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PODCAST EDUCATION

How Your Tenant Can Impact Your Landlord Experience

Episode 051

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about the landlord experience and what factors go into creating a more passive experience; including choosing the tenant.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Keith Weinhold: Hey, this is Keith Weinhold from the Get Rich Education podcast. You are listening to my friend John Larson and the Real Estate Cowboys. Don’t quit your daydream. 

Robert Helms: Hey everybody, it’s Robert Helms, host of the Real Estate Guys radio show, and you are listening to the Real Estate Cowboys. 

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John. 

John Larson: Hello everyone and welcome back to another edition of the Real Estate Cowboys podcast. This is your host John Larson. This week we are going to discuss tenants and how they impact your property and your landlord experience and basically your passive experience when investing in real estate. I believe that the success and failure of single family homes are very much dependent on the landlord or the property manager, one, and their effectiveness to manage the property professionally and vet out good tenants that are going to treat your property with respect and pay on time, so on and so forth. But it really, you know, you as the landlord or the property manager, what sets you up for success or failure is really where the property is located, what class of property it is, because that’s really going to depend on the type of tenants that you’re going to consistently attract to your property. 

Now, if it’s a property that’s you know, below $80,000 in a C to D class neighborhood in any major metro across America, you know there might be an instance where it’s section 8 a lot of times and just, you’re not going to get the best type of tenants with the best jobs and consistent income and you know, tenants who are, you know, taking care of the property on a consistent basis. I’ve just noticed in my career that anytime I delve too far below the median value in an area or in the market, so for example, if the average home price in Dallas Fort Worth is $250,000 and I buy $150,000 or $100,000 home in Dallas, it’s going to be in a C or D class neighborhood, which means I’m not going to be able to consistently attract good responsible tenants in that property. And that’s where things can start to fall apart. 

That’s when the wheels fall off, so to speak, because of the type of tenants that you’re getting in the property. They don’t have, you know, salary jobs, they’re working hourly jobs. They’re not the best type of jobs, right? Jobs where you experienced higher turnover, which can result in missed rents and then can result in evictions. And then when your property is in a neighborhood that has high crime and you know, it just isn’t the best area you’re leaving your property, you know, open to possible break-ins, thefts and squatters and lots of things. Right? I experienced a lot of that stuff investing in, in Detroit. Um, even when we were doing C class properties and D class properties in St Louis and Kansas City, it was the same story. It wasn’t like it was something different from market to market. You delve too far below that median home price and you’re going to run into some issues. 

So you know, when it comes to owning rental properties, people want to throw around the word passive a lot. And in my career, I have found that properties in C and D class neighborhoods just don’t turn out to be very passive. Even if you have a property manager and a great property manager that’s looking after your properties, there’s still things that are going to come up. If they’re in bad neighborhoods, there’s going to be crime. There’s gonna be theft. There’s going to be possible vandalism to your home, and so even if you have great tenants in there, they go on a vacation or they’re away from the house and the people in the neighborhood know that they’re gone. The house can still get broken into, right? I’ve experienced that many a time. This week, I just want to talk about how your tenant specifically can have a negative impact on your landlord experience and it really comes down to buying in the right markets, in the right neighborhoods and buying the right class of property that’s going to attract good tenants and responsible tenants and tenants that pay on time, have good jobs, so on and so forth. 

That can then translate into a better investment experience for you as the landlord. Okay. Landlord experiences, they can vary considerably from one situation to the next. You ask one person how they feel about being a landlord, they might tell you it’s the best thing they’ve ever done. Ask another person the same question and they may say, Hey, I tried it once, hated it, and I would never do it again, right? And that just tells me that they invested in the wrong property and they couldn’t get good tenants in that property. That could then translate into a good experience for them. No one wants to invest to buy into another job, right? And another headache. We have enough headaches on our plate on a day to day basis. The idea is to be passive. Okay. And I know it’s tough because you see so many of these properties out there and you look at the spreadsheets and especially in today’s market with the values where they’re at, it’s tough to find good cash flow. 

And the only way you’re really seeing good cash flow numbers is going to be on the C and D class properties. But I’m telling you right now, think about your landlord experience. Think about your return on life. Think about, you know the other ways that real estate pays you, not just the cash flow because there’s five other ways that real estate pays you through appreciation through the principal, pay down by the tenant. If you have a loan on the property through tax savings, right through instant equity, like I said, like so, so there’s appreciation, but then there’s also instant equity. Buying a property below market value, it still happens and getting some equity in that property, right when you purchase, there’s a lot of ways that real estate pays you. And also through inflation, right? Locking in a long-term loan, fixed rate loan day at 5% for 30 years. 

That’s the way to hedge against inflation. So there’s many other ways that real estate’s going to pay you as an investor. Don’t get so laser-focused just on the cash flow and make your decision on cash flow because that could put you down the wrong path to where then you’re going to have a negative landlord experience. And we don’t want our investors out there, our real estate investors, to go in, super excited about investing in real estate because there’s so many great ways that real estate can help you build wealth and just change your life for the better. But you have to do it smart and you have to do it calculated and you have to make sure that you’re buying the right properties in the right neighborhoods and set your landlord or set yourself up as a landlord or your property manager up for success by buying properties in good neighborhoods that they know that they can professionally manage and keep good tenants in. No tenants with criminal backgrounds, no tenants that, you know, have evictions on their record, so on and so forth. When you buy properties in these lower class neighborhoods, those are the type of applications you’re going to get. Okay? It’s not like you’re going to get somebody that, you know, makes $80,000 a year, works for AT & T and you know, never had an eviction on their record. They don’t want to live in those neighborhoods. So you’ve got to think about looking at maybe these higher class neighborhoods, buying closer to that middle, middle-class median home value, right? Because then you’re gonna be able to reap the rewards of appreciation, possible instant equity. You’re going to have a better landlord experience because your tenants are more responsible, they have better jobs, you know, they treat your house with more respect when the house goes vacant or they leave for a vacation. You’re not worried about getting broken into and vandalized and squatters and so on and so forth. You’re not having to worry about that, those are the types of things that you worry about with low C, D class properties. Okay. A lot of people asking, is being a landlord. Is it a good thing or not? Everyone talks about real estate as being the most reliable way to build strong financial futures, but fixing and flipping it’s not for everyone, right? We’ve talked about that on the show before. There’s a lot of headaches that go along with fixing and flipping houses, too. A lot of outliers that can have a negative impact on your return and contractors. Babysitting contractors is probably number one. But you know, if being a landlord is the obvious alternative, why isn’t everyone doing it? Right? Isn’t being a landlord supposed to be a passive experience? 

Well, it can be if you buy properties in the right neighborhoods and you hire a good property management firm and if you need some guidance on how to hire a good property management firm, you can listen back to one of our previous episodes where I had 89 questions that you should ask every property manager before hiring them. And you don’t have to ask all 89 per se, but it’s good to read those questions and have those in your artillery, so to speak. So when interviewing a property manager, you know, some good important questions to ask before making a decision on whether to hire them or not. Because listen, being coming a property manager is as simple as just getting a real estate license. I mean it’s, there’s not much more that goes into it. How do you know you’re hiring somebody that’s good and knows what they’re talking about and knows how to professionally manage hundreds of doors, right? 

You don’t want to just hire anyone off the street, right? Property managers are just like real estate agents. There’s, anyone can go get their real estate license. It doesn’t mean they’re a good agent. Doesn’t mean that you’d want to hire them to guide you into good investment opportunities. Right? So be very, very cautious of that. And that’s why I’m talking about this on this week’s episode. Out of all the things that can affect the landlord experience, like I just named, you know, maintenance issues can be one and, and like I said, house getting broken into, things like that can really have a negative effect on you as a landlord. But really the common denominator across the board is really the tenant that provides you with that passive experience or that headache. Okay. And the tenant definitely exerts a heavy influence on how you, the landlord, your investment and your experience will play out. 

If you delve deeper into the reasons why a person says they hate being a landlord, odds are that it has to do with the tenant. Okay. I know for sure my friends and even myself, I’ve tried to manage some of my properties and I mean chasing the tenants down for rent, in general, is just, it was so stressful. And then, you know, I was still getting the water bills and things like that sent to my house and I was forwarding them on to the tenant and the tenant still wasn’t paying them. I mean it’s just, it can get so messy. Right. And that’s why I really believe in hiring a property manager. But like I said, set your property manager up for success too. Don’t buy a property in the absolute ghetto, you know, for lack of a better phrase, ghetto and throw it on your property manager’s plate and expect him to turn, you know, a rusty piece of steel into gold. It’s just, it’s going to be very, very difficult for that manager to manage that home. 

I just, I know that I know that through experience. So how does the tenant factor into the landlord experience? Let’s go into that. You know, if you want to understand how the tenant factors into your experience as a landlord, think about your property and your responsibilities as a landlord. Right? First, consider the asset itself. The tenant is the one who’s around inside the property every day, right? They operate the HVAC, open and close the windows and doors and move things around, hang things on the walls. When you become a landlord and turn your property into a rental, you’re essentially handing over your expensive, in most cases, expensive asset to the care of a total stranger. And so now you want to consider on the flip side, your responsibilities as a landlord, even though the tenant’s occupying and using the property, you’re responsible for their safety. 

You’re responsible for all the repairs and maintenance inside and outside the house while the tenant is occupying it. And so there’s a lot of ways in my experience that I’ve found how tenants can damage your property, too. There’s many, many ways; ignoring repair issues sometimes can lead to more expensive problems. And I’ve noticed dealing with lower class properties and higher class properties, I’ve had tenants that have let things go negligent and were just negligent. Right? Um, there was a leak that they never reported and it turned into something way worse than if they would have reported it earlier. We could have got the thing fixed for a very cheap cost, but they let it go and go and go, and now it turns into something expensive. You know, I had a situation when we were managing a portfolio of properties in Detroit, and this was back in my early days, and that was kind of one of the foot soldiers for a group that I was working with and I was getting in and out of properties, taking photos, and don’t get me wrong, there was some houses that I went into that were pretty nice. 

There was some houses that I walked into where I felt like that was a drug dealer that was occupying the property. I didn’t feel very safe. There were instances where I was going into homes where people were just not taking care of the property at all. There were bags of garbage on the floor, there were roaches in there, there was mice, rats. I mean I’ve seen it all. And then there was a small sample size of homes usually occupied by elderly people that were kept pretty nice. Okay. But in most cases, like I said, I was, I felt like the tenants were, I don’t know what they did for living. They were at home, they weren’t working. It smelled like, uh, like, like a drug in the house. And so, you know, are those the type of tenants that you want living in your property? Probably not. 

But are those ones that are going to look like they cash flow great on paper? Yes. But are those numbers going to ever come to fruition? Probably not. Are you going to run into issues with the property and the tenants? Yes. It’s a guarantee. So be very, very careful about that. But you know, I’ve seen situations where the tenants abused the HVAC systems. Okay. They run them, you know, in the summer they run the A/C all the way down and they just burn them out. You know, or the same thing with the heat. They got the windows open, but then they’re blaring the heat. You know, so there’s a lot of instances where tenants are taking advantage of the HVAC. Um, they can cause expensive, expensive sewage blockages. We’ve dealt with that, uh, that can destroy walls with improper wall hangings, violent outbursts, right. 

We’ve seen holes punched in walls, holes, punched in doors. But also, like I said, most of the time I see that on lower class properties as well. You’re responsible with the fireplace or smoking in the house, destroying hardwood flooring with scrapes and gashes, abuse of kitchen appliances, cracked and/or break windows and fail to protect pipes from freezing. You know, also not changing out filters for the furnace for the HVAC. Right. That can cause problems down the line if that’s not being done. So there’s a lot of ways that the tenant can really damage your property through negligence. Right. And that comes down to, you know, your property manager or you as the landlord, making sure you’re putting these people through a very thorough background check and interview process and making sure that these people are responsible people. But you know, I don’t really see these types of issues in my portfolio and other people that I work with their portfolios on their high B to A class inventory because you’re just dealing with more of like a middle class to upper-middle-class tenant who has a really good job, wants to keep a clean house, you know, wants, even though they’re renting, they care about the property and that results in a very passive landlord experience. 

It absolutely does. Okay. And then that way, you know, you’re just collecting your rent check every month. Obviously here and there repairs going to pop up, but you know, you’re really just getting mailbox money at that point because it’s very easy for your property managers to manage those properties. Or if you want to be the landlord yourself, you know when you have a high B to A class property, I guarantee that your relationship with your tenant will be a lot more smooth. Okay. But I know it’s very smooth on your property manager because we manage hundreds of homes that are in that high B to A class range. And so I see where the troublesome properties come from and I see where the good ones come from. And like I said, it really just comes down on that asset class and it’s the properties that are in neighborhoods where you’re very close or at or slightly above the median home value. 

And those investors are getting paid in other ways than just cash flow, right? But if they made their decision on their investments solely on cash flow, they would end up buying a property in the inner city of Dallas, which is just not a very good neighborhood. Or Detroit or the inner cities of St Louis and Kansas City or Memphis or wherever. Now there’s good areas in all markets and there’s bad areas in all markets, right? There’s areas in Memphis that are high B class that I would buy all day, but then there’s areas in Memphis that are low C to D that I wouldn’t touch because myself, for me, a passive experience is very, very important to me. It’s not just my cash flow that’s coming in. If I want cash flow, then I’m going to go lend money out. I’m going to go do private lending, you know? 

But if I want to reap the rewards of everything else and possibly see higher returns through an appreciating asset, rental properties make sense? Right? But I don’t want to buy a property where my tenant’s gonna make my life miserable. So you know, just all the different ways that the tenant can damage to the property. You know, it sounds like a nightmare and it can be a nightmare. And who would want to put their multi-thousand dollar asset in the hands of somebody that could do that? That just shows you right there how important it is to have a good tenant. Now imagine the tenant that pesters you all the time, right? There’s tenants that are like that. They’re never happy. Maybe the tenant just likes to complain, Hey, we all know there’s people out there that are like that. They can call you to inform you that there’s a small scratch on the refrigerator and they want you to fix it. 

Or they leave you messages on your voicemail every single month to let you know that the rent check’s in the mail. Maybe it’s a tenant who doesn’t send a rent check and you’re chasing them all the time, which I’ve had to do. So here you are, last minute covering two mortgage payments, your own home, and that property, right, your rental. None of this would make any sense, you know, for a sane person to sign up to become a landlord. So why do people do it? Right? Well, you do it because it can be a very, very great passive income experience for you. And it can really, you know, it can pay you and up to six ways as I said earlier in the show, but you got to purchase it in the right neighborhood and you always got to think what type of tenants am I going to attract on this property? 

And if you get a bad feeling like it’s like, ah, I dunno, I just feel like I’m not going to get the best tenants in here consistently, then you’re setting yourself up for trouble. Okay, so we’re going to take a quick commercial break. When we come back, I want to discuss how a property manager can transform your landlord experience. Be right back. 

And welcome back from the commercial break. This week we are discussing how your tenant impacts your landlord experience. And so now I want to go into how a property manager can transform the landlord experience into possibly a good one. Okay? But there’s bad property managers out there too. Trust me, I know that can also make your experience even worse. If you talk to any happy landlords, they’re going to say that they have a great property management company. You can’t be a happy landlord without a good property management company. 

Okay. Property managers are the one thing that enables a person to have a passive experience as a landlord. Without a property manager, you’ve got a second job and that’s so true. So with property managers, you’re going to get a passive landlord experience from day one of hiring the property manager, you get many services. Okay. One is finding a quality tenant and managing that tenant during the lifetime of the lease. The property manager is going to handle obviously the advertising for the property. They’re also going to accept tenant applications and screen them and make sure that they’re qualified. From there, they will vet a shortlist of candidates with the criminal and financial background check and then the PM may interview potential tenants in person or over the phone. It’s a multilayered vetting process that ensures you are getting the best quality tenant or your property. 

Okay. And that’s stuff that most, just regular landlords without a property manager, they might not do. They might not go the extra mile to do criminal background checks and follow up with previous landlords, so on and so forth. Okay. But quality tenants are, you know, quality neighborhoods. What, let’s start there. Quality neighborhoods are going to attract quality tenants and those quality tenants are much more likely to take care of your property as if it was their own and they’re much less likely to cause any kind of damage that I’ve mentioned earlier. And that really comes down to the asset classes again. Okay. Quality neighborhoods usually bring in quality tenants. Low-quality neighborhoods on the flip side are going to bring in lower quality tenants, right? Tenants that potentially have some bumps and bruises on their record or not the best jobs, so on and so forth. 

Okay. The PM is going to handle everything from there on out. After the tenant’s in place, they get signatures on leases, they take rent payments each month. They make sure that the rent’s paid on time, they deposit the rent into your bank account, they take phone calls from the tenant, they handle major and minor repairs. Uh, they encourage lease renewals. So they try and keep your property leased, you know, renewed, like keep the tenants in the property so you’re not experiencing a lot of turnover. Uh, they raise rents when it’s appropriate and many other things. Your job as the landlord throughout this is really just to simply track your rental deposits, check your portal. Any good property manager should have an online portal that you can track the statements and make sure everything’s looking copasetic, right. If the PM needs anything from you such as money to pay for needed repair or replacement, they’re going to contact you. 

Otherwise, you can assume all as good as long as you have the quality property manager for your rental property. I mean it’s, that’s the facts. And remember the pesky tenant phone calls you read about and we discussed earlier, well with the property manager in place, your tenant doesn’t even have your phone number, email address. 

Now hopefully after this episode, you can understand why some people love being a landlord and others hate it. The ones who love it use property managers for the rental properties. You know, so that’s all I have to say. I use property managers for all my homes. Um, and like I said, I have some really good experiences with a lot of my higher end properties. I have some not so good experiences sometimes with some of my lower end properties. I really don’t, I don’t have any C class properties in my portfolio any longer. Uh, I just really have just had too many bumps and bruises along the, along the way, so where it’s kind of put a bad taste in my mouth and it’s just very, very tough to find good property managers that will manage that type of asset class as well. And so it just really has never resulted in a very passive experience for me. 

So I hope you found this episode insightful and learned a lot from this episode and hopefully you can take some things from this episode and add it into your due diligence process when you’re looking over potential investments when it comes to single-family homes. But if you’re interested in learning more about our single-family properties that are available, um, for, for investment purposes or if you are interested in learning more about our private lending opportunities that are coming up, we’re about to start another raise here. 

It’s going to be for, uh four-plexes in Irving, Texas, which is a great, great area of Dallas. There’s a handful of Fortune 500 companies based in Irving and McKesson is just actually building their new, I think they’re putting the finishing touches on their new a U.S. Headquarters, are bringing all of their employees to DFW and Irving, specifically. So we have a great, great opportunity with these four four-plexes, which we plan to go in, renovate the, each of the units. All the leases expire by year’s end. So we’re going to do a year term on this one. Uh, get all the, the units refurbished, bring up the rents. Not all the rents right now are at market rents. Some are, some aren’t. Uh, but once we refurbish all the units and bring these, these properties up to today’s standards, right, we should be able to get at least $1350, possibly $1400 each for these, for these units. 

So I’m excited about this opportunity that we have upcoming. So if you want to learn more about our current opportunity, um, private lending, which is actually about to close any day now, we only have a couple spots left on that one. Um, or if you want to learn more about the newest raise on the four-plexes in Irving, Texas, just go to AREIUSA.com or RealEstateCowboysDFW.com and put your information in and our team will reach out with more info on our passive income investment opportunities here at American Real Estate Investments and the Real Estate Cowboys. So thank you for listening in again this week and we will be back next week with some more great content regarding, DFW real estate and passive income opportunities through real estate. So really, really excited and thank you for tuning in. And once again, always remember, what’s your return on life? See you next week. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.