Tuesday, May 10, 2011

The BEST Tenants

The best tenants want the best product. Everyone says they have the best product but we begin with a very strong emphasis on designer/"wanna stay" features in our homes. And we attract the best tenants with pictures of those features. Ideally our homes are photographed when they are inhabited, furnished, clean and at their very best. High quality images of amazing homes attracts the best. Unfortunately it also attracts a lot of people that would like the best but simply don't qualify to be our tenants.

How do we qualify?

First we get lots of information on an applicant. Much of that information can simply be observed. How do they present themselves? Do they keep their car clean and well maintained? Are their children taught to be respectful, etc. etc. And some of the information is obtained through reports, copies of documents, etc. It is all information until we begin validating it. Saying someone has a job is very different than getting copies of 3 pay stubs, seeing they were deposited into the bank statement copies we obtained, having a letter from their employer and making a call to their boss. In short, we don't rely up on information until we validate that it is real through cross checking it.

Having a list/inventory of all the information that can help you make the best decisions is a great place to start. Making it as easy as posible for the prospective occupant to help you get the information you need is also critical. Having a formal series of questions can also add to the information inventory - especially if you take the time and effort to listen and ask clarifying questions. Forms that can be signed that give you access to the information can help make it easy and make it fast!

After information is gathered and cross checked/validated we use it to assess; financial ability to pay us and the quality of human being that they are. This is as much art as anything - often little interactions are big tip-offs. But having all the questions, answers, insights in one place coupled with the benefit of reviewing all that information with someone who is knowledgeable and not as close to it has always helped us make the best assessments and decisions we can.

Attracting the Best Renters

Our strategy for insuring we attract and retain the very best tenants is to create a "Designer Home" with many "Wanna Stay" features - i.e. features the occupants like a lot and can't find elsewhere. We aspire to the opposite of the "white box" Much value can be added by caring and putting forth effort. Constant engagement in the question, "what would make this a more special home to live in?" Quality of workmanship contributes much to this cause. Constant innovation, shopping for components, finding closeout bargains and an unyielding desire to "notch up" the quality and desirability of each home all contribute to making it happen.

In the spirit of this strategy, our Managing Partners "walk the walk" by:

Always maintain 6 professional grade images for each property of designer/”wanna stay” features that can be used for advertising the rental of the unit in the investments dropbox folder.

Perform at least one annual improvement while the property is occupied that adds a designer/”wanna stay” feature.

Performs at least one formal inspection/renter happiness survey that insures the property is being maintained clean and well and encourages the tenants to provide you with ideas for improvements that will result in that tenant being happier, ideally staying longer, attracting and retaining future tenants.

Is constantly asking everyone (contractors, tenants, designers, business associates, prospective tenants) what would be "cool"? What would make you want to live here? What would make you want to live here for a long time?

In short, creating homes that have the features that attract long term amazing renters is our passion.

Wednesday, February 2, 2011

Partnership Construction

The whole concept of a partnership is that each person brings different knowledge, skill and resources to the venture.

Given that everyone has different knowledge, skills and resources - each partnership should be crafted different to accommodate those differences.

The foundation. Without certain critical key foundation attributes, I don't think you can construct a viable partnership. Honesty, integrity, and competence are some of those foundational/critical qualities. Many of those qualities can't get assessed without spending time developing the relationship. So the first stage of constructing a partnership should be spending time, discussing and debating the venture and giving each other opportunities to do any necessary due diligence on each other.

The vision. The next critical attribute of a successful partnership is vision. There is no "right" vision. But if the vision for the venture isn't the same, there is definitely a wrong partnership. Our investment goal, for example, is very long term. We wouldn't make a very good partner for someone who was interested in quick flips.

Win/win. Finally the partnership should give each partner the feeling they are getting the "better deal" if it is constructed properly. If one party feels they are not getting a great deal, it is just a matter of time before the partnership is sabotaged.

An example of an amazing partnership...

Micky Stiles is a contractor. He has a crew of three guys that work for him. He is straight and honorable. He is a pro. He tried buying a home for "investment" purposes in the past and it didn't work out for a number of reasons - he bought the wrong house, in the wrong neighborhood and had no tenant management skills or experience. Yet his goal was to in some way develop a net worth and a mean to retire.

After spending time with Micky we found that he had significant extra resources. There were days that his crew had free time. There were leftover materials from other jobs. And there was plenty of excess knowledge. We constructed a partnership with him in which he contributed renovating and maintaining our properties at discounted prices in return for a piece of the ownership in the properties. For our part, we also helped him hold those pieces of ownership in a way that gave him tremendous tax advantages. We got amazing renovations done by a partner who had a vested interest in the appreciation of those properties, at very inexpensive prices. Micky got a percentage ownership in 8 single family homes over time and new knowledge and expertise on how to maximize his retirement savings using sophisticated tax strategies.

Thursday, January 27, 2011

Whooo Ha!!!

Al Pacino, in Scent of a Woman said it. "Whooo haaaaa". We have become a society very dependent on branding to
make our purchasing decisions. When we are traveling we want to eat at certain restaurants "brands" because it we know what we can expect from those brands. When we buy jeans, we do so based on the brand. And with every brand we associate certain qualities. Ford trucks - tough. Porche cars - fast, exclusive and sexy. etc. We all want whooo ha!!!

Ben Vanderwoude recently had the idea of providing a "custom brand" for our rental homes. "Give them a choice of carpet and they feel like the home is theirs." We think Ben's concept is brillant and a major step in the right direction.

How much more does "whooo ha" cost? Well, my parents did a extension of their old home. They put in a bathroom that, to say it was whoo ha would be an understatement. Fancy italian marble, extra special fixtures - in short, whooo ha. I was at Home Depot years ago and I saw a close out on some 12x12 marble tiles that to me looked like the exactly same stuff my parents used.

Finally, people perceive a whooo ha brand is worth more than basic. As soon as the label on the underwear says "Victoria's Secret" it is worth way more anything you could possibly buy at Target - even if they look and feel exactly the same.

My point is, if you are creative and resourceful, whooo ha shouldn't cost anymore than basic and can give you a major competitive profit edge. And I am crystal clear it wouldn't cost anymore to put in the ad for the apartment "Custom/Designer - Ralph Lauren Style Home" as opposed to "Ranch for Rent".

I'd love to hear your specific ideas on whooo ha!

Wednesday, January 26, 2011

Employees Suck

Employees suck. Lets call it like it is. Who would you rather have an employee or a highly specialized, very competent partner. An employee does what they've got to do. A partner does what needs to get done - and then some!

Our partners have had brilliant ideas for making our investment homes the best. Everything from ideas on how to renovate the homes so they are more than "white box" specials to choosing the right tenants to finding bargain homes.

And our partners have executed our collective ideas way beyond ordinary. Just walk into one of our homes and you'll see many many exceptional details.

When do our partnerships work the best? It is simple. Whether our partner is a realtor/rental agent, contractor, property manager or other investor looking to expand their portfolio, and have these qualities:

1) They Care. They want to make it the best it can be. It is a reflection of who they are.

2) Ownership. They like being owners and participating in the upside of the project. They like having the incentives of being an owner.

3) Smart. They understand wealth is built over time by doing it right. They are patient and understand that if the details are nailed the project will create an amazing amount of wealth over time. They get that fee income is great but the second you stop running on the treadmill the income stops. Investment income is durable and replaces our hard efforts over time.

4) Capacity. They make the extra time, energy, intention and capacity to invest in a project, knowing that in the long run their efforts will be returned many fold.

Making Money - No I Mean A Lot of Money

Real estate prices are at major lows.   You don't have to have a PhD in economics to know this is an amazing time to buy.  Actually it is only an amazing time to buy IF you invest in the right buildings and manage them right.   As good as the opportunity is, without those two components, the opportunity would get dissipated.

It is our intention to cherry pick and buy the very best properties and then manage them far better than anyone else in the business.  We're not interested in mediocrity.   To do that we need the best of the best property managers, contractors, investors, realtors and rental agents.    It doesn't cost that much more to get it right - it is mostly about vision, innovation and caring.

All our relationships are built with fair short term compensation and exceptional long term incentives to create the very best and most profitable rental homes in the business.  We're constantly looking for winners.  Whether they be other private investors that would like to expand their portfolio but can't raise the capital, or an exceptionally skilled contractor, rental agent/realtor or property manager that has amazing skills and would like to own a piece of something.

How does it work?  In return for either reducing or eliminating their fees, they get a piece of the ownership in the property.  It is that simple.  And that creates a series of amazing benefits to everyone.   Often it begins by buying the right house, at the right price, doing the renovation the right way and renting to the right tenant.   When that happens the value of the homes is worth considerably more than what is invested and the whole process begins working:
  • The property is already worth more than what we have invested in it.
  • The property will be easy to manage because it is in the best neighborhood, it has been renovated right and we have attracted the best tenant.
  • In time, the property will appreciate.  Given that we're buying many properties for 1/4 of what they sold for at their peak there is a lot of room for appreciation.

And the most important part, our partners participate in all this with us.

Tuesday, January 25, 2011

Kitchen Counter Tops

Who has the best ideas for kitchen countertops and back splashes?

Ding Ding Ding - The Nicest Renovation Award!!!

This bathroom was renovated by one of our managing partners in Michigan. It was the nicest renovation I saw on my recent trip out there. It has it all: aesthetics, durability, practicality, user-ability. My hat's off to Gerry & Deb!!!

It doesn't cost that much more to get it right - it is mostly about vision, innovation and caring. My Grandfather's corollary, "good enough usually isn't".

Saturday, January 22, 2011

Not Allowed in Our Buildings

Lets face it, you can't have ordinary, run of the mill, regular, vanilla "stuff" and be special. The two just don't go together. So lets list some of those ordinary things we, effectively immediately, have banned from our buildings.

1) Cheap white Home Depot vanities.

2) "White box" walls. This isn't to say there aren't rooms that don't look fantastic in white. But the majority of rooms should have level of designer color scheme.

3) Stock formica formed countertops with the ugly curved backsplash.

4) Cheap stainless steel kitchen sinks.

5) Stick down linoleum tiles.

6) Laminate Flooring.

7) Drop Ceilings (except in basements).

8) Cheap cheesy light fixtures.

9) Oak contractor flat panel kitchen cabinets.

10) Cheap curtain rods for showers that aren't permanently screwed in.

11) Windows in showers (replace with glass block and tile trim).

12) Flat panel hollow core doors. Ideally a minimum of panel pine doors.

13) Shoddy workmanship. "Good enough usually isn't"

14) Showing homes before they are spotless clean, all work finished, all appliances & fixtures installed, paint scraped from all windows and windows clean, landscaping at its prime and walkways shoveled. All stickers and labels removed and sticky shit is gone too.

15) Any mechanical solution that is inherently faulty or destined to required further maintenance. i.e. sinks, bathtubs, backslashes that are not silicone caulked.

16) Painted hardware. The cheapest grade contractor hardware.

And finally, a new floor matt waiting at the door entrance for people to take their shoes off and view the home without street shoes.

In short, we want the quality of the products and workmanship used to exceed anything our tenants would find in competing homes.

Please tell us what else should be added to this list to make our properties special!!!

Leases - Cataloging and Using Optional Clauses

I just posted an idea about modifying a lease expiration date to coincide with the best leasing period, as opposed to just making it the "standard" (and mindless) one year from whenever it was signed. Assuming this is a good idea and you'd like to incorporate it, but you are afraid you might forget it - something I am almost certainly destined to do especially after having accumulated a couple dozen options or variables for leases.

Recently I devised a very simple solution. My lease is typed very neatly in a Word (microsoft) file. Every time I have a variable/option I want to at least consider when creating a new lease I type "xxx: and my notes" and then the instructions. So, for example, next to the lease termination date I put in "xxx: terminate lease in May or June only". I use a mail merge to create my lease and then i search "xxx:" and each of my variable notes is identified. One by one I modify those variables and delete my notes. That process is quite quick and easy and have found it be very effective at incorporating all my ideas.

Zero Down Time

Eric and I attended a seminar recently by David Tilney. One of the amazing ideas I came away with was to, at least try, not have any time that the property is not collecting rent. Down time is expensive and is irretrievable - once a foregone rent dollar is gone it is gone for good.

Obviously the first goals should be to choose tenants that will stay for very long periods of time and find ways to encourage them to do so. But at some point it becomes inevitable that a rental home will "turn."

The first critical step is to get at least 3 months notice of a tenants intent to vacate. Include a provision for 3 months notice in their lease, requiring a renewal lease is signed at least 3 months in advance to the termination date AND tickler to check with the tenant at that time.

Second, provide incentives for the tenant to work with you to effectuate your goal. At the very least, know the cost of a "turn" is a month's rent. Factor in the costs of renovating the property, a rental agent fee, advertising and the possibility it will take more than one month to find a qualified tenant. Perhaps start with a 1/4 of that cost you won't have to incur.

By having extensive pictures of the home, at its best - i.e. when it is occupied, furnished, fresh, clean and on a beautiful sunny day, you can more effectively advertise the property and generate serious enough interest so interested prospects will fill out applications and get pre-qualified before you have your existing tenants show the property to them. Yes, they should be showing the property for you - they are motivated to sell it for you aren't they?

It is critical your existing tenants know that to get the extra fee, they need to show the property, help get the property ready (i.e. allow your painter and/or other maintenance people to do what they have to do to effectuate your zero down time goal.

Here are some useful articles on tenant turnovers in these articles:

Please post your ideas about maximizing property cash flow by reducing tenant turnover or making it more efficient.

Wednesday, January 19, 2011

3 Types of Tenants

There are three levels of tenant contribution to the ultimate goal of durable cash flow.

1) Pays rent and doesn't do any damage to the property. This is, I believe, the level that most landlords/investors aspire to.

2) Pays rent and allows investors to make improvements to the property while living there. The major advantage this type of tenant is offering is providing the landlord/investor with an opportunity to make improvements while the property is cash flowing. This creates a tremendous efficiency. But it also adds another critical benefit - by improving an occupied property the tenants reap the benefits of the improvements and are more likely to stay put and not cause the inefficiency of a "turn". The tenants might also tolerate a future rent increase better than if there were no new improvements.

3) Pays rent and improves the property. This tenant provides all the advantages of the first two levels tenants and contributes to cash flow in three other significant ways:

a) When a tenant makes improvements to their home they tend to both be higher quality improvements than what a typical contractor might provide - i.e. there is more pride of ownership

b) Savings in terms of labor and/or material accrue to the investor/landlord.

c) Vesting in the property. By putting effort into improving the home they are making it both more appealing for them to live (i.e. stay there longer) and creating more of a sense of the home being "theirs."

How do you find the highest level of tenants?

Ask & Measure.

Questions worth asking and factors worth measuring:

How often has the tenant moved in the past 5 years?
What are the tenants long term plans in terms of how long they intend to stay in the property? Will they sign a long term lease?
What tools does a tenant have?
What home improvement skills do they have?
What improvements would they like to see done on the house? Will they do them?
What improvements would make them want to stay longer?

How Important Are Tenants?

For a real estate investor, what is the root of all good?

The short and concise answer is: cash flow.  The more cash flow, the more cash you have to spend or invest.  More cash flow also equates into higher values for your portfolio.   Cash flow is, in my opinion, the best measurement of investment performance.  Capitalization rates (cap rates) measure the effective yield of real estate and are devised from only two numbers - the amount of the investment and (you guessed it) the amount of cash the property kicks off.

While at first blush it might seem as if I am stating the obvious - the advantage of identifying the most fundamental basic factor of success is you can make it your primary focus.   But before I do so, let me ask yet another fundamental question.  Where does cash flow come from?

Yes, Tenants!  Tenants are not a necessary evil that must be dealt with.  Tenants are not highly replaceable.  Tenants are king!  Tenants are at the very base of our "food chain."    Specifically, happy, capable (capable of paying and improving their homes), paying tenants.   The better the tenants, the better the cash flow.   There couldn't be a more direct correlation.

So lets collaborate on the areas we can insure attracting, recruiting and maintaining the very best tenants.

1)  Choosing homes that will retain long term Tenants.  I begin here by asking, where would I want to live?

2)  Choosing the right tenants.   Can they pay us market rents?   Can and will they improve the property making it better for both themselves as well as future tenants?   How long will they stay?

3)  Setting the right tenant expectations and relationship.    Is their mindset that this is their home or is it that it is your home?

4)  Maintaining the right tenant relationship.  What can be done to inspire their very best?

Over the next couple weeks I will be presenting additional articles that delve into these areas.

Sunday, January 16, 2011

3 Major Profit Enhancers for free!!!!

The single most expensive annual cost an investor/landlord faces is an apartment "turn".  When a tenant moves out there are many costs to bear.  Painting.  Cleaning.  Maintenance.  Advertising.  Lost rent.  Rental fees.  Heating.  Electric.


Avoiding those costs is, strategically, is perhaps, one of the most effective ways to add to the bottom line.

Most sophisticated landlords/investors have a budget.  In that budget is a line item for maintenance and/or improvements.

Part of the tenant screening process should be determining what skills your tenants have.  I've had tenants that were very competent carpenters, plumbers, painters, etc.  Not only should this be part of your application, it should be part of the "showing process" - what improvements would you make to this home?  What do you think it would cost?  Would you be willing to make that improvement if I were to pay for the cost of the materials?

If you as a landlord can screen would be tenants for their abilities and desires to improve the property - and then support them in doing so - there are many benefits that accrue to you.

1)  You can save on the cost of labor - essentially getting free labor.
2)  You can potentially avoid turnovers - tenants that are vested in their homes and have the improvements they like will tend to stay longer.
3)  You can get improvements done to the home while the property is productive  - i.e. rents are coming in.

A big part of your tenant screening and relationship strategy should include using the maintenance  budget to insure you maximize those benefits.

Flowers, Cookies and Wine!!!!

A year ago I moved into a new apartment.     Moving is a major life event.   There is an office downstairs and an apartment in the front of my building.  I didn't expect anyone to come over, introduce themselves, or bake me cookies, or bring over a bottle of wine - but it would have been really nice if someone had.

But nothing.

No introductions.  No cookies.  Nothing.

One friend came over with a couple of plants.   I was so amazingly grateful.

As a landlord, this is a another wonderful opportunity to create the right "spin" on your relationship with your tenants.

I've heard it said that most tenants decide within the first 30 days of moving into an apartment/house if they will renew their lease in one year.  Why not start the relationship with an act that positively builds the relationship?   Not just cookies, flowers or wine - but a nice card, nice gift wrapping and a happy smile welcoming them to their new home.

Thursday, January 13, 2011

Chase App for iPhone - Deposits Without Going to the Bank

Chase introduced an app for smartphones that allows customers to deposit checks by taking pictures of it.


This has got to make someone's life easier.

Rating Real Estate Brokers

Zillow now has a rating system for users to provide public feedback on their satisfaction with Realtors similar to what has worked so well on ebay.


This could provide an investor with some very valuable information when entering a new market.

Credit Card Readers for iPhone

Recently we've become aware of a number of companies offering credit card readers for iPhones.



We're thinking this might open some possibilities:

A provision in the tenant's lease that allows us to charge their credit card if we haven't received their payment by a certain date.   Perhaps the lease would include a provision to charge the extra fees associated with the electronic transaction as well.