In this episode, Paul Lizell talks about rental properties, starting on single-family rentals and the advantages and disadvantages of each. We then get into virtual property management and how to use a virtual assistant to manage your properties so you can keep everything in-house and manage it yourself with little effort. We also talk a little about Airbnb and the advantages that you have using that model. Lastly, we get into multi-family units and the positives and negatives of that asset class. Discover why rental properties are the best way to build long term wealth and a very important component if you want to build a real estate investing empire.
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Rental Properties – Single Family, Multi Family, Airbnb
In this episode, I have broken it down into three different categories here. We will be talking about single-family rentals, virtual property management for single-family rentals, and the last part of it is Airbnb. In which I show you an example of a property picked up that I’m going to be doing Airbnb with. There are several different ways with a rental that you could do. Airbnb, everybody’s familiar with those mostly vacation rental spots but not always. Sometimes in a town, some businesses are closed, or it’s in a resort area or in a vacation area. They’re nice and easy to rent. Even in the main city, you can rent Airbnb.
We’ll also do a little short talk about single-family rentals, which are vital for everybody. It’s good for long-term wealth. I do have multi-units as well. Single-family is going to have the greatest increase in appreciation. It won’t have necessarily the exact same cashflow but over time you’re getting a nice combination of cashflow, appreciation and lower maintenance, too. Multifamily properties turnover more often than single-family properties do. If you have any questions, please reach out on TheVirtualInvestor.co.
Purchasing Single-Family Rentals
I want to go over an important subject. It’s how to purchase single-family rentals because we’re in a great market for it. One, we’re still seeing appreciation, which is pretty important. That’s the second thing. Third, it’s the best way to build long-term wealth and be able to pass money down from generation to generation. They can be ahead of good times. If you manage them properly, you can keep your headaches to a minimum. I want to go over some of the criteria that you need to do when you’re looking at these. They must be able to cashflow on a 30-year mortgage. You want to bring in at least $200 net per month if you’re doing it. That’s huge. I know some people have a philosophy that they don’t even need to bring anything in.
I personally do. I want to have at least $200 of cashflow coming in per month after paying mortgage, taxes, insurance and HOA dues if there are any of those. If you would do it on a fifteen-year mortgage and cashflow it, that’s even better. In fifteen years, I would consider doing it with almost break even. One of the other important things on it is you would look for a property that has lower property taxes. You don’t want to be paying big real estate taxes because that crushes your cashflow. The same with HOA dues, you don’t want to have one of those HOA’s in Florida where the dues are $455 a month. It’s going to be impossible to cashflow a property like that. That’s something that you have to do as a vacation rental or you’re just using it as your own secondary residence.
Third and most importantly what you’re looking at, it needs to be in a good market. A market that’s growing, one that’s got good job growth, good potential. Not the one where jobs are fleeing and companies are leaving the area like New York. You’ve got companies fleeing and in Texas, you’ve got companies going there. Those are some of the markets you want to look at what states are making companies move because of crushing taxes and which states are gaining the benefit. I’m here in Pennsylvania. We are gaining the benefit of a lot of companies moving in here. Even Scranton, which was an old coal town back in the day, has some pretty good job growth there. There’s a lot going on in Poconos. There’s a lot of North Jersey, New Jersey and New York people coming in.
I will give you an example of a sample deal, the one I purchased. It was $43,000 to purchase this property. I’m going to put about $17,000 in rehab, so I’ll be all-in at $60,000. It will bring in $1,000 per month minus the taxes of $227 and homeowners of $28. The mortgage is based on $60,000 at 7% payable over 30 years. That would give me a monthly cashflow of $345, which was solid. If you want to pay this off early, take that $345, put it back in and pay the mortgage down quicker, that’s a great way to build. You’re basically saving that way if you don’t need the cashflow. I’m going to probably put this in to use in other aspects of my business or into cryptocurrency.
The resources for you to use in your research, Rentometer is a great one. You plug in the address and it will give you the average rents for that particular property in that area. You’ll see a bunch of comparables. Zillow.com also is a very good resource for this. You’ll see it. It’s just not anywhere near as up to date as Rentometer is. Realtor comps are always the best way to do it. Looking at those gives you great resources as far as what the market is like if it is a good neighborhood, a bad neighborhood, what the demographics look like there, which is pretty important. Use Craigslist for looking at comparable rentals. It’s the best resource out there looking at rentals because there are so many of them by list or rental on Craigslist. You have what’s on the market. Sometimes if you’re looking at it over a week or two, you can see how quickly things do move. Good luck with it and if you have any questions, feel free to contact me.
Virtual Property Management
We’re going to talk a little bit about virtual property management. Managing your property virtually is actually easier than you think. I thought this wouldn’t be a tough task but I’m able to virtually manage my properties with my VA that costs $5 an hour. That’s $10,000 annual expense to manage your rentals. I believe I have ten rentals. For ten rentals times 10%, you’re paying over $10,000 a year for somebody to manage your rentals. It’s going to be worthwhile for you to keep it in-house as much as possible. Control the cost, have your VA send contractors out so you’re not getting a markup on all these costs. I’m hoping to put a lot of property managers at a business down the road and allow you to be in control of the property manager. These guys, some of them do fantastic jobs, some of them don’t. Some of them are in the middle.
My experience has been in the middle for the most part. I’m looking to manage these myself with the help of my VA. You can give details of how you want the VA to handle the management of the property. I’m giving them details on the rent, when the rent is due so they know they can have it on their task whether it’s due the first of the month or fifth of the month or the fifteenth of the month. He or she can go into the spreadsheet and see, “This was not paid yet. The rent was not received yet.” You can use a website like Cozy, which I use for several of my rentals. It says collecting rent.
I have my tenants paying me through Venmo. It’s another great app and another way to do it. You can’t do it as an automatic setup but if somebody wants to pay with a debit card, they don’t have any charges on that. They only charge on Venmo with a credit card. The debit card is set up like a bank account and it’s the same type of deals and there’s no cost for them to pay that way and no cost for you to receive it that way as well. You just have the time that it comes from their account to Venmo to you, which is usually two days. It’s quick and simple and Cozy works great too. Cozy.co works well. Don’t be afraid to use that one.
There’s another one out there like Cozy that does the same type of thing. They’re all pretty good. Whatever your preference is, whatever you are using, stick with it and take advantage of it. We do have the information on properties that we have for sale and sold properties as well. We have our REO Auction Academy which is our educational platform. We do teach students how to do what we do. It depends on what level you want to be. There’s a $7,000 entry point up to $33,000 for everything. It depends on what your taste is and how much you want to do yourself and how much handholding you need.
Whether you do this and whether you’re doing it as a virtual wholesaler or whether you’re doing it as collecting properties to buy and hold and keep as rentals, we could teach you how to do both. All the different disposition models, we can teach you how to do. We can also teach you how to get into a direct mailing if you want to do that. We don’t do that right now, we’ve turned that off, but it’s something that we’ve done in the past and know how to do. We are cognizant that some people want to do both. Some people want to do bank-owned property, purchase off MLS, and some people also want to go to do direct mail, direct to the homeowner. There are additional costs to that. The marketing costs will increase your cost per acquisition a little bit more, but they are generally more profitable when you’re going to direct to homeowners as well.Single-family rentals are the best way to build long-term wealth and be able to pass money down from generation to generation. Click To Tweet
We occasionally get these mostly through referrals. Once people know us in our network and what we do, sometimes they send us deals which is tremendous. With these, we’re going to sign in the truest sense of an assignment of contract where we can’t do that on bank-owned properties. To get back into the property management, you’re looking to add properties to a portfolio. That’s something that’s very easy compared to me, who my first dispossession method is to wholesale. I’m not willing to pay as much as somebody is who’s doing a buy and hold. I may only be willing to go up to $60,000 on a property knowing it will sell for $70,000 to $75,000 on a wholesale. Somebody who’s going to buy it and hold it might be willing to do $70,000 to $75,000 right from the jump knowing they can cashflow the property after we have to repair.
You can use our model to amass a ton of rentals. It’s also something you can use to do owner financing with as well as fix and flip and virtually wholesale. Getting back to property management, it is not as big of deal as people make it out to be. It’s fairly easy to do and control the task. You can have your tenants be able to contact your VA. I have to set up my VA with her own phone so she can get texts, emails and phone calls. That costs us around $45 per month to have that because she is in the Philippines so it’s not going to be a local number, but you can set it up as a local number for her if you’re looking to do it that way. She can text, email and make phone calls virtually and manage your property so she can contact. If you need an exterminator out there, if you need somebody out there a handyman to fix something, if a railing broke or whatever, it’s something that she can do and handle.
For me, it’s a simple set up. If the cost of repair is under a couple of hundred dollars, she needs to notify me and let me know that something happened and then I’ll give her the full-fledge, “You go ahead and do that. Give the contractor my billing information so I can go ahead and make that payment.” It’s usually by credit card for the most part or it’s occasion mailing out a check to the handyman who doesn’t take credit cards or doesn’t accept Venmo. I pay a lot of contractors through it. It’s handy in a lot of different ways, not just to collect rents but also to pay people, pay contractors, pay somebody to service your lawn. You can do everything virtually and that’s what I want this show to teach you. You can literally do everything virtually. You don’t have to go to the property. Get out of that old school mentality that you have to be there. Your most precious commodity is time. Time is something you can’t get back. You can make up money but you cannot make up in time.
Don’t you want to save your car and reduce how many miles you drive each year to and reduce your insurance potentially so you’re not going to drive in every single day? For me, my insurance is lower because I don’t go out of the house that often. I do go out to the properties and manage them occasionally on fix and flips. Occasionally I even look at a local property, but I am not going out and driving every single day like a lot of investors do out there. I want you to start to get into that mentality that you don’t have to do that. This is something that is a struggle with a lot of people and occasionally our students. Get into the mentality that you can do everything virtually. It’s fun and easy.
Go on down into your home office in your underwear or whatever you’re wearing. In your pajamas, check your emails, bid on properties, follow up on the title company when the property is closing, whether you’re buying or selling. Following up with a tenant that you’re screening, whatever it is that you’re doing, you could do it virtually from your home. Why pay for an office? I used to have an office but there’s no need to have an office. I have two areas in my home. I have the master bedroom that I use where I’m doing the show but I also use that as a secondary office because the kids are here during the summer and they make too much noise in the office. There are too many distractions. I’m up here a lot as compared to downstairs, my office which I am in normally during the school year when the kids are not there. When they get back home at 2:30 or 3:30, I shift upstairs and move to my office.
You can even find someplace in your house to be able to do this, manage it, enjoy it and live the virtual investing lifestyle. Invest in everything virtually using the technology out there to make you profits. It’s great when you sometimes walk out to the mailbox and money comes in. That used to be called mailbox money. It’s not going to be called mailbox money so much anymore because people are paying it virtually through Venmo. They’re paying it virtually through Cozy.co or whatever other company that they’re using and to do it. It’s an automatic ACH into your account from their account.A good market is a market that's growing and one that's got good job growth and good potential. Click To Tweet
This is the future. Grasp it. Don’t fall behind. Save yourself some costs with property managers. Put that money back into your pocket. If you just want to have a VA that works ten hours a week for you, you could definitely do that managing it this way. They prefer to work twenty hours. I have mine work full-time at 40 hours and it’s easy. Now, I can give her more. That’s something you can always hang your hat on. You’re going to always be able to have more VA’s if you need to if you give them too much. I can give mine more. There’s probably not enough work for her to do. If you have any questions on virtual rentals, virtual property, managing, reach out.
I want to show you a property that I’m purchasing that is perfect for an Airbnb. It was a bank-owned property, in decent shape and for the first time ever, one that comes with furniture. I haven’t had this happen before. I have been buying bank-owned property for how many years, but to have decent stuff in it, it’s not bad. It’s got a grill, a barbecue and a picnic table. That’s in good shape. I’m going to repaint the place and put some laminate flooring in. I don’t have to change the couches but it’s got some end tables that I could re-utilize. The fireplace and the curtains go with everything. It’s a nice little property. If I can salvage that couch, I will. We even have bunk beds, matching bedspreads, pictures on the walls and drapes. The windows are in good shape. This was built in 1990. I might be able to get away with some of the carpets but I may just go to all laminate flooring throughout, get another bed and table and a couple of beds. The television is a little old so I’ll replace and update that.
The bathrooms are okay. I’ll update the faucet and maybe add a new vanity. This is an HOA gated community. This property comes with a lot of stuff. It comes with the tennis court, the pools and the lake. It’s got a lot of favorable things. It’s on a nice flat level lot. There’s a great comp on this one. It had sold for $120,000, the exact same property, shape and size. It’s slightly more updated. I’m picking up this property for $66,150. Generally, you’re looking like you’re going to spend anywhere from probably $4,000 to $8,000 to furnish an Airbnb. This one I’m hoping to get away with maybe another $1,000, maybe $2,000 tops. I’m going to paint it and make that look a little nicer. I’ll probably drop $10,000 when all is said and done between flooring the carpet. It may be slightly more $10,000 or $12,000 in that range.
I wanted to do a lot with the different things that are needed. I want to run it by you quick. You never know where you’re going to find out there. More often than not, you’ve got to buy it from the homeowner this way, furnished. This in a gated community, so I found a superhost who also has properties in the same community and I’m going to have her manage this for me so it will be completely hands-off. I’ll have her manage everything. From what I understand, the average that you’ll pay your superhost is between 15% and 25% of the rents. That’s not bad at all. I don’t have to manage and do anything there. Just collect it. She can market it and she can do all. That’ll be a huge saving for me and hopefully I can find more properties up for her in this area to continue to be a host on and make even more on it.
This type of property, I can rent this somewhere between $1,250 or $1,350 per month rent. The taxes aren’t too bad. I can turn it to $2,500 or $2,400. It’s about $200 a month for the taxes, the HOA. It’s probably another $125 into the HOA and then insurance is another $30. Your expenses aren’t too awful. You can cashflow this as a rental. I’ll be into it for maybe $90,000 tops and the value will be $120,000. There’s some equity there too. That’s if I do everything with it. Otherwise, I might just drop $5,000 to $8,000 into it and have a little bit more equity in the property and keep it as a regular old rental. I hope this helps for people who are looking to do Airbnb’s.
Multifamily Rental – Positives And Negatives
I want to touch on multifamily rental positives and negatives. Here’s one of the positives. I got a check in the mailbox. It’s one of the very few checks that get mailed to me. It’s a property I purchased. It’s a duplex that’s about ten minutes from my house. It’s one of the reasons I purchased it. The other reason is it was a good number and it’s in a market where the rentals are pretty high. I have two one-bedroom units. This one is rented for $625, well below the market but needs a little fix-up work. The other one is vacant. I’m going to be renovating that one. I’m putting a new kitchen, bathroom in it, new appliances, granite, central air and all new windows.
This would be a pretty nice, and I’d do new flooring as well. I should be able to get about twelve to fifteen-month for a one-bedroom there. It’s a great place. You can walk around the town. There’s a good location near the train station. You can get into the city easily. There’s nice access in and out of anywhere. It has low taxes in a desirable area. It’s probably a long-term buy and hold for me but I may renovate that one. After this tenant leases up, I’m going to have her move out. I’m going to renovate that unit and either rerent it and then potentially flip the property if the numbers warrant it. If not, I’ll just keep it and hold it. As long as it can cashflow and as long as I can pull my cash out of that property, I would lean towards keeping it.
I did sell a multi-unit building and this was an interesting one. This one was zoned commercial and I wanted to get it a little bit of that. With commercials zoning, the allowances are greater. You may even have the ability to do what’s called a rooming house, a boarding house, they call in some areas where you’re renting rooms by the week. My uncle has a few of these in that town. He charges $50 to $75 a week, $100 a week, depending on the size of the unit. It has a common area bathroom, a common area kitchen. You’ll have to do some maintenance in those common areas and provide some things. The positive is there are no evictions. He just locks them out. This falls more under a hotel, a short-term rental type where you don’t have to worry about evicting people.
That one did have high taxes though. Being at the property was commercial, that’s one of the drawbacks because commercially zoned properties are taxed at a far higher rate than residentially zoned properties are. The drawback to holding this particular property, which had three units of which two were legally zoned. There was a three-bedroom unit upstairs and then a realtor who used to own the property had his office there where he sold insurance and real estate out of that office. That one could have been converted into a five-unit building potentially up to six but the layout was to be done for five. The problem is I would have had to pay a new EDU of $7,500 preferred.
Basically, it’s like a load management fee. They charge you for additional use of water, sewer and trash. There would’ve been additional costs, $7,000 and change per year in annual taxes compared to the duplex I bought which is about $2,800 in taxes per year. Your costs are far lower for that one which is one of the reasons I sold the higher tax property. I put some of the gains right into it. I netted $15,000 or $18,000 on that flip. I put that into this property and this one should be more manageable, much easier, lower maintenance, lower cost. I like multi-unit buildings from a perspective that they obviously generate more cashflow out in them. The drawback is the maintenance.
You’re generally in charge of mowing, snow removal and those kinds of items that can get costly. Whereas opposed to single-family rentals, you put that on the tenant. They maintain the yard. They maintain their sidewalks just like any homeowner would. You do have some benefits for the single-family over the multis that way. The multis cashflow better and appreciate pretty well over time as well. Not quite as the single-family but they do appreciate well. That’s the long and short of multifamilies. Be careful with the zoning. Be careful where they’re located. You want to be in a decent market. You don’t want to be in a bad area where you’re going to have high turnover. I would not recommend buying in a war zone. Some people do.
If you live there and you can maintain it and deal with that, that’s great. Otherwise, you have high crime, you’re going to have high turnover. If you have a low-crime, nice, safe place to live, you’re going to have tenants to stay there for a long period of time. I had a multi-unit about fifteen or twenty minutes from my house with a tenant in there who had been there for eighteen years. The rent stayed low, it was below market value but the guy was never going to move and it was low maintenance. Those can be for very worthwhile tenants to have when you have a nice long history like that. Be careful with the zoning. Be careful of where you’re buying it. Multi-unit properties can generate quite a bit of income. They’re going to have a better cashflow than you’re going to get out of a single-family. You’ll still have solid appreciation out of them. You’re going to have lower common maintenance costs. You have one roof over two, three, four, five units, however many you have. Whereas with single-families, you have one roof over one family. Your cost per unit is going to be far lower on the repair side. I hope you enjoyed this episode. I’m glad we’re able to hit on multiple different topics. Thanks again.