Just a Landlord

A year ago I wrote of my five top ideas for real estate for 2013.

Of those ideas I have implemented .. not much.   Shortly after the first of the year 2013 we found that my wife’s ongoing back pain was being caused by a large benign tumor. She had it surgically removed on Valentine’s day and is fine today, but it upended things for a while

Today as I reflect on the past year and think about this coming year I reread the ideas posted last year. A year later they all hold value.

Two have been implemented as part of an effort to increase the value of membership by the Apartment Association of Southeastern WI’s  board of directors under the leadership of Joe Dahl.

The Association now has quarterly small group meetings as part of the Professional Membership. These meetings are an important element of #3 on the list, improving  how we share our collective knowledge

In a big step towards #1 on the list, reducing maintenance supply costs, the Association has teamed up with Home Depot, Pittsburg Paint, Sherwin Williams, and a number of other organizations to provide discounts to our members.

Home Depot offers a whopping 20% discount on paint and 2% cash back rebate on most purchases to our members. Sherwin Williams offers members discounts on paint equal to the discounts that major contractors receive. Pittsburg has similar discounts.

I would add a sixth and seventh opportunity for 2014, Crowdsourcing/Crowd funding for real estate.  I’ll post my thoughts on these in the next couple of days

The five most important Real Estate Ideas for 2014 remain:

(Clicking on the topic’s title takes you to the full article)

1. Reducing Maintenance Supplies costs
   Pre 1950 buildings in lower income neighborhoods require around $100 per month per unit for repairs, replacement reserves and improvements. Newer buildings in more affluent neighborhoods perhaps $50 – $65. This is all maintenance from leaky faucets and unit turnovers to new cabinets, new roofs, electrical upgrades, replacing parking lots ect. (more)
2. More Effective Maintenance Labor/Contractors
   Maintenance, replacements and improvements to rental housing represents nearly $100 million per year in the city of Milwaukee alone. A savings of even 1% is a lot of money. (more)
3. Become better at sharing our collective knowledge
   The ApartmentAssoc@YahooGroups.com is good beginning. However it does not work real well as a reference tool as the posts are not organized by topics nor apparently easily searchable for many users. (more)
4. Group purchase of a distressed block or two
   There has been this wild idea floating around in my head for years, acquiring a distressed block with a group of active owners and turn it around for fun and profit. (more)
5. Tech Meets Real Estate
   There certainly are huge opportunities for software/web solutions for things that cause frustrations for owners and perhaps tenants. (more)
6. Crowdsourcing for real estate, posting later in the week.
7. Crowdfunding for real estate, posting later in the week.

A member of the LandlordAssociationOrg Yahoo Group asked:

I’m considering investing in residential real estate and becoming a landlord. If I proceed down this path I would be inclined to buy a house rent it, learn, then buy a bit more every year. So I need some advice:

My inline reply

1. Is it a good idea?

I bought a duplex in December 1977 when I was 21, another in November 1978.  A couple in the spring of 1979 and a few more before that year ended. By May 1981 I had 70 units and quit my fairly good job. I have had a paycheck that did not bear my signature since.   Today we employee around 30 people in two states.

2. What do I need to know?

Everything you possibly can learn at someone else’s expense rather than making expensive mistakes yourself. 😉

Start with learning landlord tenant law and small business management.  Not knowing the law will cause you to fail.  Not thinking of this as a business will cause you to under perform and over work.

3. Any books or courses you recommend?

•  Any books by John T Reed  that interest you.  They are the ones I wish I wrote.
• The E-Myth by Michael Gruber
• Landlording by Leigh Roberson
• An oldie (first edition 1959)  but goody is How I Turned $1,000 Into a Million: In Real Estate in My Spare Time by William Nickerson.  It is not the path I took, but the principal is sound.

4. Any organizations I should join?

Any local landlord group or apartment association.  Try a few and see where you fit in best.  I attribute a lot of my success to being an active board member of the Apartment Association of Southeastern WI.  I have been on the board all but two years from 1989 to today.

Being active in the association you choose is the key as you will learn of  opportunity and risks  before most of the rest of the industry.  It will also speed up your learning of the laws that affect your business.

In my embarrassingly long time at rental real estate, I started in 1977, I have seen low prices, I have seen low interest andI have seen easy money, but never all three at once. If real estate investing was a horse race this would be the trifecta.

Today there are really powerful opportunities as interest rates are at record lows, real estate prices remain depressed and there is actually money available for the right deals and the right borrowers.  As far as depressed pricing you can purchase properties today at the prices they were going for in the mid 90’s but now those properties have vinyl siding, new windows and good roofs.  Interest rates? HUD has 35 year, assumable, fixed rate multifamily loans available at silly low rates.  LTV of 83%. I think they are even non recourse.   Friday the rates for the 223 (f) were posted as 2.95%.

Find the right larger deal today, get it financed under these terms and you could quite honestly be set for life, barring of course our government doing something really stupid and destroying the entire economy.

AASEW president Joe Dahl has arranged to have four leaders in Milwaukee area lending speak to the Apartment Association tomorrow Monday May 20th.

The meeting is free for current AASEW members and $25 per person for those who are not members, but at $99 a year who would be in this industry and not be a member.

When: Monday, May 20th, 2013 at 7:00 p.m.

Where: The Best Western, 1005 S. Moorland Road, Brookfield 53005

More info about the meeting and the Association at:

http://apartmentassoc.org

Real Estate Ideas for 2013 Part Five: Tech Meets Real Estate

What can be done collectively to improve our businesses, save costs or generate additional revenue?

On January 1st I posted a list of ideas that I had that some of us could consider to collaboratively work on.  I intend to pursue one or two of the ideas presented and may entertain partnering with the right person or persons.

This post is the fifth and final of my more in depth notes on the ideas.  I will post others over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment either on the list or directly to me at:Tim@ApartmentsMilwaukee.com

Part Five:

Tech Meets Real Estate

There certainly huge opportunities for software/web solutions for things that cause frustrations for owners and perhaps tenants.

I see this as the greatest opportunity of those presented by me.  We are in an industry that has low margins and high expenses. A 10% swing in effectiveness can mean the difference between wildly successful and a miserable failure.

Some thoughts on where tech and rental real estate may intersect:

• Setting rents to market rates. How much are you losing because your rents are too low or how much have you lost due to your rents being too high and your vacancies languish? Me, too, to some extent. ;-(  What if there was a site that effectively tracked what other rents are at in your area?
• Property acquisition. Look at what sites like SpotProperty are doing elsewhere, but not here.
• Vacancy filling Craig’s List used to work, but now there is too much spam and fraud. What about a system where the tenants need to prequalify before actually applying. While pre qualifying without processing the full app  by an individual owner may be problematic from a fair housing standpoint, a proper third party system could work.
• Tools for  group maintenance supply buying mentioned in Part One of this series where owners could opt into a group purchase of bulk supplies
• Improved tenant screening.  Things like “Bad Tenant Lists” are illegal, but there must be things that are not being done today or being done in a manner that is more difficult than necessary or simply be improved by tech solutions.
• A site for creating and serving 5-day notices etc. by certified mail or personal service from your computer without ever having to leave your home or office.
• Put your solution here…

Where tech helps our industry today

Obviously MLS is the big tech tool of real estate.

The right property management software is essential for all but the smallest of property owners.  Our company uses very customized management software that makes many tasks and decisions automatic or semi automatic. In general a click a button and the machine does exactly what a well trained person would. Receive a WE Energies service termination notice and a work list item is created to check for vacant. Tenant collection actions are automatically determined on amount due, last pay date and how long they have been a tenant. One button and it select the proper notice or reminder for all tenants. Of course there are overrides as special circumstances require special treatment.

Automation of routine tasks frees our employees to think about things that need thought about, rather than thinking about the repetitive and mundane.  Computers are great at those tasks.

Another example of tech meeting rental real estate is the free eviction notices we provide members on the AASEW site.

Outside of MLS, management software, five days and the examples above, there are certainly other solutions and improvements just waiting for us to identify.  Well, waiting for you to identify, as I’ve put all I can think of in the above list.

If any of the topics interest you comment either on the list or directly to me at:Tim@ApartmentsMilwaukee.com

 Real Estate Ideas for 2013

What can be done collectively to improve our businesses, save costs or generate additional revenue?

On January 1st I posted a list of ideas that I had that some of us could consider to collaboratively work on.  I intend to pursue one or two of the ideas presented and may entertain partnering with the right person or persons.

This post is the forth of my more in depth notes on the ideas.  I will post others over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment either on the list or directly to me at:Tim@ApartmentsMilwaukee.com

Part Four: 

Group purchase of a distressed block or two

There has been this wild idea floating around in my head for years. Long time AASEW member Carl Baryl and I spoke of this many times during the early 90’s. Acquiring a distressed block with a group of active owners and turn it around for fun and profit.

So how would this work?

Choose a very small geo area of Milwaukee. Think something on the terms of both sides of the street for a block or two maybe three at the max. It should be depressed, as in make Detroit look like a nice place to live, depressed. Apologizes to Detroit, but many people know of Detroit’s challenges and fewer of similar challenges of Milwaukee.

Yes, unfortunately, there are many areas like this in Milwaukee and the numbers are increasing as foreclosures work their way through the system.

Oh, you read in the Journal that the foreclosure mess is just about behind us?  They may be correct in a overview of SE Wisconsin, but a walk though the neighborhoods will tell a different story in the City of Milwaukee There are actually more, not less properties sitting vacant and obviously abandoned in these areas than when I first wrote about walking the neighborhoods.

A highly visible face block would be best – something that faces the freeway, a school, a major road, shopping area etc.

Then assemble a group of investors to buy the available, preferably vacant & abandoned, properties in the identified area.

This could be done either as a partnership with all owners having an interest in all properties or as an alternative owners would each have individual ownership of their properties, with a homeowner association type mechanism in place as governing bylaws of the project. I am thinking of one standard screening criteria, perhaps a lawn service and other such bundled services.

Partner with a neighborhood group to provide services to the owner occupants. All aspects – crime, trash, maintenance, throw in some owner occupant foreclosure prevention and even some social help.

Then we work our butts off to turn that or those blocks around. Use this as a best practices testbed, putting private, neighborhood and public efforts and resources into a turn around.

Personally, for me to participate the project would have to be on the Southside (8th and 12th Aldermanic Districts) as that is where my interest lay.  Others may see areas of the Northside that would offer the biggest bang for the buck.

Choosing the correct first block is very important. There are five potential areas I have in mind today. It would take a bit of work to make a final selection. Considerations would be how many bank and city owned properties ( more the better ) how many rental owners we know and their potential level of cooperation. (again more the better ). My preference would be a neighborhood I currently have a presence in, of course, because there would be an advantage for me. However three of the five target areas I’ve selected are not on blocks that we own houses.

Pretty simple eigh? Of course not.

Doable? Absolutely. Worth the effort? Either yes, or don’t bother doing it. This should result in increase rents, occupancy percentages and resale values.

The outline

Organize the existing property owners; everyone – owner occupants, rentals and commercial properties.  Then go at it and buy everything else that is available; vacant land, city owned and banks that are holding etc.

We pitch the idea based on benefit rather than strong arm people to participate. If our initial selection doesn’t result in willing participants we move on to block selection two.

We have our neighborhood group partner find and apply every grant, resource available for both rental owners and the owner occupants in the target area.

The realities of the project

This project would require a lot of work and certainly a bunch of cash as you are not going to typically finance something like this. The City of Milwaukee, despite gaining a benefit from the efforts, will not make it easy.  Having bought a bunch of foreclosures over the past couple of years and putting a bunch of effort into making them solid rentals I can attest to some of the pettiness that goes on.

There are success stories in a similar vien.

Bill Doyle of Milwaukee Lead fame did it with northern Bayview.  On a larger scale, Tony Goldman in SOHO NY, South Beach and Wynwood, Miami, FL.

Real Estate For Ideas 2013 Part Two

What can be done collectively to improve our businesses, save costs or generate additional revenue?

On January 1st I posted a list of ideas that I had that some of us could consider to collaboratively work on.  I intend to pursue one or two of the ideas presented and may entertain partnering with the right person or persons.

This post is the second of my more in depth notes on the ideas.  I will post others over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment either on the list or directly to me at:Tim@ApartmentsMilwaukee.com

Part Two:

More Effective Maintenance Labor/Contractors/Service Providers

As mentioned in part one, maintenance, replacements and improvements to rental housing represents nearly $100 million per year in the city of Milwaukee alone. A savings of even 1% is a lot of money

More Effective Maintenance Labor/Contractors/Service Providers

The ability to have skilled, cost effective maintenance available on demand is typically a missing element for small owners.

If all of your unit preps are done two days after move out you will have far less vacancy income loss. If you can respond quickly to emergency repairs less tenants will move.

Even larger owners such as our company can’t do this efficiently with typical staffing. Either you have too few workers the first week of the month or too many the rest of the month.

The million dollar question is ‘How do can you have an on demand workforce without the risk of uninsured “contractors” who may later be deemed employees by taxing authorities or injured and not covered by your property insurance?’

A couple of years ago Affordable Rentals rolled out Rental A Worker, where we ‘rent’ other owners our maintenance people by the hour for small or large jobs. We benefit as we can have a larger workforce to meet the up and down demands of maintenance, while being able to share them when our workload is lighter.  We can also justify having highly skilled people on staff full time, such as certified heating techs.

The big advantage this offers other owners over hiring Joe off the street is our people are insured and have taxes withheld. There is a real danger and expensive otherwise. For the longer version read: Your Handyman-Cheap Contractor or $60000 Mistake?

The real vision for Rent-A-Worker is to expand it to a temp like service where there is an on demand workforce that can ramp up when there are a lot of preps etc and then can work for another temp agency on slow times.  This would hold an advantage for our company as well as other owners who participate.

Such a system would have a worker rating system, whereby the owners would grade them and their opportunity to work and future pay rate would be based on those grades.  So the best workers would achieve full time employment at a decent wage.

All the workers, whether they are laborers or small uninsured contractors would be treated as employees with the temp agency withholding taxes, maintaining worker’s comp etc., thereby eliminating a potential career ending risk for owners who were hiring “handymen” for cash.  The guy in the Cheap Contractor or $60,000 mistake went under.  I assume this was the cause

I pursued the temp angle a bit a year a half ago.  We hired a college grad who was formerly a manager a temp agency that moved out of the area. Excellent resume and references. I held a lot of hope for him to do well at this, but in the end it did not work out. By that time I was distracted with the purchase of a commercial property in Hollywood FL to house my wife’s businesses.  The basic software framework exits as well as some operating procedures.

I still believe an available,  flexible workforce  is the brass ring for our industry; seeing so much benefit for my company as well as many other owners. This may be the top new project to aggressively pursue this in 2013. The open question on this is does Obamacare make this in anyway less practical today if the number of temps exceeds 50.