The inspiring interviews with today is Top Landlords, This is the Rental Income Podcast
and now, damnly David, what do you think the greatest part of owning
rental properties is being able to have incremental increases in rent which add up to
a lot over time. Can you give me an example of how you've been
able to raise rent and it's really made a big difference for you. Sure,
we had our first purchase of a twelve unit building where all the apartments
were going four one thousand dollars a month. We raised them each year,
and now they're producing twenty five hundred dollars a month across the board, and
that really adds up. That's a huge difference. That's a building that was
producing twelve thousand dollars a month in rental income and after a number of years
and after a number of rent increases, it's now producing thirty thousand dollars a
month in rental income. Rental properties really are the ultimate get rich slow plan.
And on the show today, we're going to talk about how David has
built a lot of wealth by just making sure he raises rent just a little
bit every single year. On the podcast today, we're going to talk about
how he does it, how he figures out how much he's going to increase
rent. We'll talk about how he talks to his tenants about it, and
how he avoids turnover. Turnover doesn't seem to be a big issue for David.
It's something that I think about a lot that I'm always maybe a little
bit cautious with raising rent because I don't want to lose a tenant, because
if a tenant leaves, it's going to cost me money to turn over the
property and I'm probably going to have some vacancy. And I wouldn't say I'm
afraid, but a lot of times I'm cautious about raising rent. But I
might be leaving a lot of money on the table by thinking that way.
So on the show today, we're going to talk about how David is doing
this and how he has increased his rental income by just raising rent every year.
Joining us on the show today from Boston is David mar we'll take a
break to thank our sponsors. We'll come right back and we'll talk to David.
I've had tenants that have either broken their leases or stop paying rent,
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our Idge Lendinggroup dot com. N MLS four two zero five six Rental Income
Podcast, David, let's start off talking about your portfolio. What does your
portfolio look like? So I have a joint portfolio with my brother and we
have about two hundred and twenty residential units consisting of a lot of two families,
three families, and six families. And then of course some buildings in
the Boston area and kind of the greater Boston area. What are the neighborhoods
like? The neighborhoods are probably top notch. They're all located near public transportation
in the Boston area and near some universities and hospitals and biotech firms as well.
So a lot of like condos that are also located near these properties.
But youthful twenty five to thirty five year old neighborhoods that you know people probably
an average income of one hundred thousand plus. So these sound like they're a
class neighborhoods. They are definitely eight class neighborhoods I would consider. Yeah,
and then for the inside are you going with like top end finishes, granted
countertop, stainless steal appliances. We are we've back in the day we kind
of we're just getting it rented and doing the basic thing is coming in and
doing you know, the floors over putting new windows in and then painting the
place. Now our focus has kind of shifted over the last eight to ten
years where we're putting the kind of condo quality finishes into apartments and we're seeing
those returns of the demand for people wanting to rent them. And are you
doing this full time? Doing it full time? Okay? Awesome? And
your brother is too, he is, yep, we're both in an office
together. How is that working out? Like that family dynamic where your family
and you're investing together. Is everything going? Okay, it's fantastic. My
brother and I have a great relationship. We see eye to eye. We
discuss certain properties and if we want to make a purchase on one, we
run the numbers. So it's kind of like clockwork now, which is nice.
That's great, awesome. Now, I always hear on the show that
you know people say that you're going to get the highest return on like a
C class property or maybe like a B minus type property where maybe the neighborhood
isn't quite as nice. But obviously you guys are doing really well with A
class neighborhoods. Why do you think people think that you can't make money with
an A class property? Maybe because they think you need to spend a lot
of money to make that money, which it depends on everyone's situation in their
real estate portfolio, how long they've been doing it. But what we've learned
is that the higher quality apartments you tend to get, the higher quality tenants
who become less less of a problem that you know down the road. They're
just it's they're focused on their careers, but they want a nice, comfortable
place to live. And for us, it's turned into less maintenance, believe
or not. Over the years, you know, some of these lower class
apartments that we've had just constantly, you know, being called to go over
there and fix stuff up. And we realize that once you kind of upgrade
plumbing and electrical that that things kind of run smoothly by themselves. So trying
to get maybe a little bit higher return for maybe a cheaper property that's maybe
gonna be a little bit more hassle, like that's something that doesn't interest you
at all, correct, Yeah, And there's a market for that, and
I get it, and I get where people own property in different states.
They don't really even drive by the property and everything. We're more focused on
being able to get access to a property if we need to and kind of
more of a hand on service. Yeah. Yeah. So and the other
thing too. I think, you know, if you're looking at a property
they say in a class property versus a C class property, your cash flow
on the C class property is probably going to go up a little bit over
time, But I think you're going to get way bigger increases within a class
property because you're your tenants are more affluent, they have more money, They're
going to be able to pay those higher rents. That's just my impression.
Is that true? That is what we have seen. Yes, you know,
we have a lot of twenty five to thirty five year olds who three
roommates will live in an apartment together, but they'll pay fifteen hundred dollars a
bedroom for that. Wow, they're able to you know, it checks their
box because they're able to, you know, they don't have to pay twenty
five to twenty eight hundred for maybe a one bed, But so they're able
to save some money with their great incomes. But yeah, and less maintenance,
and it's just more of a focus for that particular type of tenant where
they do want to hire end it yet and the increases tend to in rent
tend to keep going up a little bit faster than those C class ones.
Now, I want to figure out how you're pushing the rent and I think
that's made a huge impact on your your bottom line. So when you're looking
at raising rent every year, is there a certain dollar amount that you're pushing
for or do you just look at the market and see what you think you
can get for a property. Yeah, so the rule of thumb would be
around you know, five to six percent, okay, and based on the
rent you can kind of do the numbers that way. You know, some
of these places are trying to bring in potential rent control, which if they
do that, that number is still around five percent increase. That's kind of
what you're the maximum what you're allowed to charge for us. It kind of
depends on we have some so we don't we have probably you know, between
two hundred and twenty units so you have a number of people that just move
on every year. You know, we're we're kind of a stepping stone to
home ownership, and we get that. So that allows us in some of
these properties where if a rent to a certain level, that we can contact
our realtors who show up and say, this is what your comps are in
the area. You could probably be charging this, And if people who are
naturally moving out, we can just raise the rents to that that new market
level. If we at tenant is interested in staying, we tend to just
raise them, you know, that five percent charge, and they're pretty comfortable
with that, and that that allows us to you know, kind of keep
a certain amount of tenants that we don't want to stay a couple of years,
maybe longer than they than they planned. All right, So you'll get
five percent if a person is going to stay, but you'll get an even
bigger increase if you're going to turn the property over. Yes, And and
the nice thing is it's not even you might have to go in and you
don't have to do a complete renovation of the product of the of the apartment,
but you know, a clean up and everything like that will sometimes produce
you know, the ten, ten to fifteen percent more in return a year,
which is really nice. Yeah, not in every case. But the
important thing is, and I hope you know everyone out there who's listening,
you know you do have to raise rents. I think a five percent is
a good way to explain tottendance that this is. You know, spences are
going up, we have to raise rents and in some cases, you know,
you really should be bringing rents to market level, but you want to
be fair to fair to tenants, and you know they're going through stuff as
well, so it's kind of a give and take. Yeah, I mean,
you know, I'm just kind of thinking through my head here. You
get a five percent increase on your rent, like that's significantly adding to your
your cash flow. But then when you compound that over a five year period
or a ten year period, I mean that that really become a significant amount
of money just getting those those increases every year. Oh absolutely. I mean,
if you know you have an apartment that's one thousand dollars for a one
bedroom, you know, you know raising it, you know, fifty bucks
for five percent, then you know in ten years you're at fifteen hundred now,
right, right, And so all of a sudden, and think about
that, how compounding you could do that over all of your portfolio. And
yeah, so yeah, I mean with two hundred and twenty rentals like that,
that's a lot of money. But even for someone that has one or
two properties, I mean, that really is a significant difference in in your
cash flow. There's no doubt about it. And you start to notice it.
And and you know, don't be afraid if a tenant says they're going
to leave, and you know, you know, you have your channels,
have some good realtors that know the market that come in take a look.
Maybe they can give suggestions, and you never know, sometimes it's a blessing
when somebody leaves because you're bringing stuff back up to market rent. And I
get it. We have relationships with tenants that over the years. And you
know, so the key is to be fair and you want, you want
to you know, cater to them, but you also have to you know,
it's kind of you want to get as close to market rent as you
can, right, right, So when someone first moves in, do you
tell them, hey, that the rent is probably going to increase in year
number two, or do you have that conversation as that the lease is coming
up. Yeah, so there's I've seen you know, landlords in the past
kind of put it into the lease itself, saying we are going to raise
this five percent a year just based on you know, expenses and market stuff.
We kind of do it. As the lease is coming to expire.
We kind of say, you know, what are your plans for housing next
year? Are you thinking of staying or going? And everybody is different by
case by case, and you know, at that point, if they decide
to stay, say well, we do have to raise the rent by about
a hundred dollars a month or whatever it is. And that tends to you
know, people seem to be satisfied with that. I like that. So
that that's more of a conversation that you're having with them versus them just getting
a letter in the mail saying, hey, your your rent is going up
by a hundred bucks. Yeah. It's it's less robotic, and it's it's
kind of giving them the option because again, usually the question is, oh,
how much is the rent going to go up? And you know,
so we kind of give them there they're based on our numbers we're running it.
But yeah, it's a case by case, and I think it's important
to have that conversation with tenants because it's just less abrasive, but it gives
you the option still to say, hey, you know, this is what
we're thinking. So you know, you put the ball back in their court.
And when do you have that kind conversation. Is there a certain days
before the lease expires that that you you have that conversation. Yeah, it's
usually about ninety days. We kind of put that into the claw onto the
lease, kind of say, you know, tenants should notify us ninety days
if they want to stay or go. They rarely do because life happens.
We get it. But we have a system where, you know, each
month, we'll have different leases expiring in different months, and you know,
so my brother and I go down and kind of go through the list and
say, okay, this is what this is, how long this person's been
here, this is what they've been paying. You know, let's find out
if we want to stay or go and then kind of adjust our numbers accordingly.
Now, one thing that I always look at when when I'm renewing a
lease is I always want to keep that tenant because when I look at my
expenses, the turnover costs are always it's really my biggest expense. When you
look at you you're probably going to have some vacancy, you might have to
do some touch up, paint, some cleaning. So I always tend to
to not push the rent if I have a good tenant that's paying on time.
Do you think I'm maybe leaving a lot of money on the table by
not going for those rent increases every year? I do think so. I
think. I mean, if your place is in pretty good shape, you
are going to have to get like a cleaning service there during turnovers. And
maybe you know, we kind of use it's funny, we kind of use
the same paint color everywhere, and then we kind of have so we have
a whole network of you know, cleaning cleaners and painters that we can kind
of send in and we kind of know the cost going in and for us,
you know, incurring you know, one hundred and fifty dollars cleaning charge
and maybe you know, not a whole paint job in our apartment. But
depending on the situation, you know, for us to spend one thousand dollars,
you know, if you're not doing any major renovations or anything like that.
That's to us, it's well worth it because you're you're you're kind of
freshening up the place. Someone now moves in and say you were getting one
thousand dollars, Now you can probably get twelve hundred for it. Right,
You kind of go there and now they stay, and then you start increasing
them slowly based on expenses and stuff. And I get I get good tenants.
We've had tenants who are you know, fifteen to twenty years. But
I'd say my biggest advice would be to get a decent realtor. And on
Boston has a very strong rental market for brokers and realtors, and they kind
of know the market very well, and they hungry because in Massachusetts, the
tenant pays the broker fee to the broker. Oh so it's not costing you
anything. No, do that okay? Fact? Yeah, and so it's
there, you know, they would they they obviously call us even six months
out of I'm before leasa's end and say, you know, do you have
any idea what's happening? So they want their inventory and when we're kind of
question and we say, oh, I don't know, what do you think,
is this apartment we could get for this, and we bring them in
and then they give us the comps and oftentimes the number is a little higher
than we even expected. Right, Yeah, that makes a lot of sense.
And so so for the way that your management is set up, your
realtor is leasing the property, doing the marketing for doing the showings, and
then when they find someone that's qualified and able to or wants to rent the
property, is that when you and your brother would step in to get the
lead signed. Yeah, So they send over the paperwork and we look at
the application, we look at the credit check, and then we kind of
give the approval or not approval. Most of the times it's it's it's good
to go. I like using the realtor. And maybe every state is different
in America, but I like using the realtors that it kind of takes you
out of it and it's more business when they use people go through a realtor.
And it also people feel comfortable going through a realtor because it kind of
holds them accountable because say on moving day, the place is just a disaster,
and they say, what's going on here? I paid you that,
right, you know, So it kind of forces us that we can concentrate
on getting the apartment turned over, getting it ready satisfactory, and a lot
of times when people come in, they you know, it's better than they
looked because they kind of looked at an apartment that was maybe a little messy
and stuff like that. But it kind of allows us to focus on what
we need to do. And then more the business side, the realtor takes
care of and so it brings a third person in and people, actually,
you're pretty comfortable with that. Yeah, I mean that that's a great way
to do it, and especially you know, with the tenants paying for the
realtor, I mean that that there's no reason not to do that. So
let's take a look at one of your deals, and you know, maybe
we could look at your very first deal. What was that? What what
kind of property got you started? Sure, it was a it was a
three family and the purchase price was three hundred thousand. Worked all summer,
fixed that up, rented it and the rents. I actually lived on the
first floor, had a couple of roommates, so I got the first floor.
I was I was collecting fifteen hundred dollars on the second floor. I
was collecting fifteen hundred dollars, which was a two bedroom, and on the
top floor was a three bedroom. I was collecting twenty four hundred dollars and
my mortgage was about twelve to fifty a month. Wow. Okay, And
so you were living in one of the bedrooms in your unit and then renting
out the other two bedrooms. Yeah, so exactly. So for me,
I didn't want to live at home. I said, I'm gonna live one
of the bedrooms and I'm going to rent out two of the bedrooms. And
I think they were like grad students who went to Harvard University, which is
down the road. So yeah, so that's kind of that was my route.
Wow. I mean so that that property was was very profitable right from
the start. It was. Yeah, it was. It was you could
get not a lot of people, I feel like, but there was a
lot of course, you know, landlords, but to have like the suggestion
of my father to you know, live in one of the better rooms,
rent out the other two, and then rent the other Yeah, there was
just a demand there. And I don't know if it started turning you know,
the late nineties into two thousand, but you know, that was certainly
certainly a home run, and it was able to kind of springboard me and
it's kind of teamed up with my brother. We had some other assets that
my father had as well. He was he was with us as well,
so you know, kind of an interesting journey. All right. So you're
living in that property and you're you've got fifty four hundred dollars a month in
rent and how much was your mortgage payment? Sure it was twelve fifty,
well fifty, okay, so you've got profit of like four thousand a month
on that property. So what were you doing with that money? Saving a
certain serve for more properties to buy that I would kind of go in jointly
with my brother and my father who was around at the time. Yeah,
I mean, what a what a great start. I mean, that's that's
awesome. Now, Yeah, I'm sure you've been raising the rents on that
like we've been talking about here, how much are you getting? What's the
total rent for that building today? So in hindsight to the building, the
three family did go over a kind of a major renovation rather recently. It
was kind of you're talking you know, plumbing and electrical that the house was
probably built in nineteen fifty and so it was time to kind of renovate.
So I did renovate it, and I did spend some money to redo that
house. But the current rents now is forty five hundred a floor, so
around you know a little over thirteen thousand. Wow. So that that building
went for making fifty four hundred a month to thirteen thousand a month in about
twenty four years. Wow. Incredible. Now what about appreciation. I know
there's been a lot of appreciation in the last twenty four years. How much
has that that property appreciated? So it went from about three hundred thousand now
it's worth about one point eight wow. Wow. And the reason it's head
high is that, you know, the rents are supporting that, the rent
of right, and so someone who was interested wanted to buy that, they'd
say, okay, what's the rent roll been, and yeah, that does
support it? Well wow, And how much did you spend on the rehab?
About five hundred thousand? Okay, okay, so all right, so
you you you're all in five hundred thousand for the rehab, three hundred thousand
for the purchase, so about eight hundred thousand, and it's worth one point
eight. So this property is appreciated a million dollars. Yeah, and then
they're still spitting out you know, yeah, right, thirteen thousand a month.
Incredible, Yeah, it's yeah, it's been a good, good formula.
Yeah, yeah. So do you see any endgame in this? I
feel like you've got such a great system going on, Like do you see
yourself buying more properties or are you you happy with your portfolio right now at
the current moment, We're certainly happy where we are. We still have a
number of properties that again now they're looking like since we've actually like done any
type of upgrade, you're talking fifteen twenty years. So again, fully rented
people will take that. Those rents tend to be a little lower if we
want to go in and sometimes we don't have to renovate the entire house and
spend five hundred thousand. Sometimes we may just be putting in central air and
heat, and then you know, putting in additional bathroom or something, and
you might spend eighty thousands and that can transform a property. So for us,
I think we're comfortable now keeping where we are and redoing some of our
older houses that we own, and we'll see down the road if we want
to expand a little bit more. It really is mind boggling how much money
you can make with rental properties. I mean to think that every single month
for the last twenty four years, this property has produced cash flow, and
now it's appreciated a million dollars. I mean that is that is really incredible.
It really makes me want to go out there and buy more rentals.
If you're on the fence about buying your next property, hopefully this inspired you
and if anybody wants to reach out to David, I've got his contact information
on the website. You can find it at Rental Income Podcast dot com slash
episode four fifty seven. I'd also like to thank our longtime sponsor Chayley Ridge
for sponsoring today's episode. If you're looking to buy a rental property, whether
you're just getting started or you want to add to your portfolio, reach out
to Chailey. She's a nationwide lender and I know she'll take great care of
you. You can find out more at Ridge Lendinggroup dot com. That's our
Idge Lendinggroup dot com. NMLS four two zero five six. Thank you so
much for checking out the podcast today. Make sure you follow the show.
I put out a new interview every single Tuesday, and if you're following this
show, you'll get notified every time an episode comes out. My name is
Dan Lane and this has been the Rental Income podcast