Buy & Hold 101: 8 Lessons From the School of Hard Knocks
Okay, so here we are back again with our finale to our Buy & Hold series. Today, I’m going to share with you some important lessons that come from one of the most prestigious schools, Cody’s School of Hard Knocks.
But first, if you missed out on the previous lessons in this series, check them out so you aren’t completely lost:
- Buy & Hold 101: First Steps to Owning Cashflow Real Estate
- Buy & Hold 101: Different Types of Cashflow Rentals
- Buy & Hold 101: How to Find a Good Property Manager
- Buy & Hold 101: How We Find Good Quality Tenants
- Buy & Hold 101: How We Screen Our Tenants
- Buy & Hold 101: Asset Protection and Privacy - How We Do It
- Buy & Hold 101: The 3 Levels of Researching a Rental
So, let’s go ahead and start our final lesson…
Lesson #1: Only Buy Properties That Need Minor Repairs
Remember, you're not going to live in the house.
Apartment-grade materials and appliances are just fine. Keep that in mind and don't go knocking down walls and putting on new roofs for a rental property.
It just doesn't make sense if you’re not gonna see the returns and you'll have money tied up. You might get a tenant a little bit faster, but that's it.
And, don’t let the contractors offer you extra features.
Lesson #2: Make Sure Your Tenants Have Renter’s Insurance
This is really important, especially if they have a dog living on the property. It's a requirement for us.
We have our policy to cover the property… and they need to have a policy that covers their stuff on the inside.
Lesson #3: Never Judge a Tenant by the Way They Look
Let the background check speak for itself. And this is all I have to say on this subject.
Lesson #4: Don’t Have Rentals in Areas You Are Scared to Drive Through at Night
If you had to go collect the rent at 7 or 8 o'clock on a Friday or Saturday night, are you perfectly comfortable with doing it or sending your wife or your 17-year-old daughter down there to collect the rent?
If you're not comfortable with that, then you're in the wrong neighborhood. Don't buy properties in those types of neighborhoods. Typically, you want to stay out of low, low-income areas or ‘war zones.’
Lesson #5: Only Buy Multi-family Properties that Are Separately Metered
This is going to save you from future headaches because, I'm telling you, there will be a tenant who runs the water all night long or turns the A/C on 65 or heat on 85… or doesn't report a toilet that's running all day.
Listen, it'll eat through your cash flow in half a second. A running toilet in an 8-plex could cost you a $1,000 bucks in a month.
Lesson #6: Never Let a Tenant Cry on Your Shoulder
Never listen to a tenant's problems. Don't get sucked into that.
Start the relationship off right away by having the business-only asset and you're just abiding by the business's rules. Pass it off. Pass off the blame. If you have to create an imaginary partner to blame for being really blunt about the money, do it. I've done it in the past:
"Hey look, I want to be Mr. Nice Guy, but my partner's a jerk. If you don't get the money by 5:00 pm today, he's going to process the eviction and there's nothing else I can do."
The moment they start telling you their story, "Yeah, I'll have it next week…" you respond by saying:
"I get it, I understand, things happen. But Mrs. Smith, you need to understand this: I have no problem with you paying next week, if that's what you need to do, but please understand I'm starting the eviction process today. The moment you get me the check next week, I'll let you know the cost I've incurred so far for the eviction, and once you pay that plus your rent, I will then stop the eviction."
BOOM! That is how you do it. That is how it has to be done. Watch how fast they either come up with the money or move out.
Lesson #7: Never Throw a Tenant into a Property
If they have the first three months’ rent in an envelope, all cash… RUN!
Trust me, we've dealt with it, it's not what you want. It’s just sketchy and the outcome is bad every time. A red flag should go up and your inner investor voice should cry out for you to head for the hills.
Lesson #8: Have High Expectations for Your Property
A good property manager is going to make your life so easy and it's going to make your job more fun when it comes to investing in long-term rentals. Find and keep a solid property manager.
Set up those high expectations with this person from day one and you're going to end up having a very profitable relationship with them.
With a solid property manager, you can focus on what's important… like looking for your next deal versus looking for your next tenant or evicting your next tenant.
The Main Takeaway
Keep in mind everything we've said here today and in the entire series, take these tips and tricks, make sure you're covering your assets and make sure you're getting great legal advice… eventually, you’ll find a property and build a rental portfolio that’s going to help you truly create wealth for you and your family.
Until next time,
Talk to Me
Got any Buy & Hold questions now that our awesome series is over? Talk to me in the comments section below.