Carefree Landlady, Not a Slumlord

Owning and renting out properties isn't really a hobby per se, but when you take the work out of it, it's a lot more fun. I have found the formula for making good on the investment and finding good buys.

MAKING GOOD ON THE INVESTMENT

Once we step out of the Dallas metroplex, the numbers change, but I think the principles stay the same. All three of my houses are in Carrollton, a suburb of Dallas. I bought them when the interest rates were extremely low: 4.65, 5.25 and 6.25. I wanted houses in a range where the ongoing expenses were covered by the rent. For example my monthly income and expenses are as follows:

Monthly rent $ 1,100.00
Mortgage payment incl. property taxes and fees $ (950.00)
Property mgmt fee (10% of rent) $ (100.00)
Total monthly outgo $ (1,050.00)
NET INCOME (if you're lucky) $ 50.00

What we have to keep in mind is that rent rates are (1) competitive and (2) rarely increase. $1,100 - $1,200 is average for a three bedroom house and has been for YEARS in my neighborhoods. You have to buy a house with a mortgage payment plus the property manager fee coming out equal to or less than the mortgage payment. Well heck, that doesn't leave you any cash flow! Here's the catch. All of your maintenance expenses, paint, carpet, new AC unit, etc. have to come out of your pocket! You will have to put your own money (not rent money) into the house unless you own the house outright. If you lose a tenant and can't replace him immediately, that housepayment comes out of your pocket. Where you make it back is on the federal taxes at the end of the year. When I get my W-2's and fly to the store to buy Turbotax, I leap to the computer singing, "It's the Most Wonderful Time of the Year!" Here's the average scenario:

Rental Income minus property mgmt fee & mortgage ZERO!
Expenses for all three houses $ 6,000.00 (what the f....??)
Tax refund (for interest, insurance, depreciation, mgmt fee, maintenance, prop taxes) $ 7,000.00
ANNUAL NET INFLOW (if you're REALLY REALLY REALLY lucky) $ 1,000.00

I've had bad years where I spent more than $6,000 on keeping things up and making the house payments without a renter. My renters almost NEVER stay more than a year. I pay the housepayment when I have no tenant, and the property manager also gets the first month's rent when he finds a new tenant. (This is standard.) I would assume that you will pretty much break-even on the cash-flow. The way to look at it is that this is an investment that somebody else buys for you (for the most part). Where you make your money is when you sell the house. In Carrollton and Dallas in general, we have a lot of for sale signs and foreclosures. However, it's not as bad as the rest of the country. My houses each cost $100,000 to $130,000. They are all basically of equal value now, so let's assume I could sell them all for $140,000 each. I still owe $190,000. Let's do the math.

Current worth $420,000

Original closing costs ($15,000)

Outstanding Loans ($190,000)

Principals pmts by me ($ 120,000) (I accelerate my payments

TOTAL RETURN ON INVESTMENT $95,000

NOT BAD FOR SEVEN YEARS! I might well be overstating the current sales value of the houses, but this isn't off for a non-recession year. If it is a recession year, here's the rule: Don't sell the silly thing! There's no rush!

HOW TO FIND GOOD BUYS:

My property manager Karl Kennerly of Kennerly Properties is also my realtor and taught me everything I know. His wife Jean does the day to day property management and works with my tenants. I've never had a late payment or a destructive tenant. When buying a house, Karl and I drive around looking at houses that fit into the following box:

1. Buy houses under 15 years old. After that things start to need replacement, (e.g. AC).

2. Make sure the price is low enough that the payments (with taxes, insurance, and property mgmt) do NOT exceed the rent. Renters are not rich people. Their net income is usually around $40,000. Don't buy a fancy house for a rental or you will pay out of pocket every month to cover the housepayment.

3. Buy something you wouldn't mind living in. You may have to one day. All my houses would be very comfortable for my own home. And because of that (a) I easily get tenants and (2) I take a lot of pride in my properties.

4. All the houses I found had cosmetic flaws, mostly around paint and carpet. Paint and carpet are cheap, but the savings are huge. One house we looked at had trim painted aqua (which doesn't blend in ANY neighborhood.) The brick fireplace was painted white with mortar painted black. It looked like a giant spider web and it was hideous. The asking price was $145,000. Karl called the listing realtor and said, "Call me when the price comes down to $120,000." After he hung up, I said, "Karl! I would have paid more than $120,000 for this house!" He said, "She'll call back." I think they hadn't had an offer in 4-5 months. She did call back, we went back and forth, I got it for $127,500. I think I paid $3,500 to have the inside, outside painted, the fireplace stripped, and carpet where needed. It went from dog to creampuff in about two weeks and I've never had problems renting it out. Unlike other realtors we've dealt with, Karl isn't afraid of ticking off the listing agent. He handles the deal like a master. The listing agent was just happy to make the sale!

The first house I ever bought had similar problems; mostly dog stains and smells. They had no offers, no prospects, and this unloved house was a casualty of divorce. The owner wanted to unload it as quickly as possible so he could move on to wife number two. After I bought it, I had carpet people take out the carpet and pad, cover the floor with Kilz, painted the interior, and had the new carpet installed. It went from doghouse to dollhouse, and I lived in it from 1999 to 2003. This house cost me $99,000 with another $3,000 for the facelift. I've never had a problem getting a tenant in this one either.

My last house was a creampuff from day one. Karl and I were driving around looking at listed houses. We drove up on a house that we found by luck (listed for about thirty minutes. They had just put the sign out.) I made an offer that DAY and closed two weeks later. It was underpriced by about $10,000. So much of the house buying game is about timing.

OTHER TIPS AND TRICKS

1. When choosing a tenant, go strictly by the credit score and the payment history with the prior landlord. If you do so, you will never get a dead beat or a vandal.

2. Don't rent to people who receive government subsidies. As Karl put it, you don't want a $250 a month tenant in a $1,200 a month property.

3. If someone says they will smoke outside, don't believe them. It will cost you $3,000 to get the smell out. Only 15% of your prospects smoke, so no need to cater to them.

4. I told Karl the first time we rented that if it took three months to find a good tenant, I would wait. My priority was to protect the property, and I could carry the payments when necessary. Thanks to him, I've never gone more than a month, and usually the tenants are back to back.

5. I asked him long ago why someone with a good credit score would rent rather than buy. Obviously they could afford the payments! He said, " There are lots of people out there that will never come up with a downpayment." Even when mortages were being offered with no down, we never had a problem getting tenants, and never had to bend on the credit score requirement.

6. Why get a property manager?? The answer is, I can be a people person to the extent required by my day job, but in the evening and on weekends, I want to play with my hobbies. Karl and Jean manage 100 properties. They have all the tools at hand and the experience to do it smoothly and inexpensively. I live 22 miles away from my closest house. I don't want to have to get in the car and try to fix a sink, or show a house, or collect rent. I don't want a tenant to know who I am, where I live, or have my phone number. Because I am so dependent on Jean and Karl, it has to be a relationship/friendship built on trust. I know I can leave the country for six months and the houses will be completely safe and the payments will magically appear in my checking account on time, every month. Everyone I know who thinks owning property is a nightmare manage it themselves. I don't know that I couldn't do it, but I do know I'd never want to do it. Karl and Jean make it look easy. The picture above are my friends, Jean and Karl Kennerly.

Want a Smaller Pant Size? Lift Weights

There's lots of reasons to lift weights: Toning up, staving off osteoporosis, increasing metabolism, increasing energy. Let's address these one at a time.
TONING UP: Obviously if you workout with weights, you will develop your muscles. Although muscles do not weigh more than fat (a pound of muscle and a pound of fat weigh the same), a pound of muscle WILL take up less space than a pound of fat. One third the space of fat to be exact. I have gained ten pounds in the last five years. I'm not happy about it, but the good news is, I still wear the same pant size that I did then (and looser). I started going to a personal trainer a year ago. I was about to turn 50 in January, and as I told him, I wanted to be in great shape for the BIG 5 - 0. He started me on all kinds of weight machines, free weights, and core exercises (balancing). Although I had been lifting weights at the gym by myself for since the early 90's, I was in a rut and my workouts didn't have any effect. So when he started me on the leg curls, I could barely do it at any weight. And I had been doing lunges for years! I gradually worked up to ten pounds per leg. When I started on chin ups, I couldn't do that either. Now I can chin 70 lbs. You won't believe this, but your muscles will get stronger a lot faster than you think.
OSTEOPOROSIS: We don't have a choice in the matter. If Mom and Grandma had osteoporosis, it's unavoidable. I'm white and short. I'm so genetically predisposed it simply doesn't make sense to hide my head in the sand and take osteoporosis medication after my bones become effected. I'm huge on prevention, or at least mitigation. I consume soy everyday for this reason. Here's a short item I found on the web about that:
"Soy and Your Bones
Written by Gloria Tsang, RDlast updated: September 2005
A new study published in the Archives of Internal Medicine in September 2005 found that intake of soy food was associated with a significantly lower risk of bone fracture, particularly among early post-menopausal women. Researchers studied associations between soy consumption and bone fractures in more than 24,000 postmenopausal Chinese women averaging 60 years of age. After following these women for 4 1/2 years, researchers found that the women in the highest soy intake group (13g soy protein daily) were at a 35 - 37 percent lowered risk of bone fractures than women in the lowest intake group (5g soy protein)."
The other thing you can do to mitigate your bone loss is weight bearing exercises. If you start young, you will be light years ahead of the game. Wait until you start shrinking and you will be that much weaker from lack of exercise. I started doing yoga as my weight bearing exercise of choice and eventually became a yoga instructor for five years.
My grandmother, probably 5'2" at one time in her life, died of old age, badly stooped from osteoporosis at well under 5 feet. My mother, 5'3" died at 61 of bone marrow cancer and was probably 4'10" from shrinkage of the bones from cancer and osteoporosis. Whatever it takes to get motivated, latch onto it. Bone loss is a very big deal. The stooping is not poor posture; it's tiny fractures. (By the way, if you DO want beautiful posture, lifting weights is the answer for that as well.)
INCREASING METABOLISM:
Fat doesn't burn fat. Muscle burns fat. The more muscle you have, the more fat you will burn. Therefore, you will reduce your fat the more you lift weights and build muscle. My metabolism came to a halt in my early 40's. Had I not done something to kick start it, I would have gotten bigger and bigger. I get up at 5:15 almost every morning and head down the gym to work out. It might be on weights or doing cardio work, but the key is to do something. Otherwise, I can forget about burning off what I eat. For people who know me, I love to eat more than I should. But look around us. Doesn't everybody? If everybody worked out religiously, they could burn off a good percentage of the excessive calories they are eating. But since they don't, they get to wear them. I'm telling you, exercise is 25% of any weight solution. The other 75% is getting the portion sizes down and eating the right things. I love my Weight Watcher leader, but she doesn't talk about exercise AT ALL. I guess she doesn't want to be a hypocrite. But the truth is, she's leaving out half the program. And her members would be far better served if she would emphasize this part of the equation.
INCREASING ENERGY:
The question I get from a lot of people when they see my artwork or hear about my piano practice schedule is "how do you have the energy for all this?" Lifting weights is really the answer. If I let me muscles go to jello, then they would respond like jello. Because I workout, my mind is sharper and I can get a lot more done (including at work). I WANT to do more. I sleep great. I am more emotionally upbeat. The key is to not let the excuses get in the way. This isn't just about better health, it's about a higher quality of life. They say living well is the best revenge.

I am One with the Bike

When I first start biking in the fall or spring, I always go back through the soreness associated with the seat. Once I get past this (it does fade by the second week of weekend riding), biking is the best way to enjoy the weather and local sights. Dallas has so many great bike trails with beautiful foliage and birds, and not too many pedestrians.

Our old favorite was White Rock Lake. White Rock can be circumnavigated in an hour by a beginner (9.33 miles). It has gorgeous trees and 217 species of birds. There are lots of places to stop and relax if you get tired. White Rock has all levels of riders going around it. We get passed up by most bikers, but we have the pedestrians beaten!

Our new favorite is a trail off Royal going south to Northwest Highway (White Rock Creek Trail). The pedestrians are minimal and the trees are plentiful. You're basically riding through the woods on a paved trail.

Katy Trail is the worst for riding bikes as it's really a pedestrian trail. I don't like slamming on my brakes to avoid mothers with strollers or unpredictable dogs on leashes. Fun biking requires riding on autopilot and enjoying the scenery for it to be a true blast.

BENEFITS OF BIKING:

If you have knee problems, the doctor will recommend the stationary bike to strengthen it. Why not go the next step and ride outside? This is also the least damaging exercise for your joints. Hey, you're going to have to get your cardio in somewhere....why not do it on the one thing you learned and loved as a kid? All you need now is a bike and a bike rack (and don't forget those padded biking shorts.)

DANGERS OF BIKING:

We can't ride on city streets anymore. There's a lot more cars, and on a bike we're totally unprotected. Back in the 1980's I knew one woman who lost her leg when a driver on an isolated road hit her on her bike, throwing her 30 feet from the road. He drove off leaving her to die. This was in Tucson, and she was just lucky that another driver came along to rescue her. Another acquaintance of mine in El Paso, while driving drunk, hit a young person on a bike and drove away in a panic. I don't know if the biker lived. The driver eventually turned himself in. Here's the thing, we can try to brave it out, but what's the point when there are so many cool bike trails? Riding a bike on the street is about like walking on the street. You're equally unprotected. With people talking on cell phones, texting, and eating while driving, it's so not worth it.

BUYING A BIKE:

I've never paid more than $100 for a bike. My racing bike I bought for $100 from a guy in a cyclists club (worth over $1,000 new) and my el cheapo road bike I got at a garage sale for $25. Until you know whether you're going to ride the bike on a regular basis, why invest a lot of money? There are so many people who buy a bike and never ride it and you can find them all online. Before you buy it, ride it and make sure it's your size by riding it up and down the street. I've found buying new online is half the price of the what you can find in the store. Hint: Try out a bike in the store, then go find it online (Amazon).

BUYING A BIKE RACK:

Here's where you might want to spend some bucks. To get to the trails, you have to transport the bike. A cheaper bike rack will not protect your car. You will have to get one that positions the bikes away from the car so that it doesn't scratch up your paint job.

HEALTHY LIFESTYLE:

Health doesn't just happen. It actually takes an incredible amount of effort. Besides all the remedial work (medication, weight loss, kicking addictions, etc.), health requires a lot of proactive preventive measures. Like cardio to work your heart, avoiding greasy food, staying active mentally and physically, reducing stress, avoiding destructive people. We cannot expect a doctor to prescribe our lifestyle. It's up to us to (1) figure out HOW to get healthy and (2) make the CHOICE to live healthily (3) actually LIVE a healthy lifestyle.

I'm very lucky my boyfriend is on board with living healthily with me, but if he weren't it wouldn't matter. Just like not waiting for a doctor to prescribe my lifestyle, I can't wait for my mate to share or approve my lifestyle. I see lots of couples where one is a health nut and the partner is a couch potato. Oh well. My boyfriend not only supports me in getting my cardio in, he drags me out the door to do so. So yes, I'm very lucky he's a major walkaholic.

I'm far from perfect at being a fitness fanatic. In fact I live healthily about 50% - 75% of the time. I lie in bed when I should work out; I eat Mexican food a couple of times a week. But to offset these lapses, I have to make up where I can. The key is to make it as enjoyable as possible. I vary the routine as much as possible to keep it interesting and avoid burnout. Biking is one of the many ways we play outside together. It brings back all those feelings of joy we had as kids riding our bikes all over the place, he in Athens, Greece and I in Dickinson, TX. It's universal.

Now please enjoy my piano teacher, Eric Scortia, playing the piano.