The real estate world is too vast that learning its ins and outs can take years of experience, especially when you are a first-time landlord. Thankfully, professionals like Jason Bible and Robert Orfino exist to guide you through your wonderful journey of making homes better and worthy for you and your renters. In this episode, Robert teach the basics on how to be an exemplary landlord – one who can basically differentiate between a flip and rental rehab and one who can give a clean finish to both processes.
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Being A First-Time Landlord with Co-Host Robert Orfino
Being A Landlord
I’m going to talk a little bit of inside baseball first here, then we’re going to get into being a landlord. We’re going to talk about the blue skies that we have. The hurricane is not going to hit our beach houses, which is always a good thing. I am from California. I spent the last nine years of my life in California. The weather is wonderful. The cost of living is horrible. It’s called the Sunshine Tax. You pay all that extra money out of your earnings, essentially if you live on the west side of LA to enjoy 83 degrees, no humidity every single day. I talked to one of my friends in California. He’s a good guy. This is all inside baseball stuff and he runs a room. What do we mean by that? We mean he runs a very large REIA club. As much as the problems that I have with the national REIA just as an organization, they do not relate to him at all. This guy is for sure a 100% standup guy, a truly great human being.
We’re talking and he was like, “I heard you had Merrill out there.” I’m like, “Yes.” He’s like, “Are you running some rooms?” I’m like, “We run some rooms, but we do most of it online. We can reach more people online. We have the recording and people can go back and watch the recording at their leisure. That makes our content more accessible to the folks who we’re talking to.” He said, “That’s probably a good idea. We’re in this old way that we do.” I’m like, “I get it.” He packs in 100, 200 people in his room every time he does an event. He said, “I heard you had Merrill out there.” If you remember Merrill Chandler from CreditSense. Merrill is out to his room. I said, “Merrill came out. I think he did very well.” I know exactly how well he did. There were people who signed up for his program are going to become very successful because of the stuff that he’s going to teach them. He said, “Who else do you have?” I said, “I don’t have a lot of those guys. It’s not our model.” He said, “You have a room, you have all these stages.” The inside baseball stuff, stages are what we call the room. “Can I get on your stage? Can you get on my stage?” That stuff. I said, “I don’t have a lot of guys.”
He started running through a list and I’m like, “He’s a good guy. I like him personally. That’s fine.” “I brought his program. How can I have him on stage?” I said, “This is all I want to know. I want to know from anyone who speaks on our stage, can you show me the last three HUDs closing documents? HUD one, the top page. Can you show me that you’re doing what you’re here to charge our folks a lot of money for? If you can’t put that up, that’s not in your package, then no, we’re not interested.” Second is this, a lot of us, we have done coaching. We’ve been coached before. We’ve taken tennis lessons, ski lessons, golf lessons, cooking classes. In almost all of those scenarios for long-term coaching, you have a book or you have at least an index card or a little file. The coach opens it up and says, “Robert, we worked on your serve the other day. Did you get out and you hit 200 balls?” “Yes.” “Okay, great. Did you do the exercises?” “Yes.” “Great. You rushed the net?” “Yes.” “Excellent. We’re going to work on your backhand. Let me show you your backhand stance and let me show you this. Now do it. You do it. Robert, you got to tweak this a little bit. Put your wrist over a little higher. There you go. Hold it with two hands. There you go. Excellent.”
In my mind, that’s coaching. In my mind, there is a coach that says, “I played sports in high school.” I was coached, I road crew. I was showed exactly how the wrists works, how the knee works. When you drive, when you thrust, when you lift, when you pull, all the little technical things so that my oar could go in the water at the same time that everyone else in the boats’ oar went into the water. My oar would come out of the water the same time everyone else’s oar came out of the water. Baseball. I was taught how to pitch, how to catch, how to hit. It was like, “This is how you do it.” I explained to him, unless a coach has that, “I want to know who’s tracking the progress,” and he said to me, “I don’t know anyone who does that, Robert.” I said, “Exactly.” I do. Tom and Jason, when they had everything up and running, and Tom’s still tracking it, they tracked progress. Numbers in boxes. How many letters did you send? How many doors did you knock? How many offers did you make? How many plumbers did you talked to? How many roofers did you talk to? It’s just a number in a box thing.Get a good coach that you can pay as much as you want. That $100,000-coach would probably make you a million. Click To Tweet
He tracked you on progress and then you can see the people’s boxes who are successful because they filled with a whole bunch of numbers and you can see the boxes for people who are not successful because there’s not a lot of numbers in the boxes. Those two guys, Tom and Jason, when came to town and I watched their program, at that time I had already done some of my own stuff and I was a back of the room closer. I was a blue suit. I make fun of the blue suits all the time, but I’ve done that. I’ve helped out folks. I’ve promoted a lot of other folks and then I sat down and saw that program. I was like, “That is amazing. Nobody else in the country does that. That’s how it should be done.” I simply told my friend, “Until someone comes to me and shows me that program and tells me how successful their students are, not the case study, anyone can get a case study.” I have a program called Big Game Hunting and it was from folks from California to come and invest in New Jersey and into the Texas market. I have over 50% success.
There are two or three people that I feel like I still need to give a little more love and a little more attention to because I think they’re close. There’s probably another five or so that have gone off to something else. That’s okay. That happens. I know that I’m tracking better than 50%. Can anyone who wants to come on my stage tell me what their percentage is? The answer’s usually no. I did not see it until I met Tom and Jason. We don’t allow those people on our stages. We don’t allow them in our room. I know that Casey has a book. I know he has a book because there’s a book in his office with my name on it because I have my book there. We talked a lot about the mastermind, but I think we missed this one point. There are good coaches out there. You can get a good coach. You can sit down and it’s very mentorship. You can pay as much as you want. I’d pay $100,000 for a good coach because that $100,000 coach would probably make me $1 million, but then there are all these folks out there who are like, “I’ve got this binder. I’ve got books and tapes.” They’re called books and tape guys.
Inside Baseball Stuff
This is inside baseball stuff. They’re known as books and tapes. That’s who they are. They’re books and tapes. “You do books and tapes.” That’s the inside baseball lingo right there. People are doing books and tapes and all they’re doing is selling the books and tapes. They’re not coaching. They’re not tracking progress. Most of them aren’t even doing the business at their books and tapes sell or if they are, they’re not doing it as much as they claim to do it. That’s why we say, “Show me the last three HUDs. You do student housing? You’re doing millions and millions of dollars? Awesome. Show us the last three HUDs. You should have at least closed three in the last 30 days, 90 days based on the numbers that you’re purporting.” We do this not because we’re any better than anyone else in the world. We do it to protect the people that trust us. There’s a level of trust that we are gaining and we screw up some times. We know we do, but there is a level of trust that people are coming in and we don’t want them in the room. We have a lot of people that say, “I want to be a sponsor,” and the answer is no.
I’m sorry I don’t believe in your product. Trust me, I would love the $30,000 a year but we are not taking it. I’m not taking that because I do not believe in your product. I’m not going to allow you to come into our rooms and pitch your product that we don’t believe in. I guess that’s what we’re trying to make different. For our mastermind, we’re going to bring people in that we believe in that will show you the way to do it. If you’re in our mastermind, you don’t need motivation anymore. You’re not coming to our mastermind for the motivation. You want to know the grip on the backhand and where the wrist is placed and where the thumb is placed. Is it two hands or one hand? How do you place your hips right before you drive through the ball? That’s what you’re looking for. I think that’s what most people are looking for. We get sold on the hype and the emotional lift, but at the end of the day, we want to know how to hit the ball on a backhand.You don't come to a mastermind for the motivation. You want to know how to hit the back end. Click To Tweet
We’re going to be talking about being a landlord. We were talking about some of those mistakes that folks make and I think two things. I think people over-rehab. I’ll be a rental property because there’s some emotional attachment. You have to put out. You have to set the standard. I’m going to have a C-plus or B-level interior of my property. Know what your standard is. Know the specs that you’re going to use. Know that the price points where they’re at. Understand this, “I do want a solid surface countertop. I’m not going to use quartz. I’m going to use a tiger skin granite or a gray, black crystal flex that Fast Track uses.” It’s a lower grade piece of granite. We used to always use Santa Cecilia. We’d always use that. Right now, we’re using quartz. We’re purchasing at about $9 a square foot, which is almost on par with Formica. We set the standard, we know we’re going to do this. We know we’re going to shoot some crown up in the living in the dining room area. We use crown molding up because we got a guy who can do it pretty fast and pretty cheap. We make sure all the doorknobs match. We’re going to change out all the light switches for rocker panels. We’re going to change out all the outlets for the decor ones. Make sure they’re squared up and have our little standard.
This is our standard. This is how we do it. We have crews that do it. We don’t want to introduce new materials into that. You don’t want to play interior designer with your rental property. You want to have your template, go in and do it right. Set the standard. Make it nice. Make it clean. Make it bright. I wouldn’t mind sleeping here. This is the don’t part. Don’t get emotionally attached to it. We have a house back in the northeast and Catherine keeps calling it our home. I talked about that. Whenever you’re dealing with homeowners, listen to the subconscious, psychological, emotional attachment. When you’re talking about buying a property from someone and they call it their home, you are going to have a very difficult time closing on that versus someone that has a house. It comes down to this. Know it because it’s one of those NLP things to tell that the seller gives away all the time. If they call it a house versus a home, houses have problems, homes have memories. This is the thing about being a wholesaler, acquisitions. You’ve got to go in and convince Meema to sell you their memories at $0.50 on the dollar. They think their home is worth so much money because it’s filled with these memories versus a house that’s got galvanized pipes, faulty electrical, leaky roof and a shifting sand foundation, which is Texas.
It’s Just A House
Houses are easy to buy. Homes are dang near impossible. Remember that. That’s important when you’re talking to someone about that property and if it’s directly the person that lives on their own. I have a rental property in the northeast, which is to me nothing but a house. To my wife is a home. I don’t let her go anywhere near that. We go back to the northeast, she’s like, “Let’s go.” I’m like, “No, we’re all good. You’re not going to like the cheap wood floor they put in downstairs. You’re not going to like the cheap wooden vanity hey put it in the bathroom because the other one was leaky. You’re not going to like any of that stuff. We’re not going to bring you in there.” She has emotional attachment to it. To me, it’s just a house. You cannot get emotionally attached to your rental properties. Have your standard, make it clean, make it neat. They get service. One of the things we always ask our property managers, “Who’s doing the bug prevention? Do we have someone in there every quarter going and spray the outside, keeping it clean, making all that stuff? We don’t want infestations.” Make it clean, make it safe, make it healthy.
If you can provide a product that’s safe, clean and healthy, then you put a good product on the market. That’s what you should be doing. Don’t put your emotions in that. Nobody wants a lilac wall. Nobody wants a sea green accent wall. Nobody wants that except you because you want to decorate it and all of a sudden you want to make it something that it’s not. You’re putting out there a very clean, a very safe, a very healthy product. It doesn’t necessarily mean that it’s trendy or kitschy or homey. You have to understand the difference. I think a lot of people get caught up into that. I’d much rather you become emotionally attached to your standards than to the house, if that makes sense. “I want to use these doorknobs. I like oil rubbed bronze.” That’s the darker a color knobs and hinges. “I like that. I want the whole house to be like that.” That’s fine. Now let’s go out and find these products that are in our price range and that are quality and are durable.You cannot get emotionally attached to your rental properties. It's just a house. Simply provide a product that's safe, clean, and healthy. Click To Tweet
We’re talking about not getting emotionally attached to the house. A lot of folks want to be a Joanna Gaines and do all kinds of shiplap, all these great little items and stuff like that. That’s Airbnb. You can do that with Airbnb. Your rental properties, don’t mess with that stuff. Come up with a clean, safe and healthy product list and get those products installed as quickly as possible. Get your countertops done, your knobs, your doors, your flooring, that type of thing. Someone mentioned to me that it’s like a raising a cow out here or, as the case may be, a goat. You probably don’t want to name your goat or your cow because at some point it’s going on the back of a truck. Trust me, it’s not going to go to Disney World. It’s going on in trucks. Don’t get emotionally attached. We are talking about the standards in which to be a landlord. You want to make sure that you can provide that clean, safe and healthy product to the marketplace.
If you could do that, you’re not going to have a problem renting. You’re not going to have a problem finding good tenants. It’s when you put a substandard product on the market that people get scrambling to find folks. We had one. We had a contractor that did everything they were supposed to do and they didn’t. We had problems. We’re on our second tenant now or third tenant because we put a substandard product on the market. We had to go in and clean it up and drop another $8,000 to fix all the things that had to be fixed. Now it’s in the marketplace. It will cashflow. We should not have any more capital expenditures for the next foreseeable future. That’s what we talking about. We use the term CapEx. That means capital expenditures. I didn’t even know what it meant. People would always throw it at me, “What’s CapEx? Can you explain that to me?” When I’m starting out my real estate career, people will throw all these words and acronyms and math around and I’m like, “I don’t even know what that is.” When I figured it out, I’m like, “That’s easy. Why didn’t you say that? Why did you say maintenance cost?”
We want to hit all those major maintenance possibilities upfront. Meaning if the water heater is less than half its life, we keep it. If it’s more than half its life, when we replace it. Same thing with HVHC. We look at the roof. The roof’s got less than ten years, replace it. Foundation, let’s get the foundation squared up. It doesn’t have to be within a quarter of an inch. Let’s get it within an inch. Let’s stop this literally slippery slope. We talk about it all the time that Jason and I are buying and holding. We still like to single-family asset for equity. We have one where we bought for Jet Lending over in Katy and we’re about to refi it. Within less than one year, there’s $65,000 in equity in that house which is phenomenal. We talk about small apartments. We do talk about Airbnb, but once in a while this little single-family comes across at a good number, we can buy it at $0.50 on the dollar.
We know how to do the work and we’re not scared of a nasty filthy house. I can turn it around in less than a year, have $65,000 equity in that, then we do it. Conversely, there’s a fourplex. There’s not a lot of equity, but it’s throwing off $1,800 a month and we’ve taken care of all the CapEx so we shouldn’t have big maintenance bills coming up. Straight off $1,800, I need five of those. I’ll take two. Three gets me all my basic living standards completely done. My car, my insurance, my house, groceries, utilities. Three and I’m done. I’m living free. Now I don’t have to worry about making the rent or all these bills coming in or is my credit card maxed out. Just three of those. We’d go into this, “What are you looking for? Cashflow or equity?” At some point, we’re looking for cashflow. We want that $12,842 a month covered.
We’re talking about being a landlord, talking about all the financial freedoms and all that stuff. You have all the emotional stuff. You know in your heart, in your mind that owning property is a good thing. We don’t have to go into that. We don’t have to talk about how it outperforms this market and it’s better than this. You got it. That’s why you’re reading. That’s why you follow Jason and I. You get it. Now, we get to show you how to hit the backhand. Some of the stuff that we’ll talk about is once you get into that maintenance, once you get into that minor stuff, we don’t want to manage it ourselves. We usually hand it over to Jerry. We want to put a good product on the market safe, clean and healthy. Get it out there in the marketplace. Understand the specs you want, have your handyman, have your contractor do the changes. Don’t be afraid to buy these things deeply. What do I mean by that? It means that they’re distressed. They’re very distressed.
Most of the times, the stuff that we’re buying are one floor. It’s a ranch. It has foundation problems. Trust me, I remember being sent out to Sugar Land to look at a property where it had foundation problems. It had foundation problems because there was a pool. There was a lot of shifting going on and a tug of war between the pool and the house. It had dropped down significantly, probably a foot. That had caused the second floor to collapse down into the dining room. That one, no thank you. That’s $25,000, $30,000, $40,000 worth of foundation and framing and you’re going to still have to figure out what to do with the pool. If you’re on a pier and beam and it’s a little wonky, Texas City, La Marque, it’s not that much, $6,000, $8,000. It’s not going to be crazy. In escrow, you can get a foundation inspection. That’s what we’re going to do. We’re getting one done on a hotel. It’s the only inspection I want. That and electrical. I want an electrician to go walk it and I want the foundation guy to walk it. That’s it. Why? Because I have my product sheet and I know what I’m going to do.
From The Wholesale Flipper Mindset Into The Landlord Mindset
We’re putting out a safe, clean and healthy product that doesn’t look anything like your house in Sugar Land or in Cypress or in The Heights or on River Oaks. It doesn’t look anything like that, but it’s clean and it’s healthy and it’s safe. We put that product out there and so we go into some of these properties. Usually, we have Elijah from Fast Track. He’s like, “Everyone, calm down. Let’s go through step by step.” He shows you, “You can fix this house up, make it a good rental and you can put in a good product out on the market.” We like to buy distressed properties for buy and hold. Understand the formula, this is important. This is going to get you shifting out of that wholesale flipper mindset into the landlord mindset. We know that 70% minus repairs is a good indicator of a deal that can be successful on a flip. A lot of wholesalers will be presenting 72%, 73%, 75% deals on a flip. On a buy and hold, I’ll go as high as 83% as long as the cashflow is there.
When a wholesaler brings me a junkie flip at 78% or 80%, I’m looking at it as this is a buy and hold. Clearly, I can’t flip this. It’s $100,000, it needs $45,000 worth of work, but it’s in an area of town that gets $1,800 a month rent. That’s a flip, but it’s only going to be worth $210,000 so you’re looking at it the same. No one’s going to buy at $210,000, by the way. It’s always the $199,000. It’d be under $200,000, so you can be down the $180,000 on that and you’re all in at $150,000, you got $30,000 spread. If you go over any little bit, you’re going to lose it. The carrying cost is going to cost you $1,400 a month for six to eight months. Ten months, let’s make it. That’s another $14,000. If you did that flip, you’re lucky to make $10,000. If I bought it, fixed it and rented it and I’m on the edge of town where I might appraise like the Katy property I have, then that’s a good strategy. We’re not afraid of these houses that would look like deep flips. We’re not afraid to take that on. You should not be.
Don’t be afraid of that stuff. That’s gold. That’s a lot of equity. My friend, Casey, said, “The person that deals with the most problems is the person who makes the most money.” If you want to turnkey rental, you’ll be fine at 8%, 9%. You can go to the Clothier family and they’ll give you a Memphis property and you will be for sure good at 8% cash-on-cash. You’ll make 8% on that property. That’s good. There are no problems. Turnkey, it’s easy. If you get on the bus tour and you buy a beat-up house or you have the opportunity to make that 20%. When we look at rentals, we want to make at least $200 to $300 cashflow each month. This is single-family stuff. We want a 20% cash-on-cash return. Meaning if I’ve got to put $40,000, I should make $8,000 a year. We want there to be about 20% equity in the property.
If we can find those properties, which our buyers and our agents are doing, that’s a good rental. A lot of times, they’re in poor shape. You’re not going to get your 20% cash-on-cash for a turnkey property. We can show you case study after case study that says we could get our 20% cash-on-cash. This is what we’re doing in our properties because we bought them when they look like heck. They’re in bad shape. We don’t want you to be afraid of that stuff. We want you to see the opportunity. The smell of cat urine is the smell of money. Here’s the thing. When you walk into the house, especially if it’s on the MLS, here’s what that marketplace looks like, that $150,000, $180,000 range. There’s John and Mary and they’re like, “It’s in the area that we like. It’s in Edo. It’s over here in Katy. Maybe we can go in and get it.” That’s who that agent is listing it for. It’s listing to that brand-new couple who don’t know any better. They go in there and they’re looking at the pictures and that doesn’t look too bad. The cabinets are green, the appliances are white Formica. I get it and they may not look too bad, but you walk in.
Your view is skewed. You’re in a Salvador Dali painting, you’re walking left and right and it smells like cat urine. I’m like, “That’s a great smell,” because that smell pushes out all the retail buyers. They are out in the marketplace and it is insane. There is no real estate agent trick to getting rid of that smell. There is no deodorizer, baking powder, vinegar. There’s none of that. It is cut the floor, take up the subfloor, put new subfloor down, put new flooring down. That’s how you get rid of that smell. The problem is it seeps up into the walls. Drywall is dry and so liquid gets absorbed into drywall. Sometimes you’ve got to cut the lower twelve inches of drywall. Only you, the real estate investor, is going to do that. John and Mary are not going to do that. John and Mary are not having visions of their first baby in the house that smells like cat urine.
We love agents. They’re amazing. They tee up for us all the time. They put this house on the market and it’s an Edo. This is going to be exciting. A new couple is going to go down there and we’re not far from the light, “This is excellent. What’s that smell? We can’t live here. We’re out.” We’re going to have to rent for another year as rent slowly go up and up and up. That’s where we come along because that’s a retail product. It’s not $0.50 on the dollar. We’re going to buy it and we’re going to make sure that we’re coming close to 75%. 75% is the magic number because when you refi it out, they’ll give you up to 75% LTV. That’s the hope that you can get this done and get your money back out to put in for the rehab and maybe got to leave $5,000, $6,000 or $7,000 in. To us, that was the essence of Big Game Hunting. Going after distressed properties, making sure it’s at least at 75%. We don’t want to go much worse than that and being able to rehab the property.
- Merrill Chandler – previous episode