Get Rich Education 540: Investor Insights: Amenities That Drive Big Rental Profits
Keith shares the top amenities tenants want in rental units, based on a survey by GreyStar with over 90,000 responses. He’s joined by long-time friends of the show, Terry and Liz to discuss investment strategies, emphasizing the importance of buying properties in the "sweet spot" and the benefits of allowing pets, which can lead to longer tenant stays.
They also touch on:
-
Trade-offs Between Buying Multiple Cheap Properties vs. One Expensive Property
-
Quality of Properties and Tenant Demographics
-
Screening Tenants and Handling Pets
-
New Construction vs. Renovated Properties
-
Investor Life Cycle and Exit Strategies
Resources:
Visit MidSouthHomeBuyers.com and explore their investment opportunities.
Show Notes:
GRE Free Investment Coaching:GREmarketplace.com/Coach
For access to properties or free help with a
GRE Investment Coach, start here:
Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: info@RidgeLendingGroup.com
Invest with Freedom Family Investments.
You get paid first: Text FAMILY to 66866
Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review”
For advertising inquiries, visit:
Best Financial Education:
Get our wealth-building newsletter free—
text ‘GRE’ to 66866
Our YouTube Channel:
www.youtube.com/c/GetRichEducation
Follow us on Instagram:
Complete episode transcript:
Automatically Transcribed With Otter.ai
Keith Weinhold 0:01
Welcome to GRE! I'm your host, Keith Weinhold. What are the features that tenants want in their rental units today, and what amenities are most profitable for real estate investors? Bedroom, count, bathroom, count, cover, parking, pet policy and more, what matters what doesn't, and how do you optimize operations to maximize your profit? It's a conversation with me and two terrific real estate pro guests today on get rich education.
Speaker 1 0:31
Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, who delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests and key top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com
Corey Coates 1:17
You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.
Keith Weinhold 1:33
Welcome to GRE from Tacoma, Washington to the took pony Palmyra bridge spanning the Delaware out of Philadelphia and across 188 nations worldwide. I'm Keith Weinhold, and this is get rich education, the voice of real estate investing Since 2014 I'm grateful for your faithful listenership. If you're new around here, join in at GRE we do this one big headline show every week, never more, never fewer, and truly, every single week for more than 10 years now, let's talk about amenities that tenants want in apartments today, before we pivot to discussing properties in general and single family homes in our conversation coming shortly. Now, you might have heard of GrayStar before they are international real estate developers and managers, well, they received more than 90,000 survey responses from apartment tenants on their most preferred features and amenities. So we've got a good sample size here, and Gray star compiled the top 20. Let's just hit the top five. This is important, because your tenant is your customer, and when you serve them, you're not only making them happy, you yourself are positioned to be more profitable long term. Here we go. The number one preferred feature is, do you have any guess what tenants want? It's the walk in closet. 51% of apartment tenants said that they are interested in this feature, and 37% would not rent an apartment without it. On average, they're willing to pay a $75 a month premium, and the survey shows that this is particularly important in Dallas and Miami, where over half said that they would not rent without it. The second most important amenity to apartment tenants is large windows with abundant natural light. 56% that they're interested in this feature. 31% would not rent an apartment without it, and on average, they're willing to pay an $80 a month premium for the large windows. When you think about how more tenants work from home today than five years ago? Well, big windows make more sense. Third most important is fresh air ventilation. 69% said that they're interested in it, and on average, they're willing to pay a $79 per month premium. The highest demand for fresh air ventilation is in Seattle, San Francisco and San Jose. We're talking about the top five amenities that apartment tenants want today in order, the fourth most important one is covered parking or a garage. 52% said that they're interested in this feature. Fully a third would not rent an apartment without it, and on average, they're willing to pay a $75 a month premium, and this is most important in urban areas with a covered parking or garage, where 42% will not rent a unit without it, in those urban areas. And then the fifth one is high efficiency appliances, 71% said they're interested in this feature. On average, they're willing to pay a $79 a month premium, and this, this high efficiency appliance thing, is more important for the high income tenant segment. So there they are, the top five features and amenities that. Apartment tenants want today. So to review, in order, it's a walk in closet, big windows, fresh air, ventilation, covered parking or a garage, and finally, high efficiency appliances. And listen in as I'll have a robust discussion with two season real estate pros. We're going to go beyond apartments about the features that tenants and real estate investors alike want today, and at times, they will talk about their home markets of Memphis, Tennessee and Little Rock, Arkansas, which are some of the most investor advantaged markets anywhere. And you'll have to calibrate some of these numbers to your market, because in these places, the typical single family rental purchase is just 100 to 200k and rent is between$900 and 1600 and at other times, we will talk more nationally and globally.
Hey, well, I'd like to welcome in long time friends of the show, with the emphasis on long time since they were first here with us, more than 10 years ago on episode nine in 2014 those ever steady quality property providers from Memphis, Tennessee, mid south homebuyers, it's the return of their principal, Terry Kerr and investor relations lead, Liz Nalen, Terry and Liz, welcome back.
Terry Kerr 6:25
Thank you, Keith. It's great to be here. Thanks so much, Keith, great to be back.
Keith Weinhold 6:28
Yes, it's beginning to feel like a high school class reunion or something. I anticipate my high school class reunions just like I anticipate our discussion today. Let's talk about your individual takes on investment philosophy, common investor mistakes, and is some investor conventional wisdom true, or is it not? Because there's probably some of that that we have to debunk, I think a common one. And I know you get that question in there from investors and our listeners, you had that conversation it was it better to buy two cheap properties or one expensive property talk to us about some of those trade offs.
Liz Nowlin 7:07
It's such an interesting thing, and there's so many factors you can look at. I broke it down for myself personally. Probably 12 years ago, I was asking myself that question as an investor and I ran 2 $50,000 houses, I'm dating myself against $100,000 house, and even when I manipulated the appreciation for the $100,000 house at the higher rate. And actually, we've been talking about investor conventional wisdom, and that is actually a piece of conventional wisdom I've not seen hold true as much, but that a higher end neighborhood is going to appreciate a more rapid pace than a more blue collar neighborhood. So that, as a side note, is a piece of conventional wisdom that I've seen a bit debunked, but it really ramping up the appreciation on the $100,000 house. I think I put it at reselling at like 180 or 190 down the line, and I put my $50,000 houses at maybe 90. You know, not as aggressive for me. Two houses beat one, every kind of way that I shook it out. And of course, the 50,000s had lower individual cash flows, but still, I think matching or higher than the 100. And the one thing I'm not sure that I put in there is two water heaters versus one water heater, two furnaces versus one, but running the same maintenance in general for them. Terry, what do you think
Terry Kerr 8:32
I started out buying houses a little bit lower than I should and what I mean a little bit lower like and a little bit lower quality neighborhoods, and quickly learned that you can't buy too low, you know, you got to buy them, you know, in the sweet spot. So I bought in the A class areas. I bought in the areas that were a little too low, and then found the sweet spot. And then within the sweet spot, I've got a bunch of houses that are in the mid range where we typically operate, and personally, I've also got a bunch of duplexes. I like duplexes. So whether that's duplexes or a little bit upper or a little bit lower, personally, I like a mix of them. And I'm a buy and hold guy. So the stuff that I buy and hold I'm holding for the extra long time, initially, right out of the gate, you've got to look at things like cost segregation, closing costs and all that kind of deal. So really, everyone kind of needs to run their own numbers, because what might make sense for one person just might not make sense for someone else. And again, I'm kind of all over the board. You factor in how much you're going to spend in closing costs, how long do you intend to hold the property? What's it going to cost to sell the property in 1015, 20 years. But again, the cost segregation and just everyone needs to kind of run their own numbers. I think.
Speaker 2 9:47
closing costs times two versus times one is an interesting point. Paying to mow a yard is paying to mow a yard. But then you get into another rub that I think I put them I don't think I did a square footage variation, but I like smaller Homes. It's less on paint. It's less on vacant utilities. The lower your rent is to a degree, the more people can afford to rent it, and the more recession proof you are, in my opinion. And I wasn't running through that as well, but in my antique valuation from 2012 that $100,000 house is going to be bigger often than the littler guys for the rent. Not you know, you can have a play between neighborhood quality and size of house with rents, which is a determining price. But Keith, what do you think two or one?
Keith Weinhold 10:33
Yeah, the two thing versus one thing has a lot of trade offs. As an investor, I think about the advantages of where one is going to have less management, even though I use a property manager, but with respect to the size of the property, I think a lot of us know, and the new investor doesn't know, say, a 1500 square foot unit versus a 3000 square foot rental unit. Well, with the 3000 you often have twice the maintenance, but you only get a little more in rent income. So depending on the market you're in, typically something more like a 1500 square foot rental unit is going to work out better.
Terry Kerr 11:06
Yep, I agree. And then also, another one of the things that I found out is buying houses a little too far up market going to be renting to folks that are more apt to buy a house, right? And so you might have more turnover and a more expensive house just because it's in, you're renting in an area where folks may just not stay as long. And one of the things that that, of course, we like about Memphis is it's predominantly a rental market, so we're able to kind of have the best of both worlds there. But
Liz Nowlin 11:32
kind of, going back to investor conventional wisdom, I think a common mistake, or maybe a mistake isn't the right word, but I hear investors say that they would not buy a house that they would not live in, and I find that they tend to be very expansive times of their life. They often have young children are possibly planning to do it. And one of the best renters I ever had was a little old lady on Social Security, on a fixed income. She lived in my house for seven years. She paid on time like crazy. She added a garden that my home didn't have, and she would have never paid the extra $25 a month that a second bathroom would have called for from that property. And people forget that you'd people downsize as much as they upsize. There's divorce or just retirement, there's empty nesters. Families shift down as much as they shift up. Because investors are often they're talking to me from their four bedroom, two bath house, and they couldn't conceive of renting a smaller thing long term. They just kind of missed that aspect.
Keith Weinhold 12:38
Right for me, it's definitely not a criterion. Would I live in the property myself? And that makes it eligible to hold as a rental? No, it's just the opposite. Really. I don't think any of my rentals are ones that I would prefer to live in, because it wouldn't upgrade my lifestyle. Yet, it's still doing the clean, safe, affordable, functional housing thing. We're talking about the quality of properties here. Class A, properties are deemed the best class, D, the worst. What are your thoughts? Is B class better than C class? And is a really the best of all? I mean, for example, do you get better renters in a class, or are they finicky and then they have the means to move out and go buy their own place, if they have a 790 credit score and they're living in a class a unit, what are your thoughts here?
Terry Kerr 13:22
I think c plus to b minus is the sweet spot. You get into the a plus. Like you said, there's going to be more turnover, because folks are going to be buying houses, and then you've got expensive appliances that you're going to be responsible for fixing in and a lot of A plus neighborhoods, but the C minus, and I can only really truly speak to Memphis and Little Rock, but the C minus the B plus I feel is the sweet spot that's for the size of the property, as well as the typical length of rentership.
Liz Nowlin 13:52
I managed a class for about a decade before I came to work for Terry in 2009 and we ran a great ship, and we had a great, beautiful high rise, but a year was really the average stay a class renters are more litigious. I was operating a building next to a law school, and I had young lawyers and law students, but that's going to be true in any kind of a class area. When you're paying a rent of that amount you are going to call in a work order because the doorknob is slightly loose, a lot of it. And very interestingly, I think we still had some collection issues, even renting to nurses, lawyers, just a small percentage. It's the dark side of property management. But I saw alcoholism, divorce just in a small percentage. But it doesn't wipe it out the way that you would think it would. I've seen college students going to WashU and Ivy League level stuff leave apartments in terrible, terrible conditions. Think that's another kind of investor myth around that
Terry Kerr 14:52
the blue collar folks that we're renting to here in Memphis and Little Rock, they're not going to call us for the loose doorknob. They're just going to pull out the screwdriver. And fix it, just to kind of piggyback on that. It's another one of the benefits of operating in that space
Speaker 2 15:05
lawn care. It's a little thing, but everything adds up, right? Like our renters are going to mow their own lawns and they expect it, and it's how it was at their last place. You're not pulling that off at the high high end
Keith Weinhold 15:16
when you're screening tenants. Do you have the ability to tell when someone is going to look after the place better, and because a lot of the single family home rentals that you do, I mean the tenants, for example, are even responsible for taking care of their lawn, or are they going to be responsible enough to call in a leak, but not so annoying that they're going to call you to adjust the kitchen cabinet door that's a little bit loose. So how can you help screen tenants to learn some of those things before they even move in.
Speaker 2 15:43
Our typical renter is coming to us from another single family home, and so one of the kind of unique ways that we screen tenants is that you have to have immediate landlord history. It's like with a lot of places, if you go rent somewhere for a couple years, you leave in good standing, you come and live with your mom for a year, everybody else in town would accept that positive rental history from a prior place. But one thing that that I love about working here and then what we do is that being in business for 24 years, we've had a lot of chances to kind of do things the wrong way and figure out how to do it right. And they Terry instituted a system in the early years, where any time a renter fell off the rails, they would look back through that file, was there anything? Was there anything that could have predicted that? And sometimes the answer is no, and it's just the first time somebody's hit hard times. But one of the things they found is, well, hey, this guy hadn't paid rent in a year. He did have good rental history, but he hadn't paid rent in a year, and then that bill, he'd gotten used to not paying so much, and so that just helps.
Terry Kerr 16:47
Absolutely
Keith Weinhold 16:48
yes, getting that reference from their current or previous landlord can give you so much on what the expectations are going to be for the tenancy there in their place. And then, of course, there's a whole thing where, if you're talking to the current landlord and they're trying to move out, you're really trying to get to the bottom of the things and just find out if their current landlord wants them to move out because they can't get pay, or they're doing something nefarious. They're not paying rent, or something like that. That's sort of something that one needs to decipher as well. But of course, the history is going to help project the future better than anything else. And one thing we're talking about the operations of properties, and you sort of touched on it. Liz, where you had that tenant that started her own garden, she's someone that wouldn't care to pay more for a second bathroom. So why don't we talk about some of the pros and cons with the bathroom? Are two bathrooms always better than one, or is it just one more place to have maintenance and repair problems?
Speaker 2 17:40
real quick, just back on the other thing, for all the philosophies that you can bring, the guy that I worked for before, Terry never did any landlord verifications, because the worst renter he ever had was personally dropped off at the property by the prior landlord.
Keith Weinhold 17:56
Oh my gosh, making it easy for him. And he said, I'm done
Speaker 2 17:59
so anyway, but the bathrooms is such a hot spot, there's definitely the second bathroom rules crowd. And then I've seen a seasoned investor that says that's just one more toilet to clog.
Terry Kerr 18:14
Yeah, but I would say that right now, I'm pretty sure that the property that I have on Powell is the longest resident I've ever had. She moved in 11 years ago, is still there. It's the smallest house that I own. It's like 794 square feet. It's tiny, and it's got just one bathroom. But she's single, and when she moved in, she said they're gonna have to carry me out of here. And I hope that's not for a long, long time. But like Liz mentioned, there are a lot of folks that just want one bathroom because they're just going to be living in their solo or even married couple. That is downsizing. So we have a mix, and we like to be able to have something, you know, for everyone. So our two bedroom baths perform very well, just like the three twos
Keith Weinhold 18:58
I once owned three rental properties. They were all built the same way. There was one bathroom in each of them, which would have been okay for one or two people to live there, except the only bathroom in these two story places was on the second floor for all three of them, and that did prevent some people from renting it. They didn't like the fact that the only bathroom was upstairs. Yeah, that sounds terrible.
Speaker 2 19:20
Another analogy that's too great, or something I experienced when people think that two bedrooms must be inherently less desirable than three. Kind of connecting to one versus two bathrooms. When I managed that a class high rise, I had a waiting list for my studio apartments. It was the cheapest way that you could live in that neighborhood, period. And I had a three or four month waiting list for the studio apartments. I had a little more trouble renting the one bedrooms and the most trouble renting the penthouse, frankly. And my point with that is that if you price it right, it will always work. You know, if my studios were the same price as my one bedrooms, and of course. Course, I would not have had a waiting list for them. And you know, we have that super unusual lifetime occupancy guarantee mid south it's that, you know, if your property is ever vacant for more than 90 days, we start paying your rent on the 91st day. And I'm often explaining to people that's not us actually being an insurance policy, though it's real, it's in writing, we will pay you if that happens. But what I'm really telling you is that these rents are real. The rent price is meant to perform, and that that's the point. Anything rents well and stays well rented if you price the rent correctly.
Keith Weinhold 20:33
Well, that's an excellent point. We're talking about conventional investor wisdom and the operations of rental properties for investors, with Terry Kerr and Liz Nowlin from mid south homebuyers more than we come back, including is saying yes to pets worth it. This is Get Rich Education. I'm your host. Keith Weinhold
hey, you can get your mortgage loans at the same place where I get mine, at Ridge lending group NMLS, 42056, they provided our listeners with more loans than any provider in the entire nation because they specialize in income properties. They help you build a long term plan for growing your real estate empire with leverage. You can start your pre qualification and chat with President Caeli Ridge personally. Start Now while it's on your mind@ridgelendinggroup.com That's ridgelendinggroup.com
Oh geez, the national average bank account pays less than 1% on your savings, so your bank is getting rich off of you. You've got to earn way more, or else you're losing your hard earned cash to inflation, let the liquidity fund help you put your money to work with minimum risk, your cash generates up to a 10% return and compounds year in and year out. Instead of earning less than 1% in your bank account, the minimum investment is just 25k you keep getting paid until you decide you want your money back, their decade plus track record proves they've always paid their investors 100% in full and on time. And you know how I'd know, because I'm an investor in this myself, earn 10% like me and GRE listeners are text FAMILY to 66866, to learn about freedom, family investments, liquidity fund, on your journey to financial freedom through passive income. Text FAMILY to 66866
John Lee Dumas 22:37
this is Entrepreneur on Fire, John Lee Dumas. Don't follow money. Make money. Follow you with get rich education.
Keith Weinhold 22:56
Welcome back to get rich education. We're talking about efficient operations for real estate investors and the properties that they choose to put into their portfolio, and some of those trade offs with mid south home buyers Terry Kerr and Liz Nowlin. And one thing that seems to be increasingly popular, it sure isn't waning in the past few decades, is the prevalence of pets and tenants that apply and have a pet on there. So there are a lot of pros and cons here. What are your thoughts about pets? Is it worth it or not?
Terry Kerr 23:28
It's worth it as long as you know what pet is going into the property and you charge a pet fee, amen.
Speaker 2 23:36
I'm a dog lover personally. So I was a renter. I was a good renter with a dog, but you do run into the people I experienced this, where they had the one horror story, and they're like, I never want a pet environmental property again at the end of the day. And that's where you go into what type of pet and a non refundable pet deposit. But what you lose by excluding such a huge percentage of the population from retain your home is going to outweigh the risk of the one off bad pet owner.
Terry Kerr 24:11
I agree.
Keith Weinhold 24:12
We also get into questions of what's legal here. If one does say yes to pets, you mentioned a non refundable pet deposit, why don't you talk to us about the amount of that deposit in relation to the rent, and then can you, or do you also charge more rent monthly in addition to the non refundable pet deposit
Terry Kerr 24:33
we charge a $250 non refundable pet fee, and that it tends to cover any issues with the pet but one of The things that I'll kind of piggyback on, what Liz said, is, not only are you excluding a large portion of the market, but we find that folks with pets, they just tend to stay in the property longer. I don't know why that is. I can look at my portfolio. I've not like examined all the houses that were managed. Thing, but I know that from with my portfolio, folks that get into the property with pets. I don't know why, but they just tend to stay longer.
Liz Nowlin 25:07
I may have just had luck, but I have not had any significant pet damages from any of my renters with pets and and kind of more stable, stable folks sometimes. So I think it's worth it. You always understand the person that had the kind of the one bad story, but I really think you could mitigate it.
Keith Weinhold 25:23
How about hiking up the rent amount for pets?
Terry Kerr 25:23
We have not done that. It's not something that we've ever done before. I guess it's kind of a if it ain't broke, don't fix it, you know. But we want to be able to provide as much value as we can to the resident to have the leases renew. And so everything that we do, from a rehab standpoint and a property management standpoint, is geared towards resident renewal. I'm not saying we couldn't get maybe an extra 25 bucks a month, but at some point you cause yourself a longer vacancy because you're trying to find someone who's wanted to pay more because they have a pet or may not renew the lease, because they can find some place to go where the rent is cheaper and they're not being charged pet rent, if you will.
Liz Nowlin 25:25
We charge pet rent at my a class high rise that I managed for a long time. You know, it's not 100% No, it's people complained bitterly about it. I think a pet deposit. Just they stomach it a little bit better. The theme of the show might be, there's a lot of different ways to skin the cat. I got more pushback about that rent charge working directly with the renties than kind of anything else. So I would say we should up the non refundable before we layer it onto the monthly personally
Keith Weinhold 26:37
yeah, if it's paid one time, it seems to be less of an annoyance over time and forgotten. When we talk about pets and think about the long term, after a tenant with a pet moves out, can the place really be adequately cleaned for the next tenant? We know a lot of people are sensitive with allergies today.
Terry Kerr 26:56
Well, fortunately, we bought our own carpet cleaning van. We know what we're doing in regards to, you know, cleaning carpets, and so absolutely you can clean them. I mean, don't get me wrong, there's always going to be like the one off every once in a blue moon, but definitely, you know, we're not throwing the baby out with the bath water there. And fortunately, we're able to mitigate that smells with the right chemicals and our own carpet cleaning van. It's rare that we have that issue.
Keith Weinhold 27:22
Well, the other thing is, is that you're a turnkey real estate investing company, and for listeners that don't know what that means is you basically fix and flip properties at scale and sell them to investors. So what you do in that case, then, is you're using those resilient finishes that can stand up to pets better than if maybe a person were just doing this small scale on their own accord.
Terry Kerr 27:45
That is true. So I can't really speak to what other property management companies experience or other individuals, but I do know that that's what we've done to mitigate the risk, and again, like I said, increase the likelihood of a lease renewal, that's the name of the game, right?
Keith Weinhold 28:02
Saying yes to pets sure does increase your chances. And Terry and Liz, the three of us, have all been active real estate investors ourselves for quite a long time. And when we became real estate investors, new build properties, especially in the turnkey space, really weren't much of a thing, but today they are. There are build to rent communities and more. And you yourself, there have been more involved in new builds, although renovated properties is sort of your bread and butter business, but now that you've done both for a while, what are your thoughts with how you advise investors? Is the premium on new construction worth it? Are you just paying really upfront for the maintenance that you'd have on an existing property? So what are your thoughts with new versus renovated property?
Liz Nowlin 28:46
I love that. So you know, if anybody goes to our website right now and looks at the available properties, you'll see some really gorgeous houses mixed in with our already pretty houses with a new construction label across the front of that exterior photo, and you're going to see beautifully updated kitchens. Our renovated kitchens are also super nice. But I get that question, you are going to pay a little bit more for a new build than a renovated property? And you know, Terry and I talked about it, there's a really cool, detailed 15 year pro forma that you can look at with every property. And we did turn up the appreciation for a new construction house. And of course, nobody has a crystal ball, but I really think that will hold true for our properties only. We actually didn't change the maintenance metrics solely because our renovated houses have all new roof, all new furnace, all new air condenser, all new water heater, and they're just as new on the renovated properties as the new construction for our renovations. We're replacing all the any galvanized plumbing, you know. We're doing so much new I think maybe we could change it by a half of a percent or something, you know, but we actually didn't change it because. Because of the depth of the renovation on our properties. Now I am planning to have my next purchase from mid south homebuyers be a new construction home. There's the premium on the front end for me, my thought, and again, this gets into individual investor strategies, but my son is three years old. I plan to leave my entire portfolio to him, and my simple thought about it is that, you know, I have wonderful performing properties, the oldest of which was built in 1927 actually, and a lot of my renovated. It's a gorgeous one, by the way, a beautiful neighborhood, and it's been a great property for me. A lot of my inventory was built in the 60s and 70s. But when I think about Rhett, my son, baby, selling a house in 30 years. I have a feeling that 2024, build is going to do him very well. What kind of buy and hold investor Are you? Are you a 15 year or you will leave them to your kids? That's an angle to think about for sure.
Keith Weinhold 30:55
Well, actually, that's a great next thing to talk about the investor life cycle in the life cycle of a property that's in your portfolio. Talk to us more about when the right time is to sell an investment property. I mean, should we just buy and hold forever and leave it to our children, or is there an ideal exit time? So from your perspective, why don't you talk to us some more about that timing?
Terry Kerr 31:18
And again, that's just going to be case by case, we've got folks that'll sell a house to put their kids through college. We have had folks to sell their houses when they need to move their parents into assisted living, folks that'll sell their houses when they're looking at retiring. It's typically, life happens and you've got that equity there, and when the time is right to tap it, it's nice to know it's there
Liz Nowlin 31:44
lot of different ways to look at it. I've actually toured with selling my 1927 house in the next year or two, before that magic 100 year mark. Yes, for people, you know, and is that gonna do things? But really it's been a great little performer for me. I talk to investors so frequently, and I've heard more than one seasoned investor tell me they wish they'd never sold a single house they ever sold. Just wish, they wish they could hit a button and own everything they'd ever owned. And I'm a die hard buying holder, but I don't think there's a magic time in the sense of, you know, a question I get, maybe some from sometimes a newer investor is, when will my house need another renovation like the one you just did? And the answer is never right. We're going to cosmetically bring it back up between every renter every time. And so you're really just left working with the individual lifespans of those big components, right? And those are relatively staggered out, with maybe a water heater at the shortest, at a roof at the longest. And I think for the most part, this might vary per market. And Terry, I'd like to know your thoughts, but I think genuinely, you'll probably get a higher price by spending the money to replace versus selling for less having not replaced that item. You know. Say, trying to say, Okay, I'm going to sell in my roof is 29 years old, is probably better just replace it.
Terry Kerr 33:04
Yep, I agree. Because you know, if I'm a buyer and I'm maybe not a flipper, but a buyer, and I'd rather buy a house and spend 100,000 bucks on a house that has a new roof, than buy a house for $94,000 with an old roof. Because I know that old roof, if it leaks, it can cause a lot more damage than just the cost of replacing the roof. So I agree.
And from an ROI perspective, if I'm a financed investor, which about 80% of our investors are, I'm financing that new roof when I buy it with a mortgage, and I'm a great point pay out of pocket the next year. So that's a rub. And then very specific, of course, to our clientele. Terry, how much does it cost us to put a new roof on 1000 square foot house? 4500 bucks. That's we're putting on 700 new roofs a year. The roofers are paid by us by the hour. We are buying the shingles in bulk. And on top of that, we don't mark up maintenance and materials for our investors. So for that one story, 1000 square foot house, that's what my investor cost for us to put a new roof on for them is going to be but a potential buyer is going to look at that home and think it's a $7,000 roof that was great
Keith Weinhold 34:17
to learn about how you renovate properties for investors between tenancies there, so that properties don't get excessively dated. And we've been talking about a lot of the physical things that go into a property with that investor deciding what their exit strategy is going to be. Another thing that informs me are the numbers. When I get to about 40% equity on a property, I know my leverage ratio has now been cut down to two and a half to one, and that's when I look to do something maybe a 1031, tax deferred exchange. Or alternately, if it's a property that I really like, do the cash out refinance, get a tax free windfall with the cash out refinance, and get to hold on to the property at the same time. So of course, that's another way to approach it From the number side, rather than so much the physical side. But there sure is a lot to consider there. And you brought up heirs as well. This has been a great chat about the operations of a property, and just how you advise investors in there. Is there maybe any other question that comes up from investors a lot of times with how they should approach a property and the pros and cons within
Liz Nowlin 35:22
we've seen a lot of great growth, but when we're newer into a neighborhood that we've just kind of started putting our foot in as we stay we meaning mid south home buyers renovating and escalating those properties. That's where we've seen some of the biggest rent jumps and some of the biggest depreciation jumps, but it was kind of one of the lesser, prettier neighborhoods when we first offered that home to that investor, just kind of wrapping your head around all the different nuances to account for
Terry Kerr 35:49
yep, buying the path of progress. And fortunately, we've been able to create some of that progress in the neighborhoods that we've worked in throughout the years.
Keith Weinhold 35:56
If you're not sure where the path of progress is, and you buy on the line. A lot of times, you are the one that is creating that path of progress, and you've got enough bandwidth and volume in there to have actually done that on a number of occasions. How about something actionable? So many of our listeners have become investors there with mid south homebuyers. I imagine it is over 100 by now. So tell us about what you're doing, where you're active, between Memphis and Little Rock, renovated, new build. Really, where's the opportunity for an investor today?
Liz Nowlin 36:31
I'm pretty proud of us. I'll admit we just closed out 2024 having sold 680 houses. Wow. To investors, many of your listeners, and we're very careful. We've always done a little bit more every year. We don't buy everything we could buy. I always say my acquisitions team is not out there thinking about me and my wait list. One of my favorite sayings of Terry's is, you know, pigs get fat, Hogs get slaughtered. And I love the slow, careful way that we do things, but it was still pretty cool to do 680 we're still about, I'd say 75% Memphis, Tennessee, 25% Little Rock.
Terry Kerr 37:09
Yes, that's about, right? I would say also probably about maybe 15% new construction on 85% rehabs, maybe 20% new construction now, yeah
Liz Nowlin 37:20
And our sweet spot is still, well, still, it's that 100,000 to 200,000 that that window has slowly moved up through the years, very much to the benefit of investors as their investment seasons with time. I think we were 46,000 to 86,000 when I started in 2009 so been awesome to see the growth Memphis and Little Rock has had and so yeah, we're still kind of cash flow first appreciation is the icing on the cupcake. There are cupcakes have had more icing than we ever anticipated. If you go to midsouthhomebuyers.com and click on those available properties, they are under contract to investors at the top of the wait list, but they are identical to the houses I will have for anyone that is listening. We're so formulaic, 365 days a year, the cheapest house I may ever have is on that website. The same for the most expensive. We have just kind of figured out what works, and we hit it hard. And you can see the running theme with the kitchens and everything else.
Keith Weinhold 38:22
Well, congratulations on the total volume that you did last year. That's almost two homes a day, including weekends and holidays and everything else. That's really terrific. Yes, I, for the listeners here, have often, over the years, made these examples using a 100k property, but inflation and appreciation has also made it such that I can't do that anymore, maybe, just maybe in Memphis and Little Rock, I still can for a decent rehabbed property in a pride of ownership neighborhood for as little as 100k and that's one reason why so many investors have made mid south home buyers the place that they go for their First ever Income Property across state lines. They really know how to serve that audience, and you've been doing that for our audience for more than a decade now, and you continue to have this really robust interaction with investors. Liz, you do a lot of phone calls with people. You're really proud about what you do there. So proud that you offer field trips,
Speaker 2 39:19
please. I hope folks come so many folks never do so. If for anyone that prefers to do it from your living room, you are in the 95% norm if you never come to town. But man, it pushes folks confidence through the roof. So many of my investors are from high cost of living areas where you cannot get a parking spot in a war zone for the price that we are selling fully renovated houses, we have a deposit taken for a renter from every house I ever offer that really is cash flow from day one, and folks will really see the neighborhoods and that. I can't stress that enough. In fact, one thing that happens so if folks come up, you can sign up for the tours right on the website. It's on the far right, says, come visit us. This, you'll see a drop down with all the dates we do, monthly tours in Memphis and quarterly tours in Little Rock the day before. So you can come out and hit both. You kind of do a Thursday, Friday tour. You'll tour facilities. You'll see the warehouse and all that kind of stuff that I'll find. You know, our vans, we pull it, throw everybody in vans. We're listening to Memphis music and talking the whole tour, and people will want to pour out of that van right into the house. And I actually back everybody back out. I back them back into the front yard. I want to talk to you there and say, look left, look right. This is $120,000 neighborhood. Y'all. I can send you photos of the inside of the house all day, and you're going to get the same great house whether you buy from your living room. But I love it when people get to see that. I'll go ahead and say we do give gift cards to the best barbecue in town at the end of the tour, in addition to a $500 closing cost credit, just as a thank you for coming out and yeah, I love the tours.
Keith Weinhold 40:53
I really appreciate the two of you. Here we are, the three of us, more than a decade after we started talking about the properties and what you offer investors here, and it's just rare to have continuity like that. You can learn more at midsouthhomebuyers.com Terry and Liz, it's been valuable as always.
Terry Kerr 41:13
Thanks so much, Keith. Always enjoy it
Keith Weinhold 41:15
when we talked about pets, did Liz say something about skinning the cat? That would have to be one of the worst pet policies that I have ever heard of. And yeah, I think that long term, you know, the three bed, two bath style that has been so popular in rentals. But today, there are fewer occupants per household than there was 10 years ago and 20 years ago. Okay, that has long been a national trend. So in a lot of instances, two bedrooms can be better than three and one bathroom can be better than two, especially in that case of a sole occupant. And do you know where your best feedback is gonna come from? From what would most improve your unit's appeal to the market? It is not an online resource at all. It is from a showing where your tenant prospect did not want your unit. They know they are in the market. In fact, they are more aware and in tune with the market than you are, because they might have looked at, say, five units in just the last two days, and they might have done that in person. So they will tell you why they did not want the unit, whether the rents too high, or they don't like the parking situation, or your place needs to be closer to the train station, or your only bathroom is upstairs, something that reduced appeal for some of my own properties in the past. But yeah, this, I'll call it an exit interview of your prospective tenant. I mean, that is valuable, or you can have your manager do it well, the one place that really knows what tenants and investors want is with Terry and Liz there. That's why they have been in business since 2002 with 1000s of investors like you. And it's also why when there is an investor wait list for their properties, and you get to the top of the wait list and close on your property, so many investors just get right back in line on the bottom of their list and work the way up again for their next property. They get lots of repeat business. You can do this too. Get started at midsouthhomebuyers.com Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.
Speaker 3 43:49
Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get rich Education LLC, exclusively,
Keith Weinhold 44:17
The preceding program was brought to you by your home for wealth, building, get rich, education.com