Investing In Rental Real Estate - The Educated Landlord

Why Discounting Your Rents Is For Amateurs

February 11, 2014 By Landlord Education

And Why Professional Landlords Get Premiums!

First month free. Free TV with purchase. Don’t Pay until…..

You see these types of discounts in ads everywhere these days. You also see these types of businesses that promote like this come and go and there’s a reason. They trade in commodities.

Commodities are items that have little value and are typically traded or bought for the lowest cost. Trading in commodities is not good business for the simple reason that you are tied into the lowest price. The lowest price doesn’t give you margin for error or more importantly for profits.

As a landlord, if you start offering discounts on rents to attract tenants, you’re turning your property into a commodity rather than a valuable asset. Yes, you have to be competitive, you can’t price yourself out of the market, but as a long term strategy, you want to be a leader rather than following the pack off the cliff.

Discounts are the easy way out and once you start offering them, they become expected. If you’re a retail store, maybe that’s to be expected, but to really succeed you don’t want to be the next Walmart or Target, set your sights higher and become a premium brand.

If you’re following some of my systems and tips, you know it’s important to be a professional and to treat your landlording like a business. If you become an educated landlord, one of the areas you need to look at is the condition of your properties and how they appear to prospective tenants.

We learned a long long time ago that if you spend a little extra initially to get the property better than your competitors it pays you back in increased rent, longer staying tenants and tenants that take better care of your properties. And here’s why..

The Argument For Increased Rent

If you do any tours of competing properties, even if this just involves reviewing other ads and photos of properties in your area, they all tend to be the same. Picture of the kitchen, picture of a bedroom, picture of a living room and some bad writing offering a price and maybe a few details.

Occasionally though, a few stand out. Usually they’re priced higher, the pictures look more professional, and the advertising copy looks polished. You want to be the landlord who is renting out that property for several reasons.

By looking more professional and by charging higher rent, you’re automatically going to push many of the less desirable tenants away. If they have a poor track record of paying rent, they understand a professional landlord will be screening them more thoroughly and they won’t even qualify. If the rent is higher, they understand they won’t be able to afford it and they will be cash strapped. And if the advertising copy comes off as professional it will also help to discourage them from even inquiring.

You move from quantity to quality and what you are looking for is quality tenants.

If you ever rented (I rented for years until my wife and I could afford our first house), you probably looked at a lot of properties before you found the right one. We personally couldn’t believe the condition of some of the properties that landlords thought were rentable. I still hear this from tenants when I question them how their search for a rental is going.

Once you did find the right one though, you had to have it. And it didn’t matter if it was an extra $100 a month, it stood out in your mind over the previous properties and it became even more valuable in your view point. This is the type of property you want and the mindset you want to instill in tenants that view your property.

Now, to get to this level, you may have to spend a few extra thousand dollars initially for extra renovations or updates, but this not only helps increase the overall value of your property, but that extra $75 per month, or perhaps $200 per month of extra income in a great property, sure helps increase your cash flow.

The Bonus’s of Better Properties

The extra cash flow isn’t the only bonus. If you have a better property, tenants tend to stay longer because it is such a great place to live. They actually become much more hesitant to leave as they don’t want to give up a great property.

This translates into less tenant turnover and longer periods between vacancies. Which simply means more money going into your bank account for longer periods of time and that helps ensure you continue to be a successful landlord.

These tenants that are also willing to pay extra to live in this great property, also tend to take better care of it. If they truly take pride in where they live, they want to make sure it looks great and they keep it that way. You’ll end up with fewer repairs after tenants vacate, less work for when the turnover eventually takes place and if there are any issues with the property like leaky taps, these types of tenants will let you know immediately, rather than finding out after repairs become more expensive.

Unfortunately I can’t guarantee every tenant will be a success using this strategy, but in combination with other strategies, it sets you up for success.

How To Avoid Discounting Your Rents

So let’s recap some of the strategies that can help make this work for you.

Buy rental properties in rental heavy neighborhoods. This gives you a much larger tenant base to choose from. You start with quantity and narrow it down to quality.

Renovate your properties to help them stand out from competitors. This makes your properties memorable and helps you receive premium rents.

Write better ads with better pictures. Stand out from the crowd and get people appreciating your property and it’s value rather than looking for a commodity.

Don’t discount your rents to attract tenants. Tenants that are attracted to discounted rental units will also leave quickly if they can get a better deal. Don’t be a commodity, create an environment where tenants want to come home to.

So, did you find this helpful? If you did, could you do me a favor and share this with at least two other landlords you know? The more landlords we have out there that are better educated and running true landlord businesses the better the environment for tenants, which makes a landlords job easier. It turns into a win win situation, so spread the word!

Analyzing Rental Properties – Rental Neighborhoods

January 13, 2014 By Landlord Education

Choosing The Right Neighborhood

Here we are on part three of analyzing rental properties, hopefully this is helpful for you if you’re planning on expanding your portfolio or just getting started in the landlord business and plan on purchasing your first property.

If you missed the first two articles, I’d suggest you backtrack and read them first, you can find them at these links, Analyzing Rental Properties Part 1, Analyzing Rental Properties Part 2.

So what is the right neighborhood? To be fair there is no specific right neighborhood and it can vary from state to state, province to province and city to city, but there are clues to what areas tend to work better.

Following the Clues

When purchasing a rental property there are a couple key considerations you need to think about. First and foremost is cash flow.

Cash flow requires two things, healthy rents and being fully rented as much as possible. If you generate $500 cash flow a month that’s great, but if you’re vacant four months every year you end up losing money. If you only generate $100 cash flow a month, but are vacant even one month a year you could also be going in reverse.

Ideally you want properties in high cash flow areas or properties that have the opportunity to provide multiple streams of income. This can be basement suites or multiple units.

Alternatively you can look at single family homes if the monthly payments are very low and rents are great, but this can be a challenge and leaves you open for extended vacancy periods with no income coming in.

The second area to consider is a good rental population. This is where so many potential investors fall down.

You can have the best rental property in the world waiting to be rented out, but if there are no tenants, it just sits there vacant with you feeding it. This is where the economics we talked about in the first article come into play.

In healthy areas where economies are growing workers tend to migrate to the area and they tend to be renters when they arrive. Often the healthiest areas in these places are districts with good access to industrial and warehouse areas.

The reason for this is they provide the largest supply of potential renters and renters like to be close to their work. Many people moving to new cities or towns who rent are typically blue collar workers or laborers and these are your prime candidates for many landlords.

They tend to stay tenants for longer periods of time and they are plentiful which gives you more applicants to choose from when you are vacant and leads to less vacancies.

The final considerations are transportation and amenities. You want good transportation services nearby so it is convenient and you want shopping also to be handy for items like groceries.

An example of this is our furnished rental properties that cater to working men. They all have multiple buses that stop within a couple blocks that will take them to the industrial areas or other main work areas (downtown core, secondary industrial areas).

They are also located close to main transportation corridors if they have their own vehicles that can get to the North, South East or West of the city quickly. And we have nearby grocery stores, pharmacies and even restaurants that are all within a short walking distance. These features create a benefit of saved time and convenience and tend to help us keep tenants for longer periods.

Good cash flow, a large pool of potential tenants to fill your property and proximity to transportation and amenities are all keys to successful rental properties. They aren’t the only keys, and these alone won’t guarantee success, but they will make the process easier.

So, if you haven’t purchased your first rental property yet, start including these in your parameters when searching. If you already have a rental property, how many of these three attributes do you already have in place?

Not having all three isn’t a guarantee of failure, there are always successful rule breakers out there, but the more you have the easier it can be.

Not having great cash flow can be compensated with you occasionally funding the property, perhaps the cash flow is compensated by great appreciation.

Not having a large supply of local tenants can be worked around by setting up relationships with relocation companies that provide rentals for large local companies.

Not having amenities can be compensated by…. hmmmm, well hold it that one may be more of a problem, but it can depend on the area and what people are used to, but you get the idea.

So, for those you with rental properties already, take a look around and see if you have these requirements and then let me know if you have them by accident or by plan by leaving me a comment below!

I look forward to hearing from you and I would also like to know from those planning on becoming landlords int he near future, did it help? Were these last three articles useful and applicable to you? your feedback will help ensure future articles and series can help everyone the most possible, so thanks for your input.

Analyzing Rental Properties – Neighborhoods

January 9, 2014 By Landlord Education

Location, Location, Location

Continuing on with my series on analyzing rental properties I started by talking about doing some homework before you jump in.

We started it by looking at the local economics of where you’re potentially looking to purchase an investment property. Economic factors can help ensure the chances of your rental property being a success are multiplied, so if you’re just starting with this post, you may want to go back to part 1 Analyzing Rental Properties – The Economics

In this post I’m going to talk about neighborhoods which help ensure a steady stream of tenants and even better odds of hitting a home run with your investment rental property.

As the old adage in Real Estate goes, the three most important parts of buying Real Estate are location, location and location, although when buying rental property, it’s not the same location as buying your personal residence.

So many would be landlords see a house down the street from where they live come up for sale and they get the idea that it would be ideal as a rental property for them. Nine times out of ten, it’s not. In fact it could be the worst decision you make as a landlord and has the ability to permanently scar you.

The Pain

I’ve been there. I purchased the house beside mine years ago to help out the little old lady who wanted to move away. We tried to help her sell the property, but the market was very flat at the time and she was on a deadline, so we did what we felt was right and bought it os she could move on.

We were already experienced landlords with a couple years under our belt, so we knew it would work. Except with a high mortgage and low rents we new we would have some cash flow challenges, but if we could make it last a year, then we could sell it, yeah that’s it!

So we went ahead with it. We repainted, we fixed up some minor issues and we had a great property, just no one to rent it. Now since fortune favors the brave (or the uneducated initially), we managed to find some people who drastically needed to sell their home due to foreclosure issues and needed help getting back on their feet.

We were able to set up a win win solution where we took over their current home’s equity and renovated it, put it on the market as it was in a much higher demand area and sell it quite quickly. At the same time we moved them into the property beside us, used a portion of the equity as a down payment for a rent to own scenario for them and it all looked great.

They were actually paying less per month, we were making a few dollars as rent to own properties have higher rents and we had a bundle of cash from the flip of the other property. Everyone was winning.

They seemed like nice people, we got along quite well and several times they even joined us out back on our deck for a beer or glass of wine during the summer. Then the wheels fell of.

One of the burdens they had to deal with in their lives was a severely mentally handicapped daughter . She was fifteen years old, but mentally only reached the capacity of a two year old. Needless to say, but helping her and managing her was a full time job for the mom. Plus they had another son, so their days were full.

It started when they asked if they could get a dog. Pets are great therapy for children and apparently even more so for people with disabilities, so how could we say no? So away they went and picked up a mid sized dog, for a very tiny back yard…

A little more background, our former neighbour kept an impeccable yard. The rumours in the neighborhood was that she snuck out late at night to pull dandelions as we never saw any in her yard and the back yard was beautiful with banks of flowers across the back and a lovely covered seating area to relax in.

Well, in no time it was a complete mess. The lawn was dead and torn up, they never cleaned up the dog crap and it went from bad to worse.

Very unfortunately the daughter’s health deteriorated even more and she passed away. We felt awful. They had done so much to make things work for their child, they had given up so many things to make a good life for her and she was taken away by failing health.

The positive we saw on this was with the extra financial burden gone, they would be able to turn their life around and while this left a huge hole in their lives, it would ultimately allow them to move forward. We were wrong.

People Just Think Differently

We were actively growing our Real Estate portfolio plus I was working a demanding full time job at the time, but we wanted to succeed so we made adjustments to our lives. We only had one well used vehicle to save money, we rarely ate out and we scrimped and saved. We thought that was how everyone should think when they are trying to live up to their ambitions and dreams.

You simply adapt to make things work and start to think differently.

Not the renters next door though, although they did think differently than us. What little money they had left they sunk into their daughter’s funeral, which is understandable, but it left them with nothing and when their daughter first became sick (this last bought was over a few months), we did what we thought was the right thing and didn’t pressure them for rent.

We knew they were incurring significant extra costs during that time, the husband wasn’t able to work as much as he was needed at home and we could cover it. So by the time they had the funeral they already owed us almost $6,000. I know rookie mistake, but a compassionate mistake, after all they were not just my tenants… but they were my neighbors too.

Then the husband’s vehicle broke down, so they leased a new expensive vehicle, still not sure where that money came from if they couldn’t pay me. Next we noticed the wife had new shiny manicured nails, a brand new cell phone and they even asked if they could get a second dog!! All expenses we refused to splurge on for ourselves as we were very money conscious. We said no obviously and suddenly we became the bad people for refusing them.

The best part? We had front row seats as it all took place next door.

Finally, we find out from them that the government funds they were receiving to help with their daughter’s disabilities were “suddenly” cut off now that she had passed. Their free supply of money that was obviously just being spent on them now suddenly dried up. Were they thinking it just ran on forever?

This just made the likelihood of us ever getting the outstanding rent back extremely unlikely, so we were ready to pull the plug and evict them. Before that hppened, they came to us and told us there was no way they could afford to stay in the property and had located a basement suite to move into, but couldn’t get in for six more weeks.

They were going from a 1,600 square foot single family home in a nice neighborhood, complete with a two car garage and a basement, to something under 1,000 square feet. Talk about a change of lifestyle.

I can’t even remember if they were able to get us any additional money during that remaining time they were there, but I know I spent every day hating the idea that money that should have been coming to me, instead was going to the shiny new vehicle in the driveway beside my older vehicle. It was a very painful daily reminder of how I was being taken advantage of.

When they finally did leave, the property itself wasn’t too beat up, but the back yard was a disaster and we had to completely repaint and re-floor the property. We knew there was no way we could rent to someone next door again and that we needed to sell, so a significant renovation was in order.

In the end, the tenant walked away owing us over $10,000, plus we dropped another $20,000 in fixes and upgrades to sell it. The positive part of this was during the time the tenants were in there, the market had taken a huge upswing and even after all the losses and extra expenses we still managed to make a healthy profit, but we were just lucky.

The TakeAways

The painful and expensive lesson we learned is that having your tenants next door or even near to you, opens up the door for more problems. Your relationship could evolve from just landlord tenant to a more complicated Landlord/neighbor scenario.

Part two of this is when things do go wrong , and there is no guarantee they will go wrong, it’s much more painful when it’s next door for you to see or you pass by it on your way home from work every day. Yes you get to keep a closer eye on things, but that too has it’s good and bad.

Part three, if things do go bad and it gets to the point where your relationship sours, do you really want your tenants knowing where you live, or having to see them almost every day? Especially if they are spending your money on themselves rather than paying the rent they owe?

Why take a chance?

In all likelihood the neighborhood you are living in isn’t the best location for a rental property anyway. Although the quality of tenants overall may be better in nicer neighborhoods, the quantity is way down.

This can lead to longer times filling vacancies while you are making payments each month on more expensive properties.

When buying in areas more prone to rental properties you have a much bigger pool of tenants to choose from and while you may have to put more work into screening, during tougher economic times you want a bigger base of potential tenants to choose from as vacant months add up quickly.

Also, buying rental properties in rental areas is usually much cheaper than purchasing in prime homeowner areas which can save you money to start with. Buying a property for less money and still being able to get the same amount of income is simply being smart.

Buying an expensive property in an expensive area and hoping to make money may work, but it’s much harder and has more drawbacks.

Most of these neighborhoods frown on renters. It’s the NIMBY mentality or Not In My Back Yard attitude. They complain about illegal suites (which they have a right too), they complain about too many vehicles, they complain about snow not being shovelled in a timely fashion or grass not being cut to acceptable lengths etc. And while these people exist in all neighborhoods, they are much more prevalent in owner occupied areas.

Even if you do everything right, if your neighbors find out your property in the nice neighborhood is a rental, it gets a bit of a social stigma. Yet if you buy in a rental area where you have a huge pool of tenants, it’s just another property in the neighborhood.

Yes you may have a longer drive to randomly check up on your property, but the other benefits outweigh this by so much!

The BottomLine

You have to do what works for you. I’ve given you my example of what can go wrong and I’ve explained why not renting next to you works better. If you’re already living in a rental neighborhood, you may not have an option, or if you’re in a small town it’s hard not be be near your rental, but if you have a choice, don’t make it too close!

The benefits of purchasing a rental property in a rental neighborhood are they are typically a bit cheaper, they typically generate better overall cash flow, renovations cost less, you have more tenants to chose from and they can often be suited providing you with multiple streams of income from one property.

The benefits of buying in your possibly upscale neighborhood is that it’s close, you can keep an eye on your tenants, the initial price is higher so % increases in value reward you more and the class of tenant is typically better.

The negatives of buying in a rental area is you have to do more thorough screening as it’s quantity versus quality, the initial price point is lower so if values increase x% it would be smaller than if on a more expensive house and it may not be near by where you live.

The negatives of buying in your neighborhood that is not a rental area are far fewer tenants to choose from, so longer periods of vacancy, lower amounts of cashflow, renovations are typically more expensive, if the relationship sours, you have to deal with it often on a daily basis and your property can suffer local stigma for being a rental.

There are people who buy near them and run their property successfully, with only one property this may work perfectly for you. However, all the investors I know who buy multiple properties tend to buy them further afield and usually in specific areas designed to generate the best chance of success and the most cash flow and I can’t recall any of them buying the rental next door or down the street from themselves.

And if they don’t do it, why would you?

So, this has been one of my longest articles ever, so I hope you got some value from it, I’d love to hear your comments and stories about your rental properties. Are they in your neighborhood? In rental areas, or next door?

The next article will be the third in this series and will talk about local rental markets, I hope to have it ready for you soon!

FYI, this is how it looked when we were done,

Analyzing Rental Properties – Economics

January 6, 2014 By Landlord Education

Is It a Good Or Bad Rental Investment?

When you’re purchasing a rental property as an investment, you’re really looking for a good long term investment. The problem is, how can you be sure it works, and how can you tell a good rental property from a bad rental property?

Fortunately, there are a few things you can look at to help put the odds of finding a good rental property in your favor. This article will address a few of them.

Before anyone purchases a rental property, they should really do some homework regarding the local economy, the neighborhood they are considering purchasing in and the local rental markets. So yes, there is homework involved.

Economic Factors

I’m starting with economic factors as I feel they are one of the best indicators of long term success for a Real Estate investor or beginning landlord. You really want to choose an area that gives you an advantage.

While it’s true there is rental property in just about every city, county and jurisdiction, these areas are not all created equal and understanding the local economics can give you an unfair advantage over those that don’t. This advantage doesn’t necessarily translate directly to success, but it does make it easier.

Some of the factors I refer to as economic are items like unemployment rates, new businesses coming to the area and even the general age of the local population.

If you look at historical unemployment rates for the area you are considering you’ll find a mountain of potential information. Ideally, you’ll be looking at an area where people are moving to for work and unemployment has been quite stable (low and stable) or has been exhibiting a trend of dropping over the years.

Right off the bat, this makes Detroit a bad choice. Sure you can get into rental properties very cheap, but with extremely high unemployment and not to bright of a future it doesn’t bode well for getting paid rent on time and potential increase in values in the near future.

If you know of new businesses coming into an area, this too can be a benefit. The biggest example currently of this is throughout the Dakotas where the oil and gas industry are working like crazy. While many of the workers will end up being transient and not necessarily sticking around the area, the huge growth in these industries also trickles down to new restaurants, stores and businesses that serve these workers. These businesses have employees who will stick around and will be getting paid.

Another area to look at is the general age of the population. If you have a relatively older population in the area, does that mean a sell off is in the near future as they retire? Will this form a glut of properties on the market affecting rents and values?

On the other hand if the population is relatively young, will they be transitioning to purchasing in five years from renting? Will this put extra pressure on home values going up and lending itself to more growth in the home building industry?

These are the types of questions serious investors look at when purchasing in areas and if you’re serious about being successful, they should be part of your process as well.

I know dozens of investors, very successful investors, who don’t even buy in the same region they live in. they have hand picked cities and towns hundreds and thousands of miles from where they live. it might be daunting, but it also reduces much of the risk.

You Need Your OWN Real Estate Plan

November 4, 2013 By Landlord Education

Your Real Estate Plan Has To Work For You

I received some great feedback on the recent video about having a plan, (if you didn’t watch it, you may want to jump over here first, You Need A Plan). But there’s more to it.

It seems in the last week, people have just been appearing out of no where asking me questions about getting into Real Estate investing. And they’re not just asking me, they are asking other people they know as well. Which is great, but they are getting different answers everywhere they go, which is a problem.

As an example, a friend I just talked to the other day talked to another landlord friend who has about eight properties, so this other landlord is obviously is pretty serious about it. He’s sold all of his up down suites in high demand rental areas and bought single family properties in better neighborhoods.

He had quite a few of them previously and due to headaches of having extra tenants and managing properties further a field, he’s changed what he’s doing. He has a new plan. And that’s great, but it’s his plan!

This other landlord owns another business which has employees and his time is occupied with his main money earner, his company. I can see why he would want less tenants and to move things closer and simpler.

Now I don’t actually know him, but I would suggest his goal is to create a nice side retirement nest egg for himself with the rental properties and they also make a safe simple investment. The bulk of his time has to be devoted to his thriving business which is the real money earner and the real retirement vehicle.

This is significantly different than someone who may be considering turning Real Estate investing into their career.

Again I Say, You Need Your Own Plan

If your intent is to buy a property or two as an investment, keep it fairly hands off and simple and your goal is to simply pay the mortgage down over time and have a retirement nest egg in 25 or 30 years, maybe a single family property closer to you is the way to go.

When you’re buying an investment property, you just have to understand the trade offs and what suits you.

With a single family home for example, you lose in the following areas.

Overall Cash Flow is Lower
Smaller Base Of Renters For This Type of Property
Longer Periods of Vacancy

Cashflow is usually just a few hundred dollars more than expenses on single family homes (unless you’ve owned it for many many years). The types of tenants that can afford to rent a whole house, also typically have enough income to purchase, so this subset of renters make up a smaller percent of the total base of renters actively looking for places to live. And you end up with longer periods of vacancy due to having a smaller base of renters.

The positive trade off is often they are better tenants and this equates to less headaches and/or time. If that’s what your goal is then this may fit your plan.

For someone with high income, and little time who is looking at this as a long term investment (15 years plus), this may be an ideal plan for investing in Real Estate.

But what if your goal is to get out of the job you have and not have to worry about income from your job? What if, like me, you intended to make Real Estate investing your full time career? Or at least a huge portion of your retirement nest egg? Then you need a different plan.

Then you need to focus on cashflow, because cash flow is what makes the rental market flourish for a landlord. When you have an up down suite or a side by side duplex with two incomes and you’re generating $500 per month of cashflow, or $800 or even $1,000 on one single property it takes a considerable amount of pressure off the amount of income you earn independent of your Real Estate..

It also gives you space to manoeuvre if the rental market slows down. And it will slow down. It might not be this year, or the next year, but in most areas the Real Estate market is cyclical. That single family home you were making a couple hundred dollars off of works fantastic when vacancy rates are 2 or 3%, but when they push up to 6 or 7%, rents start slipping down due to competition. If you’re in Detroit, well all bets are off.

Preparing For Downturns

With a $1,000 monthly cashflow dropping rents on two units by $200 each makes you more competitive and still gives you some nice cashflow. Even on $500 cash flow, losing $400 will be painful, but you’re still positive and if you lose one person, you’re not having to cover the full payment yourself.

With a solid plan, you have a plan B, a contingency to deal with these scenarios. Raising and lowering rents and still surviving is an option.

With a single family home the amount you can cut is much lower and with higher vacancies due to a smaller rental pool having your property vacant for two, three or even four months can be a killer. When you only have $100 or maybe $300 cash flow in good times, you better have lots of extra income to support it, but maybe that’s part of your plan?

So obviously I’m biased, but I’ve seen what works. I’ve been through sub 1% vacancy rates and vacancy rates around 8%. I’ve had tenants offering to take places unseen during low vacancy periods and I’ve had properties languish for months vacant during the last downturn. Through it all I’ve recognized that cash flow is indeed king and it’s a recurring theme I push on this site to new landlords.

Ultimately though, it comes down to your plan. Some of it’s your comfort levels. Some is your available time and where you eventually want to be with it. If you don’t have the time to manage extra rental units, maybe you need to be prepared to hire property managers. If you’re investment window is 30 years, it’s about the end result not what’s happening right now, so you have to plan accordingly.

The important part being the planning. In some upcoming articles I’ll talk about renting out condos and other types of rental properties. If you have some thoughts on this though, I’d love to hear them!

What’s Your Plan? Or Do You Have one?

November 1, 2013 By Landlord Education

Your Landlord Plan

It’s amazing how often a landlords plan it to invest in a rental property and rent it out. There done, that’s my plan. But is it a plan or is it a part of a plan.

In the following video I talk a little bit more about landlord plans and hope to provide you with some clearer thoughts about what your landlord plan should be.

I experimented with some close ups (sorry if I scare anyone), and my new microphone had the volume levels too low so hopefully you can still hear it. As always, love to hear any feedback you may have so leave me a comment, send me an email and be sure to share with any other landlords you may know.

Hey, if you have a plan and want to share it for inspiration for other new landlords out there, we’d love to hear it so leave a comment below. Hope this video helps with your landlord education. As always, if you have other areas you’d like to see videos or articles on, let me know.

Landlord Plans Update

I just finished a chat with an aspiring landlord this morning. He’s nearing the end of month three and getting ready to start month four of his two month renovation before it’s ready for tenants.

He had a plan, but couldn’t stick to it for various reasons. And that’s fine, sometimes your landlord plan has to change to fit the landlords situation!

Just remember that plan is what will get you to the end, so if you have to adjust your plan, make the adjustment to continue to move you forward.

With the fellow I talked to this morning, his challenge was lack of time as he was doing all the work. To help him get back on track I recommended his plan change to include some paid workers to get the property back on track.

His two month over run cost him not just his mortgage payments, but utilities, taxes, insurance and his lost time. Worse yet, he had tenants lined up and the delay could end up costing him another month of vacancy once he’s done.

Spending $1,00 even $2,000 to get it done, now, will change the plan, but it will get ti back on track as well.

So the lesson here is be ready to adjust and correct plans that don’t work!

Renting Out Rooms – Running A Rooming House

October 28, 2013 By Landlord Education

Running A Rooming House As A Rental Option

The longer I’ve been in Real Estate, the more ways I’ve seen to make money with Real Estate.

Whether it’s flipping properties, rent to own strategies, buy and hold or any of the myriad categories in between, there are simply dozens and dozens of ways to make money in Real Estate and running a rooming house is one area I specialized in.

Now, word of warning, rooming houses aren’t for everyone! Just like some individuals can’t handle the stress of flipping and others can’t handle the stress of dealing with tenants, rooming houses require a specific mentality to balance everything out.

Rooming houses as a category typically come with a poor reputation. With stories of problem tenants, drugs, sketchy areas and more it scares many potential landlords off before they even start. And truthfully, it can be this way, but it doesn’t have to be.

So what does running a rooming house involve? It’s usually a home or a building that rents out rooms on a daily, weekly or monthly basis. Most are furnished, and they typically provide shared washrooms, possibly kitchens and possibly laundry areas.

They also tend to cater to people at the lower end of the rental system who may not qualify for typical rentals or who don’t wish to be tied down to extended leases.

Folks who cannot afford deposits or first and last months rent, people who tend to deal in cash and people who get paid weekly.

These are your normal rooming house tenants, sounds appealing so far doesn’t it?

Our First Rooming House

It was in 2004 that we bought our first “rooming house” style property and we bought it for a couple reasons. First it was the other half of a duplex we had already purchased earlier form the owner and second, cash flow. Huge stinking cash flow!

Yep, we were suckered in by money and we quickly learned some lessons about running a rooming house. This particular property was set up with three rooms downstairs that were rented out on a weekly basis as furnished room rentals and the owner lived in a suite upstairs. They had a makeshift kitchen in the basement crammed in with the laundry. With all three rooms full we would make in two weeks what a normal basement suite generated in a month.

Our thoughts were to upgrade the basement units a bit and to rent out the upstairs to an onsite manager who would deal with collecting rents, signing people in and out etc.. The former owner had mattresses on the floor, supplied black and white 13″ TV’s and was typical of rooming house landlords. We have learned consistently not to be typical!

First thing we did was replace the mattresses with new futons that allowed the guys to have beds or couches in the limited space, we got rid of the crappy TV’s and upgraded them to 20″ color TV’s and brought in night side tables and a few other “upgrades”. Two of the rooms were already occupied, so we painted the hallways, the other room and generally updated what we could, but it was still a cheap rooming house, sigh.

My First Negative Experience

Needless to say the rules involving running a rooming house and for renting out to weekly tenants are often considerably different than renting out to longer term tenants in regular rentals. Due to the high turnover, the cash based business, the timing required and the type of tenants, credit checks are simply not done. That’s the first challenge with running a rooming house.

People show up cash in hand and need a place now typically. There’s no two or three day waiting period to check references or get reports back, it is cash and carry. This leads to all sorts of “fun characters” and takes us to my first negative experience which took place within the first month of taking over.

The key to making this work is to stay on top of the tenants. Rent is due weekly and it must be paid on time. See any problems yet….

Within the first month I put in a new fellow, sketchy would be putting it mildly, but he had cash in hand, By the end of the first week I had complaints from one of the other longer term tenants. He was leaving dishes in the sink, he would forget to lock the door, typical problems and things that have to be dealt with quickly.

I was due to collect rent so my wife and I headed over to get rent, do some more work to improve the place and make sure it looked ok. At this point I need to bring up the fact I was brand new to this and had only been a landlord of any capacity for just over a year, so I didn’t necessarily know the rules, or follow them…

Don’t Try This At Home Folks

I knocked on buddy’s door and I could hear him moving in there, but he didn’t answer. So I knocked louder. Still nothing, I told him I could hear him, still nothing. So being a frustrated landlord I broke the rules and the law and unlocked his door to confront him.

To add some perspective I stand around 6’2″, weighed around 220 pounds and I’m reasonably athletic (at least at the time). Buddy was 5’8″ maybe 150 pounds, so I wasn’t worried about a confrontation, although I was getting my money, I hoped.

When I open the door, I find buddy sitting on the floor, needle in hand and likely just finished shooting up. Being a calm, rational person I did what anyone else would do. I blew up! I told him he had 15 minutes to vacate (also against the rules, but by his glazed yet fearful expression he understood it was time to leave).

I went and explained to my wife what had happened and the door to the basement opened and the tenant I thought I had confronted walked in. I had just evicted someone who wasn’t even supposed to be there. In my defence, there were no lights on in the room, they both had long shaggy dirty blonde hair, they had the same build and I had only met him once.

I explained to him what I found, told him as well, 15 minutes be gone. I gave him 15 minutes, went back to the door and he had his stuff packed and was ready to go, then I noticed the TV was missing. When I politely inquired about it he told me that someone had come to take it away to fix it. I went from seeing red to seeing crimson and told him he had about 1 minute to get the hell out, to forget about his security deposit and to avoid me for the rest of his likely short life. Welcome to running a rooming house and the experience of renting out rooms.

Click to get more info about rooming or boarding houses

That Was Then

We were ready to shut down that experiment, but for some reason struggled through and learned some valuable lessons. About six months later someone else approached us with a rooming house they hoped to sell. This time though, it was a full duplex at a price we couldn’t refuse. It had ten rooms in total and when full generated almost $6,000 in gross income every month.

With new systems and process in place from our earlier mistakes, we continued to expand and at our peak had eight rooming properties and over 50 individual rooms that I dealt with on a weekly basis. That equates to collecting rent 2,600 times in a year if I was 100% occupied. Talk about an advanced lesson in landlording and running a rooming house business.

Now, many years later, would I do it again?

Definitely, although I know I would make numerous changes along the way.

Would I recommend it to everyone?

Not really.

Although there are many that could make some huge income off of this. The income from that one duplex alone was over $30,000 per year, even after vacancies and expenses. Plus, it’s almost doubled in value from our original purchase price.

Is it a lot of work, yes, but is it 40 hours a week? No, usually only four or five per week which makes it an exceptional return on the investment.

The point of today’s article isn’t to get you to thinking about rooming houses as an investment, but rather to get you thinking about other opportunities available out there. I preach that up down rentals with detached garages, in my opinion, are the best way to go as far as good rental properties, but I also own condos, single family homes and yes rooming houses.

In some of my interviews with other landlords and in conversations, many are doing great with everything from vacation rentals to furnished executive rentals to single family homes. So there is no one right way. you just need to find the right way for you and then learn as much as you can to specialize in that area.

Rooming House Examples

When we started to expand with our properties we had simple rules we stuck with. The properties we felt were ideal for running a rooming house had to have at least five rooms to rent or capability to build up to five rooms. It had to have an upstairs and downstairs bathroom and shower setup, or again space for us to build it.

They had to have great transit access. We understood many of our tenants were new to the city and often took transit, so access was incredibly important. And we had to be close to the work, so our properties were positioned close to industrial areas where many labourers and trades would be working.

Knowing your tenants and their requirements was part of the battle and is something you as a landlord should be aware of as it makes finding and keeping them easier. Understanding what our style of tenant needed made our job of advertising and renting out so much easier.

The other lesson we learned was learning where to find our tenants. We hit up training centres for the trades, unions and even immigration companies about our properties. We took those that were interested on tour and we even found one company who rented an entire house from us for two full years at $4,000 per month to house incoming workers for a major project.

Finally, I’ve incorporated a series of questions I ask people who call my ads. Much like screening my regular tenants, I have filter questions to narrow down my waisted time. All designed to get better people in and to save my time.

So, my challenge for you, even if you have a regular rental, is to make sure you know the benefits of the property you currently have, or if you are planning on buying a new rental property, the nearby benefits. Then find that avatar or perfect tenant and find out where they work, what they do and then go advertise or visit those places in preparation of your next vacancy.

Investing in Real Estate isn’t fire and forget, it’s a business and requires some strategy behind it. Hopefully you enjoyed my long drawn out story and can learn some lessons from it you can apply to your landlord business!

If you liked this article let me know, if you want more stories about my experiences (both good and bad) tell me. Or if you just want more tips and generic landlord advice let me know too!

Just to add to this you may want to read another post I have about rooming houses. you can find it here, Profiting From Rooming Houses

Boarding House and Rooming House information - Running a Rooming House — Rooming House Resource Page

Rooming House Tips

If you’re serious about running a rooming house or have just started one, I’d highly recommend you check out my Basics of Rooming & Boarding Houses Guide.

It’s $17, includes information on how to determine the best areas for rooming properties, the options for daily, weekly and monthly rentals and it gives you the information I wish I had when I started!

Click here to get your copy now (it’s a PDF, so you can have it in minutes) The Basics of Starting Your Own Rooming House

The Basics Of Running A Rooming House

So, are you intrigued? Does the idea of owning and running a rooming house sound like a journey you might be interested in taking?

Over the years I’ve owned a lot of properties and a lot of rooming houses and it hasn’t all been perfect, but that’s part of the learning curve. Sometimes there are expensive lessons we learn and other times there are inexpensive lessons.

That’s why it’s important to go into this with your eyes wide open.

Running a rooming house is more than just buying a property and putting bodies in.

There are rules and regulations that vary from place to place, city to city and even district to district. There is higher demand in some areas and lesser demand in others which can lead to underperforming properties.

Then there’s the concept of targeting certain segments of the population to develop a steady stream of clients. We learned early that we constantly needed to be advertising as an empty room meant we were losing money. Later we learned who and how to market so that we found our ideal tenants.

Learning all of this took years and not knowing it from the beginning likely cost us tens of thousands of dollars of lost income and bad purchases and nearly causes us to quit before we even got off the ground!!

In hindsight if I could have found training or information to help guide me and avoid those early mistakes it would have been priceless.

But that was my bad luck, or in this case your good luck as I have that information and I have a way to share it with you so you can avoid the costly lessons I learned.

I’ve put the information you need to know before you buy your first Rooming House property into an online training program call The Basics of Rooming Houses.

Now this may not be for you. If you like making mistakes, losing money, getting frustrated and quitting in frustration then you should probably don’t want to consider taking my training as it will make the majority of those painful experiences go away!

However, if you’d like to learn how to determine the local demand for rooms (along with understanding what you can charge for a room) I can help with that.

If you’d like to discover how the rules work in your area for room rentals or rooming house properties I explain how to figure it out and who you can talk to in order to get the details.

Perhaps most importantly, once you get through the initial training I teach you how to start finding more and more tenants so you eventually get to the point where you can live off of referrals and repeat customers! Once you understand how much easier this business is when people are calling you all the time you’ll really start to appreciate it.

I guess it really comes down to how serious you are, or how much money you want to lose on your own..

So if you’re someone willing to learn, to get educated and to get off on the right foot, you’ll want to go sign up for this course and get started today.

Click here to invest in your rooming house education – The Basics of Rooming House Course

And Why Professional Landlords Get Premiums!

The Argument For Increased Rent

The Bonus’s of Better Properties

How To Avoid Discounting Your Rents

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Choosing The Right Neighborhood

Following the Clues

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Location, Location, Location

The Pain

People Just Think Differently

The TakeAways

Why take a chance?

The BottomLine

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Is It a Good Or Bad Rental Investment?

Economic Factors

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Your Real Estate Plan Has To Work For You

Again I Say, You Need Your Own Plan

Preparing For Downturns

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Your Landlord Plan

Landlord Plans Update

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Running A Rooming House As A Rental Option

Our First Rooming House

My First Negative Experience

Don’t Try This At Home Folks

That Was Then

Rooming House Examples

The Basics Of Running A Rooming House

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