Slumlordin' with Metaliturtle

[Metaliturtle]

Well fellas, I'm doing some landlordin' and have a fun story.

Text from tenant: "hey man, gonna need to break the lease, she moved out so I'm gonna move back to Texas."

"Ok, you need to give 60 days notice or pay that month's rent"

"No worries man, you guys have been great, not a problem"

"Want me to come over and walk through with you so you can at least get your deposit back?"

"Ain't too worried about the security deposit, you're gonna need it"

I come in to a unit with holes in drywall, dog feces on carpet that was new when they moved in, nothing cleaned. I text back:

"Did you already leave?"

"Yeah man, I just got on the app and paid the next 2 months rent, you're not gonna come after me are you?"

"No, I think we're square"

Best tenant I ever had, gonna miss that guy.

[Buster's Uncle]

Did he really pay? 

How much of that story was real or sarcasm or what?  Like, it was worth the extra months rent?

[Unorthodox]

Strangely similar story of how I ended up where I am. 

12 year old Uno was a hustler.  I'd had a job on the farm for a few years and was looking for more money.  (I was building an escape fund for reasons that should be becoming apparent, plus I didn't want to be home)

Anyway, I bought a bunch of used lawn mowers, made a few work, and rounded up some other kids to mow lawns for me.  This was apparently illegal without a license and I got shut down, but not before securing a particular loyal customer that was a landlord that I took care of personally, no employees. 

Well, he moved to Oregon that year, and just had me take care of the yard.  His tenants moved out, and he put the house up for sale the following year.

Another year later he wrote me a letter (god I'm old) and asked what I thought about why the house wasn't selling.  Inside was a key. 

So I go in, take pics, and send him the destruction of his former tenants.  Walls and carpets destroyed, etc.  He calls me a week later and we agree on a price for me to fix it up.  Arrange for carpet, arrange or paint myself, some yard improvements, a planting budget.  I sent progress pics as it went, and made a decent penny to me at the time, probably criminally underpaid in reality.

Well, the person who bought the house was rather surprised a 14 year old had fixed it up.  Would hire me for this and that.  I'd go help with her special needs kid up til I moved out at 18. 

Fast forward 8-9 years she gives me a call.  She's a supervisor at Boeing and wonders if I want a job.  That's how I got into my career. 

[Metaliturtle]

my story was true but we did point out some of the scarier points of the lease to him in an email too.

[Buster's Uncle]

Like, it was worth the extra months rent true?

[Metaliturtle]

He paid the extra month, and gets a glowing review when I get called for a reference.

[Buster's Uncle]

Checks out.

[Ordnael]

Strangely similar story of how I ended up where I am. 

12 year old Uno was a hustler.  I'd had a job on the farm for a few years and was looking for more money.  (I was building an escape fund for reasons that should be becoming apparent, plus I didn't want to be home)

Anyway, I bought a bunch of used lawn mowers, made a few work, and rounded up some other kids to mow lawns for me.  This was apparently illegal without a license and I got shut down, but not before securing a particular loyal customer that was a landlord that I took care of personally, no employees. 

Well, he moved to Oregon that year, and just had me take care of the yard.  His tenants moved out, and he put the house up for sale the following year.

Another year later he wrote me a letter (god I'm old) and asked what I thought about why the house wasn't selling.  Inside was a key. 

So I go in, take pics, and send him the destruction of his former tenants.  Walls and carpets destroyed, etc.  He calls me a week later and we agree on a price for me to fix it up.  Arrange for carpet, arrange or paint myself, some yard improvements, a planting budget.  I sent progress pics as it went, and made a decent penny to me at the time, probably criminally underpaid in reality.

Well, the person who bought the house was rather surprised a 14 year old had fixed it up.  Would hire me for this and that.  I'd go help with her special needs kid up til I moved out at 18. 

Fast forward 8-9 years she gives me a call.  She's a supervisor at Boeing and wonders if I want a job.  That's how I got into my career.

Quite a life story I just enjoyed reading. thanks.

[Buster's Uncle]

It IS rocket science in Uno's case...

[Metaliturtle]

Breakdown of my next deal, closing on 9/12.  Just getting my thoughts out here and why I like rental properties. 

Property is a 2 building complex, 2 blocks from the local university, historically rented to College students, property is leased by the bedroom and by the semester.  20 beds in total.
Current Annual Rents $71,200. 
Tenants pay landlord for utilities (each building gets a bill and the landlord divides by 10).
15 parking spots generate $3000.
Coin-Op laundry in basements generate $2000
Rent comes in 5x per year to align with financial aid structure of the university, but is in line with $296/bed/mo.

First thing I am calculating with this is monthly income as rented:
Rent  .........$...5,920
Parking  ......$.....250
Laundry  .....$.....160

Total Monthly Income $6330

General rule locally is sale price should be less than 110x monthly rent. $696,300 is the theoretical max I would pay for this property.

Asking Price $649,900 - high investor interest locally but being ineligible for traditional mortgage financing limits the pool of investors.
Offer $654,900 - 24 hour deadline (generally I offer slightly above asking and let realtor know that it's the only offer I'll submit, dickering doesn't help these deals)

Commercial Loan $523,920 at 7.25% for 25 years.  $3786.93/mo
Property Taxes $12,500/year we put this at $1050/mo
Insurance $3000/yr or $250/mo

Baseline Expenses $5086.93

Reserve for contingencies $400
Total Expense rounded up $5,500

Projected profit rounded down $800

So now I know that the building can support itself, with a little extra cushion, which is good because we had to come up with 20% down, and we're not using our own money for that.

Down Payment and closing costs $147,000

These funds will come from:
$16,000 business cash reserve
$131,000 loan against equity on other properties as an equity line of credit at 8% interest-only payments $875/mo

Factored back it shows us $75 less than break even.  (oh no!!!) With the rounding taken out we're more or less at break even.

The upsides to the deal:

We're only locked into this lease structure until May of 2026, at which point we will re-price in line with our other units that rent for $400/bed/month and we have a waitlist of tenants.  Locally places this close to campus rent for $500/bed/mo.  We can also adjust parking cost to $20/mo for our 15 spaces that's $300/mo

New rent income: $8000/mo
Parking income: $300/mo
Laundry income: $160/mo

New total income: $8,460
Total Expense rounded up: $5,500
Down payment loan $875

New projected profit: $2,085/mo
Plan is to apply an additional $1000 to the principal of the down payment loan.
Remaining monthly income: $1085/mo.

We will split this income 33/33/34 with the 34 staying in the business to build up the business cash reserves.  Each getting about $360/mo.  We will probably take this at year end after paying taxes and insurance.

The business has a total investment of $16,000 cash, and long-term annual income of $25,020.  Annual Cash on Cash return of 156%.

At different points of reserve amounts we will stop setting aside the $400/mo for contingencies (basically we have cash on hand to cover any foreseeable catastrophic expense).  Those funds will be applied to the Down Payment loan as well.  When that's paid off, it will be added to the distributions.

[Buster's Uncle]

What the work/worry overhead?

[Metaliturtle]

What the work/worry overhead?

Great question, when I talk to people and tell them I have rentals they usually say something like "I couldn't do that, I don't want to spend my spare time fixing toilets."  They imagine constant late-night calls to fix geysers of poo-colored mess.  I agree, I don't want to spend my spare time fixing toilets either.  So I don't.  We hire a plumber for that stuff.

To get more at the core of this though, how much work do I actually do for our current properties?  Day-to-day not much, I look at the business email account daily, I do the books mid-month (usually takes about 20 minutes to update quickbooks and pay bills).  We have a mandatory quarterly meeting with a fixed agenda (my business partner and I get dinner and talk.)  When something new comes up we talk/text and if we think it's something we'll have to do again we work up a procedure saved into a google drive and we keep printed versions in our vehicles.

Some examples of things that take time that we've improved with systems:

1.  Rent Collection.  We use a software system called Avail, it costs us $7/mo per door to have our tenants be able to pay with account/routing number, debit card, credit card, paypal.  Tenants can pay by mailing a check but we charge $25 for check processing to encourage them to pay online.  All of our tenants currently pay online.

2.  Creating Leases/documentation.  The same software lets us save our lease and comes with state-specific templates to build the lease off of.  We also have a printable lease we can upload into the software.

3.  Rules for after-hours calls.  We always respond to water, fire, and police activity issues right away, since 2022, we've been called 4 times for water-related emergencies, and 2 times with police, I have an annual walk-through with the fire Marshall in each building, with travel included that's about an hour.  One water emergency was major and we spent 2 weeks of 6pm-midnight after work and 2 weekends to get it fixed. (110 hours each).

4.  Turns/flips:  We have our leases end on May 25th, and new ones begin on June 1st.  Generally we are painting, updating appliances (goal is to have at least one of: New paint, New appliance, new flooring, new cabinetry with each flip.  We keep a spreadsheet showing likely improvements and age of existing stuff for each unit.  We take the week after Memorial day off for flips.  If a unit is just trashed we have a cleaner and 2 handymen as well as a few friends that we'll pay to give us assistance.  We could hire all of it out but we've bootstrapped the business and it only costs time.  This is 72 hours for each of us at a max, our wives take the kids on vacation for that week though, so it's the most intense time but it's also the only thing we have to worry about.

5.  Maintenance/non-emergency fixes:  We determine if it's the tenant's responsibility or ours, so if we're going to change a lightbulb, generally we're charging the tenant $50 for the trip.  We inspect every unit in the fall to get ready for winter and the spring to get ready for summer, inspections take about 15 minutes per building, we change furnace filters, do water heater maintenance, and anything else needed.

We also have systems in place for if we need to do an eviction, if we need to deal with a small claims dispute for security deposit funds, as well as rules and systems for dealing with Emotional Support Animals if a tenant needs one (This is different from licensed service animals which are always allowed).

Totaled up I would say between my partner and I it's probably 100-120 hours per year, with 80 working 'in' the business and 20-40 working 'on' the business.  As we improve in efficiency and grow in size we'll probably hire out for more of the working 'in' the business stuff.  It's not much compared to the 2500 hours expected of me for my 9-5 (haha 7-6 usually).

So with our draw of 360/mo at an avg of 10 hours/mo work. It's like making $36/hr.  When you add in Principal Paydown on loans, retained earnings, etc. we estimate every hour we put into the business is worth about $400.00.

Our current streak of no calls/issues is at 5 months, and the frequent inspections mean we can catch issues before they become a crisis.

The other thing we talk about as far as time/worry overhead is building up our cushion in the bank, we mostly don't pay ourselves, deciding to have a larger stack of money instead.  Although money can't buy love, it does basically solve any rental problem we could have.  The tax code still favors businesses that create food and housing because it's cheaper for the government to let private entities do that, so a large expense for the business reduces our tax liability and incentivizes us to update and improve our properties.

Certainly this isn't for everyone, I enjoy the work, I have a partner who enjoys the work, and we have fun working together.  I probably wouldn't do this by myself beyond maybe owner-occupy a duplex when the kids grow up.  I'm hoping we can get to a size that justifies us leaving our normal jobs (if the loans were paid off we could do that today) and in a perfect world it would generate enough that we could hire a property manager to take on the physical aspects while still also not having to work our normal jobs. 

[Buster's Uncle]

People not carefully valuing time and aggravation is why you see so many stories about unhappy millionaires.

And I hope you've got a wise plan worked up for retirement - I can imagine you unhappy with no worlds left to conquer, or getting up to no good w/ too much time on your hands...

[Metaliturtle]

People not carefully valuing time and aggravation is why you see so many stories about unhappy millionaires.

And I hope you've got a wise plan worked up for retirement - I can imagine you unhappy with no worlds left to conquer, or getting up to no good w/ too much time on your hands...

Hoping to be the dad who goes on all the field trips with his kids, I've got a mile of woodworking projects I want to make, and I want to do more volunteer work with my local Elks lodge.

[Rusty Edge]

It's interesting reading. Not really into doing anything like that myself, but please keep us posted.