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What do millionaires do that most other people don’t do?
According to Thomas Stanley, in The Millionaire Next Door, most American millionaires own their own houses, and they own at least one rental property.
Rental houses are the silent wealth creator.
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I was recently interviewed by the Arizona Daily Star and responded to a variety of questions related to my house fixer-upper business, such as:
Why did you write the book?;
How did you get into the fixer-upper business?;
Can you give away one secret of success?;
as well as several other questions that inquiring minds want to know the answers to.
Here is the complete interview, entitled “UA researcher fixes up houses on the side, writes about it.”
See also:
For yet another newspaper interview that I did see: Fixer Upper Business Highlighted in Newspaper Article.
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The search continues for a new investment house. As soon as my wife and I identify & purchase our next fixer-upper, we will move into it and rent out the one we are in now.
A lingering question related to our present house that we haven’t resolved yet is, what do we do with the swimming pool in the back yard? When we bought the house, the pool had already been installed, but it was missing a pump, it doesn’t have a guard fence, and it probably needs to be painted. We have put off the decision of what to do with the pool until last.
Initially, the plan was fix the pool and sell the house. Now that it will become a rental, the question arises “what if a tenant falls in the pool and drowns?”. Wouldn’t it be better to just put a cover over it and not fill it with water? My inclination is the later.
Watch this space for further developments . . .
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Would you like to start investing in fixer-upper houses in your spare time?
Check out my new ezinearticles.com article Fixer Upper Investing For the Small Investor – People 5’6″ Or Shorter. It may be easier than you think to work your 8 to 5:00 job and start a fixer-upper house business on the side.
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Is now a bad time to retire? Probably not if you have been investing in fixer upper rental properties, but that’s the question asked by John, an attendee of at an investment seminar. In a recent newspaper article by Chuck Jaffe entitled Retiring when the market is down is costly if stocks provide nest egg addresses that question.
To see Chuck Jaffe’s opinion and my “unbiased” take on it, check out my new ezinearticles.com piece entitled Is This A Bad Time To Retire? Not If You Have Rental Properties.
Along the same lines, we must consider which offers more security, retiring with a pension or retiring with real estate.
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Sunday, work continued on the fixer-upper house that we live in, and plan to sell (for more info on this investing strategy, see “How to Turn Your Home into a Rental Property, Instead of Selling It!” coming in Sept. 2012.) There was a little grouting left to do in one of the
bathrooms, around the tiles that made a baseboard-type border abound the bathroom floor.
Here are the tools I used – small bucket, white grout, a trowel, and a small “mud” (or joint compound) spatula (not pictured)
I mixed up a small amount of grout. Add water to the powder until you have grout the consistency of peanut butter.
When I mix grout, I wear a mask or kerchief to cover my mouth and nose. The grout mix contains cement, so if you breath in the powder it can scar your lungs.
I apply the grout with the small spatula.
Afterwards, I clean up tools with water.
After the grout has cured for three days, I apply grout sealer.
There are two pretty good books on floors and tiling published by Home Depot, “Tiling 1-2-3” and “Flooring 1-2-3“. I recommend “Flooring 1-2-3”, if you just want to buy one book. It cover tiles about as well as the other book, and also addresses how toinstall several other types of flooring. I used it as a guide to install both laminate flooring, and vinyl flooring.
As always, to make money in the fixer-upper business its best to do everything yourself. You learn by doing. Start small but work up to bigger projects.
Our first tiling project was in a small bathroom, a good place to learn the process. But since then, my wife and I have worked our way up to doing large bedrooms. We feel comfortable tackling any tiling project now.
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If you are in the fixer upper rental house business like me, you want to avoid bad tenants like you would ravenous zombies.
How do you go about avoiding bad tenants?
A good contract and checking out references is a good start to getting good tenants. But, despite our best efforts to weed them out, sometimes we still wind up with a someone who doesn’t pay on time, or who bugs us incessantly with phone calls for knick-knack repairs, or who bothers the neighbors.
Below are my observations on dealing with the inevitable bad tenant.
I give my renters a $25 dollar discount if they pay on the first of the month, or early. If they pay after that, then they pay the full amount of rent. I frame it this way so that it looks like they are getting a good deal if they pay on time.
I received a late rent payment earlier this month from a tenant, but it didn’t include the full amount. I called and he said he thought the due date was the 5th and not the first. I assured him that it was indeed the first. So, if the rent if $900 a month, they pay $875 if they pay on time or before the 1st. If they are even one day late, they don’t get the discount.
What happens if they pay late and don’t pay the late fee? I call them and remind them and insist that they send me the amount they owe ASAP. I usually require a fee of 1% of the rent for each day that the rent is late. If the rent is $700 and they are ten days late, then they pay an additional $70, or $7/day.
Late Pay = More $
I had one tenant who consistently paid 2 to 3 weeks late. The first couple of times he paid late, I sent him a “pay or get out form” legal form so he would get in the habit of paying all late fees. At first, it bothered me that he paid late, but then I realized I was making an extra $150 or more each month from his inability to pay on time. I actually started enjoying getting the late payments each month. I was getting an extra $1,800 a year just because the tenant had a personality flaw that made him always pay late. Of course, if he hadn’t pay the fee, I would have removed him from the house. In general, its best to get the rent on time, but there are times when one should be open and flexible enough to make a little extra money.
Do Tenants Stay or Go?
Granted, when you are renting out several properties at the same time, it can be headache if one tenant is paying late. You have to ask yourself, would you rather remove the tenant and go through the process of fixing up the property and searching for a new tenant, or just continue to rent it out under less than ideal conditions? Since my wife and I both have regular jobs, we usually opt to keep the tenant in the house as long as possible, unless they are not taking care of the property or not paying the rent. We subscribe to the landlord mantra of “the less turnover, the better”.
In a perfect world, all tenants would pay on time and stay in the property for 15-20 years. We’re still looking for that Ned Flanders-esque tenant.
As you might expect, the late-paying tenant left the house without paying the last month’s rent, last April. However, he rented the house for about 18 months, so with the security/clean up deposit that I kept, and all the late fees we received, we still came out well ahead.
You can usually see the signs that certain people are going to be “train-wreck” tenants. When they start off paying late right at the beginning of their lease, you know that’s not a good sign. But, at that point all you can do is stay on top of the situation and enforce the late payment rule until their inevitable departure. After the late-payer tenant left, I started using month-to-month rental contracts, which makes it a little easier to get rid of bad tenants.
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This of Part 2 of my reponse to a question asking, “My background is not in the building trades. How do I learn the required skills to start a business in repairing houses and renting them out?”
How to learn the appropriate skills:
3. Draw on the Past
After I got more involved in the repair work of our houses, I thought back about how my father had taught me a lot by example. I recall seeing him construct screened-in porches on various houses that we had lived in. I was too young to help out much at the time, or to appreciate what he was doing, but looking back I realize that it required a strong desire to learn the basic principals, and a sense of self-confidence to build it. He had no formal training in construction, and didn’t have reference books like I do, but he learned by observing other porches that had been built in the neighborhood.
I also have a friend who has made a career out of living frugally. He does virtually all of his own house repair and car repair work. If he gets stuck, he goes to the library and finds books to help him. It helps that he has a background in teaching vocational eduction. We have helped each other with house repair projects over the years, and he is a source of practical advice when I need help.
You too may have family members, or friends, that you can draw insight and inspiration from when it comes to making repairs.
4.Create a House Repair Library
I like to scour the fix-up book areas at used book stores for good buys. I buy a book as soon as I see it if I know that it has valuable information. In the past, I have waited to purchase the book only to return later and find that the book I had wanted was gone. The price you pay will literally be a drop in the bucket compared to the money you will save. I have books on almost every possible repair topic, including electrical wiring, plumbing, flooring, you name it. Some books that offer information on a wide variety of repairs, such as Reader’ Digest “Fix-it Yourself Manual” and Better Home and Gardens Complete Guide to Home Repair,” are also good to have. See my earlier blog for more infomation on recommended repair books.
When a book is not enough, I can usually get good advice on specific jobs at hardware stores, like Ace Hardware. And, you can sometimes get advice on difficult repairs by doing a Google search.
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I recently received a question asking, “My background is not in the building trades. How do I learn the required skills to start a business in repairing houses and renting them out?”
In terms of how to learn to repair houses, I will answer that question in two parts. The first part today, and the second half of my answer will be in a subsequent blog article.
How to learn the appropriate skills:
1. Learn by doing. When Orson Wells directed his first movie, “Citizen Kane,” he said that he felt “like a kid with a giant train set.” One nice thing about buying a fix-up house is that it’s like having giant practice house, where you can practice learning to do repairs. Since the house is already pretty well beat up, its OK if you make a few mistakes along the way. You can always go back and correct them later.
My philosophy is that the best way to learn is by doing. Granted, you have to gradually work your way up, if your are beginning near the bottom. At first you will have to hire out for most of the moderate or difficult repairs. Make sure you watch, or assist in doing, the repair when you pay someone to do it. That way you can do it, or at least do part of it, the next time you encounter the same situation.
Just last week, I had to hire someone to repair my air conditioner in a house that I am living in and fixing up at the same time. I took time off my 9-5:00 job to be on the roof with the repairman and observe what he was doing. I saw all of the tests that he performed with the multi-tester to identify what was wrong. The problem turned out to be two capacitors that were blown. If a similar problem arises in the future, I will know how to check and replace the capacitors myself.
If you have to pay someone to make a repair for you, make sure that you get your money’s worth by watching the repairman, and learning how to do it yourself.
2. Take community college classes. Most community colleges offer courses in the building trades – plumbing, electrical wiring, air conditioning and furnace repair, and woodworking. For a fairly low price, you can learn how to make repairs like a pro by taking these classes. I have taken several classes and they have been well worth the investment of time and money. Besides leaning the skills in a supervised environment, you also learn how to use the correct tools in the proper manner. As part of the program, students are required to take an 8-hour OSHA course in how to be aware of work site dangers, to do work in a safe way, and to avoid accidents. I highly recommend that anyone who does repair work take the OSHA class.
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When operating a fixer-upper rental house business we must constantly be on the look out for short cuts to reduce our costs.
For example, a good way to buy a home furnace is to keep your eyes open for good-looking used one at yard sales. I came across one for $30 at a yard sale. There were actually two for sale, and I bought the newer, better-looking one. I offered $25 dollars, and when the lady wouldn’t take it I drove off thinking she was too inflexible. But, as I drove away, I came my senses as I asked myself, “where else am I going to get a good-looking furnace for $30?” I immediately turned my truck around and bought the furnace.
I knew I would need one soon for one of my rental houses. Looking back, I probably should have bought them both and kept one for the next time I needed one.
A friend of mine and I installed the furnace ourselves. Its a pretty simple matter to hook up the gas pipe and thermostat wiring. The major cost was about $40 for a guy to make a tin hood that connected the furnace to the duct work in the ceiling. Other parts, connectors, screws, etc., were about $30-40. I had a professional check out the work when we finished and viola! I had a working furnace for a fraction of what it could have cost though normal channels.
Of course, in buying used, you always take the chance of getting a furnace that doesn’t work But, in my experience, it’s worth taking a chance, and many times you hit the jackpot and can save hundreds, if not thousands, of dollars. Keep your eyes open at those yard sales!
The lessons are, in order to maximize profits with your rental properties, to buy things as cheaply as possible, and to install them yourself. You can save a lot of money by buying ahead of time, when things are on sale. Don’t wait until the day the furnace breaks or the toilet kicks the bucket. You can usually see signs of these things sputtering before they finally go out. Take advantage of that knowledge to make a preemptive strike, and to purchase ahead.
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