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SHOW NOTES FOR EPISODE 120: PROSTITUTES, PROPERTY MANAGERS AND AIRBNB
When you dive head first into real estate investing you’ll see and experience things that you may never have expected. In this episode, Bill shares some of his personal “not so great” experiences that, although may be painful, are, nonetheless, an important part of every investors education.
Introduction
Greetings fellow old dogs! And, just a point of reference here… sometimes when I refer to you as an “old dawg” I’m not speaking literally. I’m hoping you aren’t offended cause I know you aren’t really an old dawg… well, I am but it doesn’t mean you are. And it doesn’t have anything to do with age or attitude (well, I’m hoping it has a little with attitude… I’m hoping you tenacious, stubborn and dedicated to your goals and all…)
Anyway, I’m using the term “Old Dawg” endearingly or more like the name of a team — like we’re all part of a team (and we kinda are… afterall, it is called the Old Dawgs REI “Network,” It’s like say we were called “The Wolverines” kinda like the movie “Red Dawn” did you ever see that? Geat movie! Anyway, I’ve worn that to the ground… just wanted to clear that up.
When I first started this podcast, I was committed to three things
- I would always provide valuable content that people can use
- I will never charge for educating those that listen, that I may give advice or communicate with or for anyone who read my blogs; and
- I will always be completely transparent, sharing the good, the bad AND the ugly so that listeners learn — especially from my mistakes, so that they don’t do the same — even if it means that I may look like a total idiot! Better me than you! haha
Well, that’s a little primer for today’s episode.
I wanted to share a few things regarding the reality of real estate investing. Specifically, three areas… Today I’m going to talk about
Three Things
- Turnkey Investing
- Buying in the path of progress
- Creative Ways to Grow Rental Income
Turnkey Investing
As much as I’m not generally a big fan of turnkey investing, I have to admit, I faired OK in the long run. My first 4 properties were turnkey properties. I purchased:
- A single family home in Atlanta
- A single family in Memphis
- A duplex in Memphis
- A duplex in Indianapolis
And the properties have faired pretty well it’s just the other “operational” issues. The drawbacks were:
- The property management firms that came with the turnkey properties, for the most part were a disaster
- There was deception on the “in place” tenants
- I paid more than market (but that’s usually expected with turn-key)
But, for the most part, the properties themselves faired pretty well. Now, a BIG part of the problem was me – in that I didn’t do the proper due diligence. Today, I say, do ALL the same due diligence on a turnkey property that you would do on any property, including a property inspection. I just took way too much for granted and didn’t do that. A key area I missed, for example, was checking local school ratings:
- A single family home in Atlanta
- Purchased in area called Forest Park, near where a new Porsche factory was going in.
- Bought at $69,900 in May 2014
- Appraised at $80K a year ago
- Current Zestimate at $85, 296 or Realtor.com at $95,049
- Increase in equity: 22%
- School ratings: Elementary – 3, Middle – 6, High School – 4
- A single family in Memphis
- Bought at $61,598
- Appraised Feb 2016 at $65,000
- Current Zestimate at $28,741 – Realtor.com – $61,298
- Decrease
- School ratings: Elementary – 2, Middle – 1, High School – 2
- A duplex in Memphis
- Bought at $77,000
- Appraised Feb 2016 at $82,000
- Current Zestimate at $83,326 – Realtor.com – $109,639
- Increase of 8%
- School ratings: Elementary – 3, Middle – 1, High School – 2
- A duplex in Indianapolis in the Bates Hendrix area
- Bought at $51,500
- Current Zestimate at $118,278
- Increase of $129%
- School ratings: Elementary – 3, Middle – 1, High School – 2
Currently, after purchasing our 100 plus property, I am seriously considering selling the two single family homes. It will be easier and more productive to focus on fewer “properties” and more doors.
Buying in the Path of Progress
Location. Location. Location. Still reigns and will continue to reign as the most important factor regarding a property purchase. Part of buying smart is buying a property in the right location.
A significant factor in purchasing the 22 unit apartment we currently have in Indianapolis was the assessment that it is clearly in the “Path of Progress.” In other words, it is in a location where new jobs, new businesses and property values are expected to increase. On one side, where downtown is located there is the East Washington Economic Development area. On the other, the town of Irvington, which is a more upscale area that’s attractive to families and more upscale businesses – Indy’s first Starbucks!
However, what is not always real clear is how long this “transformation” will take place. When I first purchased last year, the area was a C- or C area. I think it is still a C but could soon be a C+.
We are doing all we can do to help speed up the process but we really can’t control the change. Some of the positive things we have done:
- Improved the curb appeal of the property (nice landscaping, attractive building signage)
- Increased rents (which improves area value and boots ROI)
- Property value has increased 71% just by cutting expenses and boosting income (which helps the area)
- Met with other area landlords to encourage their upgrades, some of done some of the same exterior type/curbside improvents with new signage and landscaping
- We’re actively trying to bring in higher quality tenants (there were some druggies and others in the building that are now gone) which helps the area as well
But I still have had and have some issues:
- If you’re a regular listener, you might remember I went to live in one of our units for a month. See podcast episodes #044 & #048
- I learned a lot on that trip and had a lot of positive things that happened:
- Sped up renovations and upgrades
- Made strong community contacts
- Boosted strong relationships with local cops
- Boosted vacancy numbers
- But I also had a few other not so fun experiences
- Woke up in the middle of the night by gun shots, from a party at the apartment next door
- Attacked by bed bugs
- Reported drug dealers next door in another building
- Had local cops set up a prostitution sting operations in one of our vacant upstairs units (which busted one of our tenants as a local John). And, as an aside, I’m aggressively showing apartments to get the place rented up and I find out that one of my strong “prospective” tenants was actually a local prostitute who has “clients” in my building, who was only pretending to be a tenant prospect so she could case the place to find out where the cops were hiding. Never a boring moment!
- Just a few highlights of some of the challenges we’ve had
- Nonetheless, overall, the ROI has increased and therefore so has the value of the property by 78%
Creative Ways to Grow Rental Income
- Also, after having a great guest, Al Williamson, on June 12 of this year (episode #109) who talked about strategic ways to boost rental income, I was very motivated. One way he discussed was by talking empty units and converting them to AirBNB units.
- I followed his plan, furnished a unit, set up an AirBNB account
- People can only rent the unit for a minimum of one month (because I don’t have the staff to do the turn around on a daily or weekly rental.
- The income is double what I would earn on a 1 year lease
- Within a week I had an inquiry from a medical intern from Spain but the unit I had available was in the basement and they were interested.
- Shortly thereafter, got an online booking for a newly graduated that got a job with a big brokerage in Indy and need a place for 50 days until the apartment he wanted would be ready.
- The total income was $1,400 – almost three times the monthly rent for that unit
- Unfortunately, the guy only stayed 10 days
- Like the apartment
- Scared of the neighborhood
- Had to give him a refund for the remainder of his time.
- I’m not giving up yet but have to seriously re-think
- I thought the area was fine when I lived there but I guess others may not feel the same
- I called Al and we are going to tweek our listing and a few other factors to make it work better… I’ll keep you updated
Well, that’s it for today…
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