You can manage rental properties yourself with just a few minutes a day, while still working a full time job or as a full time parent.
No need to pay a property manager 10% of your rents. They aren’t concerned about keeping your tenants happy and expenses low.
I self-manage 30 properties and it takes very little of my time. Doing one or two properties will be a breeze.
I’ll cover these 3 biggest time savers for you:
The secrets to Tenant Screening – including denying applications
Dealing with Maintenance and Repairs
Rent Collection including the right way to handle late fees
Let’s dive in.
First, where do we find the tenants that we’re going to screen?
Well, there are numerous ways to list properties, but I suggest these two simple methods.
Facebook Marketplace and Zillow.
Both are free at the moment. Zillow has a premium listing option for $29.99 for 90 days.
One thing I love about listing on these two platforms is they are not phone based. Inquiries come on the app and/or by email. you can keep your conversations text based and not waste time talking with applicants until they are prequalified.
Now that we have our property advertised, let’s screen applicants.
This is the part of property management that will either make or break you.
There are massive changes coming to the TSP this year, and they’ve totally botched something that was supposed to be awesome!
For starters, They are going to raise the expense ratios on the funds. While that sucks, they are actually doing something much worse.
They are giving access to thousands of mutual funds.
That sounds awesome right? Wrong. They totally screwed this up. I’ll talk about how first.
Here’s some of other changes to TSP coming up this year:
They are going to enhance online security – who cares
Coming out with a mobile app, ok that’s kinda cool –
And raising the contribution limit – about time
I’m going to quickly go over what’s important about each one of these, but I’ll start with the mutual fund offering, because it’s some juicy gossip and I want you to avoid getting screwed over by this.
Access to mutual funds
One of the biggest changes to the TSP is expected to hit this summer – the mutual fund window. In addition to the 5 investment funds currently available, there will be a way to take a portion of your TSP funds and invest them in regular mutual funds, with more than 5,000 to choose from.
I’m a military vet, and self certified expert in long distance real estate investing, including property management.
I had to be. I spent my entire career moving around the world with the military. I did most of my investing from overseas, including buy-and-hold properties and flips.
I’m going to teach you to manage all your properties with at least 75% less work than before.
I’m not exaggerating this number.
The way we traditionally manage our properties is out of the ice age. All these phone calls, trips to the bank, trips to your property, personally showing your listings, post office runs, retrieving cash payments, all unnecessary.
I’m going to show you a better way.
The solution is simple. It’s leverage technology. Make it all smartphone based.
Here’s a summary of how you can do it, then I’ll break down each section in a little more detail…
Applications and leases all done online. No paper.. No need to ever meet in person (unless you want to).
Showing Listings does not require your time or presence
Communications with tenants and contractors by text
All payments are electronic
Here’s a deeper dive into each part of online real estate management
There are circumstances where whole life insurance is a scam.
I’ll tell you what they are.
I get nervous what I see Whole Life Insurance pitched as a good investment.
One of the most questionable sales tactics I’ve seen is saying the returns are superior to traditional retirement account investing.
They suggest foregoing, or even liquidating traditional retirement accounts to quickly fund whole life insurance policies.
I’ve even seen this outrageous advice given in (questionable) military real estate groups.
When whole life is sold under these conditions, it’s a scam.
It is dangerous and wrong.
You will lose out on millions over a lifetime.
Today I’ll discuss what whole life insurance salesmen aren’t going to tell you about this complicated and expensive investment.
While there is a small need for something like whole life for high net worth individuals with unique circumstances (I’ll talk about this at the end), to say this is an appropriate investment for the average joe or typical military member or veteran is flat out irresponsible.
The strongest advocates of whole life insurance, which as far as I can tell are only the people who sell it, claim it is a better investment than the stock market or retirement accounts.
This is flat out wrong. I’ll explain the math below.
The people that are pitching this crap have no training in finances or investing.
They are, unfortunately, trained in sales and marketing.
Their commissions are among the highest in the industry.
Term Life Insurance Defined
If you want to understand what whole life insurance is, you need to first know what the much more common and useful term life insurance is.
This is probably what you are already familiar with, and for most people, this is insurance that is worth having.
Will your retirement accounts survive the next market downturn?
A reporter asked Mike Tyson if he was worried about Evander Holyfield and his “fight plan.”
He famously answered; “Everyone has a plan until they get punched in the mouth.”
Maybe you’ve got a great plan for your retirement portfolio. You saved up some money to fund your twilight years.
What if the stock market takes a huge, steamy dump just as your transition to retirement?
You just got punched in the mouth!
What can you do about that?
Disclaimer: I am not a certified financial planner. This post is a quick overview of complicated financial topics. You’ll have a better idea how to protect your portfolio and navigate withdrawing retirement funds after reading this. If you want a more thorough understanding of these issues, however, I recommend reading the source materials I’ve linked to and/or talking to a financial planner about your specific situation.
I believe in the 4% rule, and it’s my spending plan for retirement.
According to the Trinity study, you are safely able to withdraw 4% of your retirement portfolio each year with very low risk of ever running out of money.
The times where you could run out of money are fairly predictable.
It’s when large losses to your account occur in the first several years you are taking withdrawals.
You can greatly mitigate this problem and increase your chances of funding the rest of your life by practicing these two simple steps:
Lower volatility by gradually shifting to more conservative investments.
Adjust withdrawal amounts based on sequence of returns risk.
I will show you exactly how to accurately estimate rental expenses.
Don’t be the investor who believes the rental expenses he’s given from the property seller!
Intro to Estimating Rental Expenses
I will give you formulas and methods to make accurate estimates even if you don’t have someone local in the area you can compare notes with.
There are several different methods for doing this. I’ll let you know which work best.
The ideal situation for accurately estimating expenses is to get the information directly from another investor that has rentals in the same area as you.
You can find these people through local clubs like a real estate investing association (REIA) or other investing group. Often these groups are on Facebook. You can find by searching key terms such as REIA or real estate investing and the name of your city.
If you can’t find investors that will help, talking to property managers is the next best thing.
Whether you get information from these people or not, it is still a good idea to use the tools here to make sure their rental estimates make sense.
Maintenance and Repairs
Maintenance and repairs are variable costs. These are difficult to predict and change often.
There are several “rules of thumb” that can help you estimate what repairs will be. I’m gonna break them all down for you, and tell you my favorite:
The 1% Rule for Expenses
The Square Footage Formula
The 5X Rule
The 5% Rule
The 50% Rule
Repairs are the most underestimated and neglected rental expenses in real estate investing.
Here are the rules to help estimate them:
1% Rule for Expenses
Don’t confuse this 1% rule with the more common 1% rule for rent. (Rents should be at least 1% of purchase price)
1% Rule for Expenses Definition: Maintenance and repairs will cost about 1% of the property value per year.
A property valued at $100,000 should cost $1,000 a year for repairs on average.
Pros: Easy to do in your head. Accounts for higher prices in high cost of living areas. Labor and supplies cost more in these area.
Cons: Not accurate on older properties under $100,000
I can tell you from personal experience owning 30 properties with an average cost of $75,000 each, this isn’t accurate at the low end of home prices.
Often when you find a property that cash flows well under $100,000, it is going to be a bit older and comparatively in worse condition. These two traits make repair prices higher.
From my experience, a 1.5% calculation off purchase price would be more accurate for run down properties purchased under $100,000.
Square Footage Formula
Plan on $1 per square foot for yearly maintenance costs.
A 1,000 sq ft home should cost about $1,000 in maintenance per year
Pros: More conservative than 1% rule above. Makes sense that larger homes have more costs due to increased area.
Cons: Does not accurately account for cost of living differences.
My average costs for repairs in Montgomery, AL are a lot lower than those in high cost of living areas (HCOL) like San Diego or Honolulu. This rule doesn’t account for those differences on the same size house.
Labor and supplies will cost more in high cost of living areas. To estimate rental expenses, adjust as needed.
Yearly maintenance costs will be approximately 1.5 times the monthly rental rate.
If your home rents for $1,000 a month, the estimate should be about $1,500 a year.
I’m not sure why it’s called the 5x Rule, but that’s how its described in several different places.
Pros: Rent prices tend to correlate with age, condition, and desirability of neighborhood
This rule is actually not widely used compared to the rest, but I find it the most useful because of its flexibility.
Cons: No rule is perfect, but this one is pretty good.
You should expect to spend 5% of your total income (total rents) on repairs and property maintenance.
$100,000 property rents for $1,000/mo X 12 months
$12,000 a year x 5% = $600 a year budget for repair expenses
Pros: Easy to calculate. Half of ten percent. You can do it in your head.
Cons: Estimates come out too low.
While this a fairly well-known rule, I find it to be an unusually low estimate.
First, this is out of line with the 5x Rule, which states expenses will be 1.5 times monthly rent. I felt the 5x rule was the best estimate so far. If you do the math, that rule works out to 12.5% of total income on repairs.
The 5% rule here is way too low.
Not even half the estimate of the 5x rule.
Unless your property is close to new and in excellent repair, 5% expenses would be unlikely in reality.
That being said, I often see pro formas (estimate of expenses) on turnkey real estate or on other promotional literature about real estate investing that claim a 5% maintenance estimate.
To add insult to injury, they often don’t include an estimated expense for capital expenditures, which means the 5% is meant to cover both.
This it why uniformed investors lose money on rental properties they buy.
Total operating costs will equal approximately 50% – or half – of your yearly rental property income.
This is probably the most popular formula for expenses, but it applies to all rental expenses, not just repairs and maintenance.
The 50% rule also applies to capital expenditures, property management, taxes, insurance, vacancy, and all other operating expenses.
Since property management is included, if you self-manage, you could probably use 40% as your rule, although the value of using your own time for management is worth something.
The estimates you get from these rules may need to be adjusted based on the following criteria:
age of the property
condition of the property
amount of turnover/crime in the area
cost of living
You should consider how much your prospective property differs from the average property. If yours is much older or in a much higher crime area, you should consider raising the estimates for your rental expenses to make up for the increased likelihood of higher expenses.
I believe the best formula is the 5x rule (1.5 x monthly rent). It can account for these variables better than the rest, and it’s conservative enough to keep you out of trouble.
To accurately estimate your expenses, you need to know the difference between maintenance/repairs and capital expenditures.
Capital expenditures are a separate category from maintenance/repairs. You need estimates for both.