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Well that was quick! I’m the proud owner of four rental properties after a very short search.

I know! I am just as surprised as you are. However, this is a great achievement for me, but I know that the hard work is about to start now. It’s a lot of pressure owning four rental properties. Not only do you have to find tenants who will look after the property as if it was their own, but you also need to make sure that they are happy and comfortable. This is why it is my responsibility to ensure that all four of my properties are properly maintained. And this could include anything from fixing any plumbing issues, broken windows, or blocked gutters, that companies similar to Clean Pro Gutter Cleaning Lake Oswego, specialize in.

There is nothing worse than having problems like these in your home. I know I wouldn’t like it. Do you know how much damage can occur to your home if your gutters are blocked and you didn’t realize it? I imagine it’s a lot, which is why I don’t want to put any of my tenants in that situation.

This is why I’m going to make it my mission, as a property owner, to try and prevent any small issue from becoming a bigger problem for my tenants. You must listen to the requests that they have, making it one of the most important parts of the job, in my opinion. But that could all be about to change now that I have bigger responsibilities to bear in mind.

Back in July I did a refinance on my first property in Memphis, receiving a wire of $34,577. Just a week later I was approved for a new mortgage and could officially start marking offers. Little did I know the very first offer would be accepted the next day!

Using a Local Real Estate Agent

My first three rental properties were all purchased turnkey. So someone did a rehab and sold directly to investors. This time the turnkey inventory is very low, so I thought it would be a good time to try the old fashioned way, going out and finding my own deal.

The search for a real estate agent similar to those realtors in jacksonville fl was very quick. The guy who sold me my first turnkey rental has cut back on that business and spent more time as a traditional real estate agent. He knows the area of Memphis well and what makes good investments. I felt comfortable working with him, so didn’t even interview anyone else.

But it didn’t sound like he was going to bring deals to me (or I didn’t want to rely on it). Instead I started monitoring Zillow, which gets the MLS listing data pretty fast. I set up a custom boundary with the 2-3 mile diameter circle of the area I liked. Zillow sends emails any time a property meeting my criteria is listed.

Preapproved Yet?

You can’t really do anything until you have a letter from your lender that says you have the funds. So my realtor didn’t want to really dig into properties until I had that letter.

I got the letter on a Monday and already had some properties that looked interesting on Zillow. The realtor quickly reached out and one of them was taking final offers the next morning. I figured it would get a lot of offers, but we might as well give it a shot.

What I Liked About It

There was my criteria: certain area, 3 bedrooms, solid roof with little deferred maintenance. But what also jumped out was the price. It was listed at $110k even though I’d expect $135k to $145k based on other comparables. Heck, the Zillow right before this posted as at $142.7k (not that this is an accurate way of judging things).

The only problems? It was rented for below market $895 for another 7 months and we couldn’t see it before an accepted offer.

That was a curse and a blessing I suppose. It definitely kept the purchase price down and likely kept some folks away. I didn’t think I’d get it though, since surely everyone must realize this was priced low.

The Offer

When I was thinking about the list prices for other properties I’d been tracking and what I might offer for those, I realized this one looked great. So I decided to be aggressive with my offer. Just go with my best.

For example, there was this one listed at $135.9k. I liked it, but more in the $130k range (it later sold for $131k). But I liked this other one just as much that was listed at $110k! So I decided I should offer $125k, a whopping $15k over asking.

This was under the assumption that I would be gambling $400 on an inspection and if I didn’t like what I saw, could walk away. However I could tell the outside was in great shape and the few interior photos looked promising. Was it a risk? Sure, but I knew with my offer accepted I could either negotiate from there or walk away.

Inspection: Broken Dishwasher

I learned more about the long-term tenant and liked what I heard. He took great care of the property and drives a Corvette! There were a few minor things on the inspection report a handyman could fix in a couple of hours. The biggest ticket item was a broken dishwasher.

My realtor advised we ask for $1k back instead of them fixing things. A lot of times these properties are sold “as is”, but there was never any language like that, so we figured it worth a shot. No counter offer, they said yes!

Switched Property Managers

My other two Memphis properties actually had different property managers. I bought the first one and went with their recommended property management company. But I didn’t have the greatest experience, so when I bought the second, I figured I would try their recommended company. Then I never ended up consolidating.

Well with this new property, I realized I didn’t like either of those companies that much. So I asked my realtor who he uses for his rentals. I negotiated switching all 3 properties over, and even though I didn’t end up with as big of a deal as I had hoped, feel good about having all 3 with this new company.

“What about the 1% rule, isn’t this a horrible deal?”

Rules are great, including the one that says your monthly rent should be 1% of the purchase price. So for this $125k property, the rent should be $1250. Obviously this one falls way short, rented at only $895.

I suppose my answer is — what timeline is important? In the long run, these next 7 months aren’t that important. I feel the market rent is $1100, so with the current tenant I’m losing out on $1400 (7 months x $200 per month in under market rent). That’s something to consider, but not the end all be all.

Next spring I expect either this or a new tenant at an average of $1150 for 2 years. Then 2 years later I expect to hit the 1% rule of $1250 per month. In 2.5 years I’ll hit the 1% rule.

Think Long Term

If I have an overarching investing philosophy, it is that you should think long term. Sure, I could find a different property that fits the 1% rule right now. But I’d probably be getting a lower quality tenant at a lower price point. Or maybe a bunch of deferred maintenance like a new roof or floors that need replacing.

Even though I don’t intend to sell the property any time soon, this rental also is in an area that is attractive to homeowners. I suspect I sacrificed a bit on the price (compared to 1 mile away where my rental #3 is), but like the stability of this trade off.

Part of my long term thinking is finding a good enough deal and moving forward. Time in the market is important for returns. Minimizing the amount of time I spend on my rentals is important for me continuing to grow my portfolio. Are you over analyzing and not taking action? What do you think of this deal?

If you own any real estate, just about everything has skyrocketed. Just when I thought the rally might peter out, it accelerated even faster!

Or maybe the same could be said about any asset. Stocks. Used cars. Lumber. You name it.

There is a word for it. Inflation. But don’t forget the rule: whenever you want to say inflation, you have to add the word transient before it. Easy to forget.

The going has been good for rental properties, yet I don’t claim to take credit. I didn’t do an exhaustive search to find the perfect rental property. I don’t manage the day to day tenant process. This is achievable for anyone with little work, then you can sit back and actually have remarkably low risk over a couple of decades. So without claiming to be a genius, here are some numbers you can aspire to hit yourself!

A Quick Look Back

I am the proud owner of 3 properties I have never seen that are located thousands of miles away.

Here is how it went down:

• July 2011 – Bought Atlanta area property for $20k investment
• July 2014 – Bought Memphis area property for $24k investment
• May 2017 – Cash out refinance on Atlanta property to pocket $36k (why and details)
• September 2017 – Bought Memphis area property for $26k investment (search and details)

I think of my portfolio as a snowball gaining 30% more mass each year – yes, I am getting a 30% a year return. My role is to keep it moving with as little as work as possible. I’m pretty hands-off.

Added together, my property managers now collect $3280 in rent each month. My mortgage payments total $1976. With ~10% to the property manager, I’m clearing $1000 a month in cash flow if all goes well!

Let’s look at each individual property, then do a bit of analysis.

Rental #1 Numbers – Atlanta

The tenant just hit 1 decade in the property! That is pretty bonkers!

I don’t think there is much to report on this one, I can’t recall any calls or emails in the last 6 months. It jumped up $16.8k though for a nice equity cushion. Looks like the mortgage debt is around 50% of the equity value now, despite being at 25% just 4 years ago when I did the cash out refi.

Rental #2 Numbers – Memphis

This one is going pretty solid. I did need to replace the garage door though – not the opener, the door itself. The property manager also signed the current tenant up for 2 more years at below market rent. While I like reducing tenant turnover, I wish they were more aggressive on the rate considering things are now shooting up. Ultimately it is on me though since I’ve been meaning to switch property managers for years and have just been too lazy.

The cashflow is still incredible on this property and it also was at $15.9k of appreciation is 6 months. This is the one I’m in the middle of doing a cash out refinance on, which we’ll get to in just a bit.

Rental #3 Numbers – Memphis

I’m pleasantly surprised this one is going well too. It had the tenant turnover one year ago now and is running smoothly. You may notice the appreciation is only $1.9k, but that is because I switched from doing 95% of the Zillow-Redfin average to 90% like I’m doing on the other properties.

Overall Portfolio Numbers

The rate of return just keeps increasing! 33.2%, up from 32.5% six months ago.

Plus just hit a quarter million dollars on the overall earnings! And yes, I’m using a discount rate of 2% per half year, so it is legit. Of course the vast majority of it is unrealized equity gains though. Here is how it breaks down:

Next Steps: Cash Out Refi and Buy Another Rental Property

Back in 2017 I did a cash out refi on #1 and used the cash as the downpayment on #3. Keep that snowball gather mass! Well this year I’m doing a cash out refi on #2 to purchase #4.

I’m just a few days away from the refi closing. It has been somewhat smooth, the appraisal came in low at $135k, we provided better comps and they updated it to $142k. Still not great (Zillow is $170k so I was hoping for at least $150k), but my take away is you need to make sure there are enough sales within 1 mile in the last several months if it is a rapidly appreciating market (the last summer comps hurt more than helped).

I’ll receive around $35k to put towards a new property. Still looking in Memphis 38128 area, although I won’t limit myself to just the turnkey Jason Hartman network at this time. I’ll go more into why and the search process in a later post, but it is just because inventory is so low right now.

Why Buy at the Top of the Market?

You might be wondering if this is really a good time to add another property. Everything is so expensive right now, the cashflow numbers don’t look as good.

Timing the market is tough. Timing a manipulated market is even tougher. In short, I think regular market swings are now politically untenable. They will do everything in their power to limit any decrease in prices, and all the tools they have are likely to increase inflation. This holds true no matter the party in office.

I don’t know when the crash will come. But it is likely that if you wait, you’ll miss a lot of run up before then. Plus whatever response there is to the next crash will make sure it is brief, followed by inflation that is beneficial for rental property investors.

So therefore now isn’t a bad time to buy. Get started!

Here are the complete numbers

What a crazy year. Anyone here have money in the stock market? What a wild ride.

You know what hasn’t changed? My rental properties. So far so good.

People are still looking to move despite the pandemic, so the rental market is still doing well. This means that everyone involved in the housing industry, from estate agents to local movers, are all still working and getting people into new homes. This is good news for the market, and good news for me!

A Quick Look Back

I am the proud owner of 3 properties I have never seen that are located thousands of miles away.

Here is how it went down:

• July 2011 – Bought Atlanta area property for $20k investment
• July 2014 – Bought Memphis area property for $24k investment
• May 2017 – Cash out refinance on Atlanta property to pocket $36k (why and details)
• September 2017 – Bought Memphis area property for $26k investment (search and details)

I think of my portfolio as a snowball gaining 30% more mass each year – yes, I am getting a 30% a year return. My role is to keep it moving with as little as work as possible. I’m pretty hands-off.

Added together, my property managers now collect $3280 in rent each month. My mortgage payments total $1976. With ~10% to the property manager, I’m clearing $1000 a month in cash flow if all goes well!

Let’s look at each individual property, then do a bit of analysis.

Rental #1 Numbers – Atlanta

Just keeps trucking. Somehow the original tenant still after nine a half years!

Keeping turnover low and enjoying appreciation is the secret to success for this one. The cashflow isn’t amazing since I did a cash out refi (making the mortgage payment higher) and haven’t aggressively raised the rents. But it does bring in a little cash each month, in addition to nearly $10k in appreciation for 2020.

Rental #2 Numbers – Memphis

Look at that cashflow! Clearing over $400 a month after expenses for the year.

This property has always brought in the cash. In fact, it has made the same amount over 6.5 years as the Atlanta property in 9.5 years. Until recently though, the appreciation was pretty meh. Fine but not great. Then boom, $25k in two years!

Rental #3 Numbers – Memphis

This was the trouble property for 2020. I received notification a week after the rent was due that not only had the tenant not paid, when the property manager contacted the tenant, turns out they moved out!

So we scrambled for a quick turnover process. Making maters more worrisome, it was right at the start of the pandemic and I didn’t know if anyone would be looking to move. So we priced it quite low and found a good tenant on a $50 to $100 per month below market rent.

Any turnover is expensive, this one about average I’d guess. The total dollar amount was high, but we did get to keep their whole security deposit, which helped but didn’t cover it all. One negotiation helped: I had the painter breakdown the price per room and I’d decide which to do rather than the whole house. Sum total of the rooms came well under his original quote anyways. Besides, we did the trash removal ourselves to save a little more money, though I am aware that a professional Junk Removal expert would have done it in a better way.

Then later we had to replace the fuse panel. I knew it was just ok when purchasing the property, but this was a bummer and cost $1k.

The negative cashflow was more than evened out for with excellent appreciation though. And I expect 2021 to be a much better year for this property!

Overall Portfolio Numbers

Another year in the books, exact same yearly rate of return: 32.5%! It is such an absurd number I expect it to go down eventually, but it still hasn’t.

My hope is that you notice I didn’t do anything special – I purchased turnkey properties at full price. Not some crazy auction fixer upper that was a lot of work.

And I’m not lucky timing some hot Miami market. Just year in year out boring old middle America.

It is more work than an index fund, but well worth the effort. You can do it. Make 2021 the year you get started.

Here are the complete numbers