
drive out to show a unit every time someone wants to see it. Get control of your time by
scheduling and advertising open houses. This method is also respectful of your prospective
tenants’ time. They will be grateful that they know the date and time to see the unit, it’s one less phone call they have to make.
You might want to run “specials” depending on the time of year, etc. For example,
it’s much harder to rent units in the winter. Most tenants don’t like to move in the cold and the properties don’t look as glorious with all the foliage missing. We have been running a winter special, and it has worked great.
2. Fine Tune Your Marketing Skills
The headline of your ad is “the ad for your ad!” The purpose of the headline is to
get prospective tenants to click! If they don’t click, they don’t see your ad. The purpose of
the body of the ad is to inspire prospective tenants to drive down and see your unit. If your
ad isn’t cool, they won’t come see your property. If your unit isn’t cool, they won’t rent
your property.
Understand the purpose of each little piece of your marketing and tweak it con-
stantly.
If I don’t get abundant clicks, calls and applications within a very few days, I
change the ad. I also walk the property and put myself in the prospective tenant’s head, to
see why I might not rent there. Then we fix whatever it is that turns me off. So walk your
property. If something turns you off, it will turn your prospective tenants off. This is a
people business.
Never run a “conservative” ad for your unit. If you can’t enthusiastically describe
your unit, it’s not ready for rent! It should be “immaculate” and “bright” and “well
located” etc. Good marketing takes constant vigilance.
Professional managers are trained to “shop the competition.” They will come
through pretending to be tenants to test your marketing skill and the quality of your
product. You should be doing the same thing. (Saturday morning, no makeup.)
I always ask my new tenants how our units compare with the competition and why
they decided to rent our unit. This is the best feed-back you can get in the world. Listen.
Offer referral fees to your existing tenants. We offer $100. You can buy door
hangers or post notices to spread the word. Some of your tenants will work hard to get the
referral fee.
Have you negotiated a lease by “texting” back and forth yet? Welcome to the new
generation of tenants. Learn to speak their language and use their communication channels.
3. Tenant Retention Tips
Don’t lose the great tenants you already have!
Think like a tenant. They are moving for every reason in the world (job, divorce,
school, family, etc.), but there’s a good number who are moving because they are unhappy
where they are. They are unhappy because things don’t work in their home or they feel un-
comfortable (plumbing problems, noisy neighbors, dirty common areas, smokers, etc.). I
recently had a really great tenant ask to have her parking spot moved because the few
smokers on the property hang out by the dumpster to smoke and her parking spot was right
there. I’m so glad she asked! We not only moved her parking space, but we installed a
new bling kitchen faucet and new 2” blinds in her apartment. She was blown away. We
would have done those things between tenancies anyway, so why wait until after we have
lost a great tenant?
We ask for service requests in both spring and fall because our handymen are going
to be in the units anyway to summerize swamp coolers, swap out furnace filters, check
batteries in smoke alarms, etc. Don’t let service requests back up because your tenants will
get irritated and move elsewhere. A lot of times tenants won’t even tell you they are
irritated, so if we didn’t ask for service requests occasionally we might not know that the
reason our water bill is so high is because someone’s toilet has been running constantly for
three months!
Your professional management competitors are trained to entice their tenants into
re-signing a new lease before the old lease expires. They have it all calendared and rarely
miss a beat. They are prepared with some “special offer” for resigning. (For example:
some upgrade like new 2” blinds to beautify the apartment, but the tenants don’t have to
pay extra for.)
About the same time that the recession hit, we noticed that managers at the big
complexes would “steal” our new applicants before we could get a lease signed. It
happened to us twice before we got the message. We would receive an application and get
the prospective tenant approved but before we could get the lease signed, the manager of
the prospective tenant’s complex made our prospect a deal they couldn’t refuse to stay
where they were for another year. We finally quit calling any big apartment complexes for
tenant referrals! We were just tipping them off.
We also learned to work really hard to keep our tenants happy and keep them with
us. A few years ago we were much more cavalier about turnover, because the rents were
raising so fast and the units would re-rent so fast that we could get away with being less
professional. Gone (currently) are the days of the “waiting list.” We have to hustle!
4. Upgrade Your Curb Appeal & Pimp* Your Vacant Units
I try to get each home and apartment as close to “home show” quality as I possibly
can, within our budget for that unit. You can bet that your prospective tenants are shopping for as close to “home show” quality as they can afford.
Add some inexpensive bling by installing new 2" blinds, update the faucets and
light fixtures, install new pulls on the cupboards and drawers, re-stain wood to disappear
skuffs, swap out door hardware, etc. I always put a fresh new $10 bling “Welcome” mat at
the front door of each vacancy (that tip alone is worth the price of admission)! It protects
your new or freshly cleaned carpets and makes prospective tenants feel at home.
We paint between each and every vacancy. (Gasp!) We use the same color paint in
all of our units, and the first time we turn each unit over we install our new paint. That
way, it is fast and easy to prep the boo-boos and roll them out between tenancies. You
don’t have to repaint the whole unit to make it always look like new paint. Plus, we get to
advertise “new paint” which is a big seller!
Walk the property and eliminate any and all eyesores. Make sure the common areas
are clean, no trash in the bushes, no inoperable vehicles making the property look ghetto,
no graffiti, etc.
A few years ago, Josh and I were shopping for units. We got an offer accepted on a
12-plex so we went out to do our inspection. We were shocked at how filthy the common
areas of the property were. The owner obviously had no respect for his tenants. The build-
ing itself was dirty, dirty, and encased with spider webs. He could have at least power-
hosed the place down. The bottom level had trash and leaves all over in front of the front
doors of the units. The parking lot had trash in the bushes and cigarette butts everywhere.
Oh. My. Gosh! As you can imagine, the tenants treated the inside the same as the landlord
treated the outside. As investors, we love to find mismanaged or malmanaged properties to
buy at a discount. But as a seller, it’s dumb to leave a pile of money on the table for inves-
tors instead of picking up a power-hose and a trash bag. Also the listing agent missed the
boat, because he should have advised his seller how to get the property ready for sale.
5. Restructure, Renegotiate & Reduce Your Operating Costs
Just before the recession hit, we had basically no vacancies and I thought I was in
retirement heaven. I was so full of my greatness as a property manager that I’m pretty sure
I was one of the last mere mortals to figure out that there was actually a recession going on.
That summer, what I thought was normal summer turnover, didn’t fill back up. Gulp. By
September I was in a panic, and I played catch-up all winter.
The last two years were really hard work. But we pulled through it with an all-
hands-on-deck attitude, and we are leaner and meaner and way smarter now. Here’s what
we did:
We printed out our P&Ls and forced ourselves to review them line-by-line monthly
and set targets for improvement. We found better, cheaper vendors for carpet, reduced our
labor costs, renegotiated contracts with our landscaping and maintenance vendors, found
better and cheaper insurance coverage, and (tuh-duh!) refinanced our two biggest notes
down to 5.25% interest. Get out of your comfort zone and be more professional.
6. Get Your Credit to Top Notch
As the market turns around, plan ahead now for the next 5 years. Get your credit up
to top notch and be ready for the great deals that are emerging. Also, be careful to not take
B.S. write-offs on your taxes if you want to buy any units, because everything is “full doc”
now.
Josh has created a new credit coaching program to help investors (and others)
improve their credit position. Visit www.UtahCreditCoach.com and check it out. It’s
cheap, it works and it takes all the guesswork out of it!
Many investors can refinance their 1-4 family homes under the Obama refinance
programs through Fannie Mae and Freddie Mac (cheap Govey-money!) regardless of how
many investment properties you have.
There are lots of other investor financing programs if you own more than four
financed properties but the rates and required down payment go up a bit. Call Josh for
details.
7. Always Collect the Rent On Time (A Fatal Flaw of Rookie Landlords)
Here’s how the pro’s do it: The big complexes serve 3-day notices around the 3rd
day of the month. They file an eviction by the 10th unless the tenant has presented him or
herself and has offered acceptable payment arrangements.
Are you still breathing?
As an attorney, I always advised my clients to serve their notices no later than the
6th. As an investor/landlord, I had to take my own advice! (And every time I want to wimp out, my daughter-in-law reminds me what I would advise a client. I can’t get away with anything!)
Ask yourself this question: How much money can you afford to lose? If you serve
your notices on the 6th and turn the ones that don’t pay over to your attorney by the 9th, it will take you to the end of the month to get the unit back if the eviction is uncontested.
Then you have to re-clean, repaint, probably renovate, then suffer the vacancy during your
marketing time. So, how much money can you afford to lose?
Serve your notices with a smile - you want them to pay and stay! But do it. You
have a business to run and a mortgage to pay.
Appropriate behavior, after a notice is served, is the tenant will call and beg for
mercy and will offer a partial tender and realistic payment plan to catch up. Inappropriate
behavior is no response at all, or a sad story with no solution, or some nasty response. Just
serve your notices nicely, watch for the response, then take action.
8. How to Pick Great Tenants
Always, always run a credit check. Always. Then learn how to read it!
The purpose of the credit check is to help you make RISK assessments and divine
the HABITS (long patterns of behavior) of the prospective tenants.
What are you looking for? Payers. You will see either payers or non-payers. You
are looking for open trade lines with payments being made on time each month.
We look beyond the score (although we do get pretty excited when we see a FICO
score above 700). We don’t pay a lot of attention to medical debts. And if there was a
disaster in the past we want to see evidence of changed behavior since the disaster. Do not rent to people who are a bankruptcy waiting to happen. That’s pretty obvious. But if you don’t run a credit check, how will you know?
Never, never rent to someone who is in the middle of a bankruptcy. The bankruptcy
must be discharged and in the past. If you rent to a prospective tenant who is in the middle
of a bankruptcy, you are just another creditor and you can’t even ask for the rent without an expensive motion to the Federal Bankruptcy Court for Relief from the Automatic Stay.
Have a policy of how much money the prospective tenants have to make in order to
qualify (usually some multiple of the rent like 2.5x or 3x) and verify their employment. If
you can’t verify it with a company listed in USWestDex then ask the prospective tenant to
provide you with a couple of month’s bank records or pay stubs. If they can’t provide
either, bye-bye.
If you want a successful business and happy neighbors, have a policy that you don’t
rent to sex offenders or criminals, and check both.
Make sure that the person listed as their landlord actually owns the property. Often
applicants will put down numbers of their friends or their mother, because their landlord
would give a bad reference. You can call the county recorder’s office to determine who
actually owns the property at the location the tenant says is their residence. Call the owner, unless it’s a professional management company.
If you are tempted to take a co-signer, you will probably get disabused of the idea
after a few failures. To collect you will have to sue the co-signer. How much money can
you afford to pay to an attorney to sue the co-signer? How much time do you have to chase
after losses? How do you know if you can collect if you win? As an investor, it’s a bad
business plan to accept an unqualified tenant in the hopes of squeezing the rent out of a
co-signer some day.
We finally got tired of trashing the stellar credit reports of little old ladies that
signed for their kids or grandkids, so we don’t take co-signers any more. But sometimes
we do take first month’s rent, last month’s rent and a deposit equal to one month’s rent. If
the co-signer wants to put up his or her money instead of, or in addition to, their signature,
we will consider it and we’ve been pretty darn successful when something tangible (cash) is
at stake.
This is a risk assessment. Basically, you are reducing your risk of the prospective
tenancy by asking the unqualified prospective tenant to take some of the risk his or herself
by putting up an extra sum of money to secure their faithful performance of the rental
agreement. (Obviously, no amount of money will reduce the risk when the applicant is a
sex offender or felon.)
Whatever your policy, think it through and stick to it. Don’t let prospective tenants
push you in a moment of weakness to take on a tenancy that you know has a high risk of
failure.
Here’s another tip that is worth the price of admission: If a prospective tenant starts a conversation with “let me tell you my story,” end the conversation as quick as possible. They are looking for a sucker not a landlord. They want you to accept their “story” in lieu of qualifications or rent. My spidey sense is activated instantly when I hear those words.
9. RUN A TIGHT SHIP
Keep good records: Quickbooks, rent rolls updated monthly, tenant files, upcoming
vacancies list, waiting list, parking assignments, expense receipts, vendors list, loan
documents, HUDs. We use a different Amex card for each business entity to streamline our
bookkeeping.
Sit down and confront your P&Ls every month. We make a dinner date out of it.
Get your units into business entities and run them as a business.
Confront problems quickly, don’t let them build up.
10. Don’t Flip & Don’t Sell Too Soon
You can’t build an estate by flipping. Flippers buy bright shiny objects, depreciat-
ing assets and doo-dads. Holding property is a “forced savings.” You need to learn to love
putting off your payday into the future! Think happy retirement.
Also, have a long term holding plan and don’t sell too soon. We learned this the
hard way in our family. My Dad built the Aspen Village Apartments in West Valley City
in the 1970s. Circa 1987 Dad and Mom had to foreclose and take the apartments back.
When we got them back they had over 50 vacancies and 15 years of deferred maintenance.
As a family, we worked hard for over five years to get the property back in shape. But Dad
had some health problems, and we were all exhausted, so we decided to sell the property
just at the wrong time. The buyer held the property for about a year and made over $1
million dollars. [Insert sad face here.]
11. Bonus Tip
We think it’s a good time to make offers asking owners to carry. Financing is tight,
so get creative! Fannie Mae also has their HomePath program that will finance up to 90%
of the purchase, even if you have more than 10 properties. If you have large units, refi-
nance now to reduce expenses and prepare to make bank the next five years. This is a
tough process but we know a great commercial real estate lender!
*WIKIPEDIA Definition: The verb "pimping" came up in the early 17th century. In the
first years of the 21st century, a new meaning of the word has emerged in the form of a
transitive verb pimp, which means "to decorate" or (compare primp, "to gussy up" espe-
cially in Scottish usage). This new definition was made popular by Pimp My Ride, an MTV
television show. Although this new definition paid homage to hip-hop culture and its con-
nection to street culture, it has now entered common, even mainstream commercial, use.
Josh Mettle is a top producing mortgage lender specializing in financing Physicians, Dentists and Medical Professionals in Salt Lake City, Utah. Check out his site http://www.utahphysicianhomeloans.com/ for medical professionals. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. If you're ready to buy or sell residential real estate, get Josh's latest free tips, tools and newsletter at http://www.joshmettle.com. Utah Real Estate Professionals can keep informed by visiting Josh's Mortgage and Real Estate Blog at http://www.joshmettle.com/blog/ Cynthia Hale is a retired real estate attorney. Cynthia and Josh are mother son business partners. Cynthia's website is http://utahlandlady.com/
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