Ashley:
Hey rookies. A question we get all the time is how to best handle purchasing a tenant occupied property to make sure the handover goes smoothly. Today, we’re going to give you a step-by-step guide for this process and make sure your investment property is set up for success. This is the Real Estate Rookie podcast. I’m Ashley Kehr and I’m here with Tony J Robinson
Tony:
And welcome to the podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. So guys, obviously it goes without saying that. To help us with this how to episode, we have to bring back on the binder strategy King Dion McNeely. Now you guys may recognize him because he’s been on the podcast before, but we’re so excited to have Dion on again. So Dion, welcome back to the Rookie podcast.
Dion:
Alright, I appreciate the invite so much. I actually watched your guys’ content a lot. I learned from a lot of the guests, I learned from you guys and this is a topic I’m super glad that you reached out for because some of the things that I do, I do kind of backwards to what seems traditional. An example would be most landlords want their leases to end in the winter. Most landlords will want a vacant property. They want to buy a property that’s vacant that they can set up the way they want it to and get brand new fresh area market rents or be the top rental in the area. I invested while working full time was a single parent with three kids. They were younger when I started and I didn’t have time for all of that. So my goal was to buy properties with tenants in place.
Dion:
I’ve done both. I’ve purchased vacant and I’ve purchased with the tenants living there, and I much prefer the tenants living there. It’s kind of where the binder strategy came from was because you generally buy rents or below area average. And so I have a pretty good system of when I buy a property and there’s tenants in place, here’s the check marks of all the things I go through to make sure that it’s a smooth acquisition. Because so many people when we look at a property, they focus on math, they think, what’s my yield? What’s my return going to be? And I’m looking at if I buy this property, how’s it going to make my life better?
Ashley:
So Deanne, let’s start with before you even acquire a property, what should a buyer know before they’re looking at properties, when they’re considering buying a tenant owned property or tenant occupied property?
Dion:
So when you’re hunting for properties, always knowing your end goal and making sure that the property meets what you’re planning to do. If you do short-term midterm storage, rv, I’m the super lazy person. I want to buy a tenant that I talk to once every two or three years, so I do long-term tenants and I want low tenant turnover, so I’m actually looking at properties considering physical aspects of the property to me are almost as important as the math. I want to get the yield I’m looking for, but I want to make sure that the physical aspects of the property are going to help limit tenant turnover. And there’s kind of a checklist of things that I do. I like side-by-side properties. I do small multi-family. I don’t want tenants living above or below another. I want garages in the middle so you don’t even have shared living walls.
Dion:
I want washer dryer hookups inside each unit because anybody using a shared laundry or a laundromat is just waiting for the next place to open. I want a lot of space, so two bedrooms or more a garage or a carport or something because more space means or more stuff less likely to move. I want to look at the physical aspects of the area, make sure it’s not next to a landing strip for an PL or a train or a loud pub. And then there’s good off street parking. So all of the things that make a tenant want to stay, I like pet friendly fenced yards and there’s no difference between a fenced yard and a pet friendly fenced yard other than I called it pet friendly and they put that in the actual photo on the listing. The photo shows the fence yard, and I put in the words pet friendly fenced yard. I get a ton of applicants because I accept pets just like the other landlords do, but I actually have the words in the picture saying it’s pet friendly.
Tony:
I just want to comment on that really quick. That’s such a genius idea because we started adding fences to some of our short-term rentals. For that reason. We had a lot of people that were coming with their pets and were like, we were getting feedback. They couldn’t let ’em out because there was no fence. We started putting fences around our properties, but we never went back and said, Hey, we’ve got a pet friendly fenced yard. So small little marketing piece, but I feel like that it probably goes a long way
Dion:
And I’m also looking for tenants that want to stay and one of the reasons why I allow pets a couple of things, you get pet rent because you’re going to have possibly pet damage in the future. I’ve had one pet damage in over a decade and it was less than $200. I’ve had thousands of dollars in kid damage. So with allowing pets, you also get to charge a premium on your rent because there’s less units available that allow pets. And also allowing pets that never have to deal with somebody arguing that they have an ESA animal because they printed out a piece of paper that took five minutes to find online. I just allow pets don’t charge a pet fee or pet rent if they have an ESA animal, but at least they don’t have to have that argument. And when people have pets, they’re less likely to move because even if the human moves with the animal, it’s a pet relocation. So I have longer term tenants, a higher rent possible pet rent, and my goal, remember is to make my life easier and less tenant turnover with happy tenants helps do that.
Ashley:
Okay, so Dion, now that we kind of found out your buy box for when you’re looking for properties, are there any legal obligations we should know about before actually purchasing a property with the tenants already in place?
Dion:
One of the things that I really like about buying properties with tenants in place, and it’s the majority of the time for me, my targeted search really is, Tony, you mentioned you’ve done the bur and you guys have both done rehabs. If a tenant is in place, a tenant is already living there. Now this isn’t a hundred percent of the time, it’s been a hundred percent of the time for me, but that means the water runs, the power’s on. There is a subfloor, right? The basics of it being habitable are assumed because there’s already somebody living there. So I don’t have to do the big rehab or the big repairs or find a tenant. So that’s the benefits to me. The drawback is you’re bound by the existing lease, right? The new buyer doesn’t come in and say, I’m the new owner, let’s get a lease together.
Dion:
You have to find out which lease is already in place and if there is no lease, you’re bound by what your state’s laws are and in most cases it means they’re just considered a month to month tenant. So I’ve looked at properties before and while I never look at the lease or the current rents to run my math to figure out if it’s a good or a bad deal because in my mind area average rents set rents not in agreement between two people. That’s a unique point versus area average rents is what’s going to probably be happening with that property in the years to come. And I’ve seen where a seller tries to protect their tenants and they go, I’m selling the property, so let’s sign a new 12 month lease at a really low rent to protect you so the new buyer because you’re bound by that lease.
Dion:
And that blew the deal up for several people. They looked at that and they said, oh, I’m not buying it with those long low leases. What I did is I looked at the, so in this case rent should have been 18, one lease was signed at 15 and one was signed at 1250. So I could actually run the math and go, so for this first year I’m losing $300 a month here and what is it $550 a month here? What does that equal in a year? How does that impact my yield calculation if I had that expense to buy this property? So it didn’t kill the deal for me. It said, what price adjustment would I make or what concession would I ask for to allow these leases not to blow up the deal? Because you are bound by those leases and you want to make sure that you look at those to see is the tenant responsible for taking care of the yard?
Dion:
Because in my case with small multifamily and all but one of my properties, the tenants handled their section of the yard and I want to know if it’s in the lease that a services provided, I would consider that in my cost or I had one time that I would like to meet the tenants during the walkthrough either with the inspection, the appraisal, or when I’m giving my landlord introduction letter and interact with the tenants to make sure that when you get that estoppel agreement where you get the tenant’s information, contact info, and then something that almost everyone misses that I all ask for in the estoppel is you get the tenant’s explanation of what the rent is, especially if you’re buying from somebody who doesn’t have a lease. You want to make sure what the landlord is saying and what the tenant is saying aligns with each other and the tenant let me know, my rent is higher by $200 a month because I didn’t pay a deposit.
Dion:
So what the end of this year, I expect my rent to come down $200 a month because my deposit’s paid. That wasn’t written in the lease, it just had the rent. That was a verbal agreement between the seller and the tenant that I wouldn’t know if it didn’t have that interaction with the tenant. And so that’s one of the reasons why their current lease, what they’re paying for. Rents aren’t used in my equations. I use area average rents. What would this unit rent for if this tenant and this seller weren’t involved? And that’s how I know if the math makes sense or not.
Tony:
Hey, we’re going to take a quick break, but when we get back, Dion is going to talk about his binder strategy and why this is such a powerful tool to use when you’re purchasing a tenant occupied property.
Ashley:
Welcome back to the show. We are here with Dion. So Dion, I want to highlight for anyone listening as you’re talking about lease agreements and finding out from your state what is legal, what is not, and if you’re going to be creating new leases before you even purchase a property, go to biggerpockets.com/leases and you can actually view leases by state to see what some of the requirements or what is acceptable for your state for lease agreements. If you’re a BiggerPockets Pro member, you get these for free. So go ahead and take a look at those or you can go ahead and purchase ’em for whatever state that you need. But go to biggerpockets.com/leases. I wanted to explain real quick, you threw out a buzzword that also can be found on biggerpockets.com/glossary for all of the terms and definitions we talk about here at BiggerPockets, but estoppel agreement.
Ashley:
So if you’ve been a long time listener, you know that Tony learned how to spell this word on this podcast. But to explain real quick, the estoppel agreement is something that you can ask tenants to fill out before actually purchasing the property. You most of the time should ask the current owner for their permission to send this information to their tenants, but it’s basically just a form for them to fill out, like Deon said, with all of their information and you’re going to use the information they provide to compare it to the lease agreement or if there is no lease in place, what the owner of the property is telling you is true. So who owns the appliances, who pays for what utilities, things along that. So it gives you something to compare to who is saying who, so that you don’t walk into a property thinking that you’re running your numbers, not having to pay any utilities, but then you purchase the property and the tenant says, oh no, I don’t pay the utilities either. So an estoppel agreement is a great thing to put in place and to have filled out before you actually purchase a property.
Tony:
So I think one of the thing I want to focus on to there, Dion, is that you’ve been fortunate enough where most of the properties that you’ve inherited tenants with that they were in livable condition, but I’ve definitely walked some properties in my time where people are living there and I think I’m somewhat shocked and surprised by the conditions that I’m walking into. We actually walked a property, we were looking at flipping last year and my wife was pregnant at the time and she got two steps into the front door and she’s like, I’m just going to wait in the car because it was that bad inside. So I think there’s always maybe a little bit of room in there to maybe do a little bit of rehab, but I just wanted to call that out for folks. Every landlord might be stepping into something different. But I guess let’s talk about the transition piece, Dion, because I think that’s what a lot of folks maybe get worried about when they actually buy property with an existing tenant and you on it already. But I guess what are some of the best practices for taking over a tenant occupied property so that you can start off with the smoothest transition possible?
Dion:
So I talked a little bit about the landlord introduction letter and when you interact with the tenants, you didn’t get to screen these tenants, you don’t know their credit score, you don’t know their work history, you don’t know their eviction history or criminal history. If you check that and you don’t know if you want to keep these tenants, they might be great. They might be the reason the owner sold and they might be living in bad conditions because they didn’t let the previous owner in to do any of the repairs. So you end up with a situation, Tony, where you walk and you’re like, wow, why would you live like this? They might be the reason. So what I don’t do right away is try to get a lease signed immediately in the first couple of months, right? I am known for the binder strategy where I get my tenants to ask me to raise the rent.
Dion:
I specifically like targeting rents, rentals with tenants in place because their rents are usually low. Now, I don’t want to do a rehab, I don’t want to do a tenant flip. I don’t want to find tenants. I don’t want to do all of the work that’s involved there. I was working full-time, had three young kids, and so having tenants in place, I can do this binder strategy and show area average rents, have them ask the tenant, what do you think is fair for rents? If you do that right away, you might lock in a long lease with someone you don’t want to keep. So for two months, this is your opportunity to vet those tenants because why do we run credit and why do we check eviction history? Because we want to make sure they’re going to pay their rent on time. We want to make sure that they don’t keep getting evicted because of noise complaints.
Dion:
So you don’t know that yet. So in those two months, do you get noise complaints? Do they call you for super trivial things? That’s my two months period to figure out if I want to keep the tenants. So then I will do something like sign a new lease or use the binder strategy in those two months to make the transition go as smooth as possible. I also do things that the previous landlord probably wasn’t doing. One of the reasons why they were selling is they’re usually older, tired, don’t want to take care of the property. They were afraid of raising rents on a good tenant. So instead of losing a good tenant, they lost a good asset, which is now the thing that I acquired. So I’ll do things that like upgrade and maintain the property, which for me is coded locks. I target class C properties specifically and it’s kind of rare to have coated locks and class C properties.
Dion:
Tenants are just used to having keys, so it’s kind of an upgrade. I put in motion sensor LED, exterior lights, which improves the safety of the place, modernizes the look a little, and then I actually do something that I’ve had people tell me never to do. I ask the tenants if they owned the property, is there something they would fix? And my friends have said, don’t do that. They’re going to ask you to add a bedroom or pave the driveway. It’s never been that. What I’ve had is tenants say if I had a screen door, I’d be able to leave the door open in the summary, it’d be really nice. Spend $150 on a screen door, have a really happy tenant. So for those two months I got to vet the tenants and the tenant saw that I’m going to maintain the place I care about what they want fixed.
Dion:
I got a to-do list from the inspection, so I had any things taken care of. Then the conversation with the binder strategy or setting the rents goes much better because the tenant’s happier and most tenants live in fear of getting kicked out. They were expecting an N 12 letter, right? They were expecting the landlord to say, here’s your notice I’m selling the property. You’ve got to go because so many investors want to buy a vacant property. So to find a tenant who survived not getting that N 12 notification where they’ve got to move, so they’re living there wondering if you bought it and your owner occupying and have to kick them out or wondering if you want to kick ’em out so you can rehab it. They know their rent is low, and when you have those two months go by where they’re paying the same rent, you’ve done repairs and then you sit down to have a conversation with them, their stress level is so low that the conversation goes a lot better than if you tried to do it in that first week where you’re giving a landlord introduction letter where a lot of people focus on here’s how I like to be paid.
Dion:
And that to me I think is kind of a mistake. The landlord introduction letter should start with, here’s how I like to be communicated with. Here’s my contact information. I use handyman and contractors for repairs. When you’re giving the letter, you can also put at the bottom and say, here’s the date that the sale closed on. Make sure you don’t pay the previous landlord if you do go to pay your rent, here’s the version the way that I like to have rent paid, so you can talk about it. I just wouldn’t start with it. And when you’re getting the estoppel or giving the landlord introduction letter, the things that are missed is how many times have you gone to your tenants when you buy a property or people that are thinking of doing this and gotten a copy, a picture of their id, you have people fill out a form and sign a form, but you don’t know who they are.
Dion:
So I get a photocopy, I take a picture with my phone of their driver’s license or their id and the one that has saved me twice now in a decade get emergency contact information. This seems odd as a landlord to want emergency contact information, but I closed on a property and that’s our most nervous time as an investor when we just closed on a property and there’s tenants in place. What if I just bought a six month eviction that’s been going on for six months and now starts again with me? So you want to make sure your communication goes well. And in that first week, I couldn’t get a response from the tenant, wouldn’t answer the door, wouldn’t answer the phone number that I had, the email didn’t work, and so I go to the emergency contact and they find out, oh yeah, they’re at a convention, they’ll be back on Tuesday or something, and just that little thing took away all my stress of this tenant is ghosting me to, oh, they’re on a trip. I’ll solve everything next week. When they get back with that transition going, well, I’ve get emergency contact, get a copy of their photo when you can of their id when you can try to see the situation from the tenant side. Have you ever been a renter and had your property sold? People say it was sold out from under me. That doesn’t sound good. It can be a good thing if a new owner comes in and actually starts taking care of things and your opinion matters to them.
Tony:
Yeah, Deanna, it’s a complete 180 I think from how a lot of real estate investors go about building that relationship and it’s almost like there’s the Gary Vaynerchuk book, what is it? Punch Punch or Jab, jab Hook, whatever it’s called, but it’s like you give a lot of value first and then there’s the big ask, but because you built up that goodwill, people are more receptive to it and it’s almost like say you get hired for a job and they love you during the interview process and on day one you go in and ask for a raise, it’s like you haven’t even proven yourself yet, but you’re asking for more money. It is kind of a similar thing. So I love the idea of giving a lot of value first and then going in for the ask. Now, Deanna, I know you mentioned earlier about your tenants ask you to increase the rents on them. So you briefly mentioned the binder strategy. I guess if you can break down from folks who didn’t listen to your first episode, what is the binder strategy and why is that such an important thing I guess to follow as you’re onboarding a new tenant?
Dion:
So I present the binder, which I actually have one here that I did recently.
Tony:
Yeah, so make sure you’re watching on YouTube so you can actually see the physical binder that Dion’s holding up right now. The Goodall three ring binder,
Dion:
And this can be done through the mail. So when I do this with section eight, I don’t go take a binder to the housing authority. I actually do this through email too, but it looks almost exactly like this with screenshots and you do exactly what Ashley did. You’re going to educate them and say, Hey, here’s some comps. There are pictures in here of the rentals in the area that are the same bedroom count. The front page is a picture of the property from Zillow or Redfin that has the current estimated value and you share with the tenant your rent made sense to the previous owner or when my taxes and insurance were based on the previous value, but do you see what the current value is? That’s what my taxes and insurance are based on now, and here’s the area average. If you had to move, this is what the rentals will go for because a lot of tenants, maybe they haven’t looked at rentals in a while, they don’t realize how much rents have gone up.
Dion:
Tenants do not care about your expenses, and I can prove it. If we had a property that was paid off and we had a property with a mortgage and we were in the same market and we wanted to rent them out, we would rent them for the same amount. The tenants don’t know that you have a mortgage and don’t care. They don’t care about your property taxes, your insurance. The reason I show ’em the binder with that information on here is because it shows transparency. You can literally open up a web browser, go to Zillow and see exactly what I’m showing you here. You can go to apartments.com or Craigslist or Facebook marketplace, wherever I got these screenshots from, and you could find these same rentals to verify what I’m showing. And then here’s the magic. When you send the email, the last line or when you hand the binder over the last sentence is what rent do you think is fair?
Dion:
Because what tenant, especially one living in fair of their property being sold out from under them has ever been included in the conversation of setting their rents. So to the point of no, I’ve never had one say, I can’t pay the rent we are now, I want it to go down. It’s possible because it’s an ongoing conversation that they suggest too small of an increase, right? They say, well, let’s go $50 and I wanted 200 because they’re 600 off of the area average or whatever. Well, you can draw this on paper or I can do it in the air with my hands. I can say, here’s where you’re at currently with rents. Here’s where area average is. The amount that you suggested does seem really fair to you, but you see how far off it is from what would be fair for me. And then I’ve had them suggest a higher amount that’s as close as I’ve come to somebody having a disagreement with it.
Dion:
What’s most common is, and I literally got this text and just did a post. This is from somebody who watches my content. They said, okay, now I’m just going to read this text right off the screen. Just did the binder strategy with unit C, who was paying $950 a month including water and trash. That was the current rent. When they closed, tenant asked for rent to go to 1950. We agreed on 1900 plus water and trash. So the tenant suggested a new amount. The owners brought it down $50 to adjust the water and trash. They were so happy when we said the first payment on this new rate won’t happen until October. They teared up. We all left the meeting feeling light and great, thank you for your guidance and help. The idea is a massive increase to the rent where the landlord, if you suggested a $50 increase is a jerk.
Dion:
That tenant basically doubled their rent because they saw how good their deal was. They saw the area average rents, like Ashley said, they know I have to pay a deposit, I have to move before I even get my deposit back. Now they have happy tenants. The rent isn’t at area average. The tenant didn’t suggest to go what they probably found as 23 or 2,400 as area average, but they more than split the difference. And you have happy people on both sides. And the main reason for me is, and this is a marketing tactic, and the idea is if you’re marketing something, you have to tell people what you get out of it. If they don’t know what you’re getting out of it, they’re going to assume that it’s a scam that’s worse than what the reality is. So with rentals, I say, look, I don’t want to displace you.
Dion:
The best outcome would be if you move, I get area average rents, but I then have to rehab the place, update the thing, find a tenant, do all this extra work. I don’t want to displace you and I don’t want to do that. So what do you think is fair? I’m actually showing what I get out of it is I get to keep you in place. I’ve already shown you I fix and update things that it needed to be done, but I’m not going to rip out and put in new cabinets or put in all new flooring while you’re here. I might have to do that if you move out. So it makes my life easier and you get to stay in your place. So it makes that transition to the new ownership easier for me. Money-wise, easier for me. Time-wise takes a lot of the stress off of the tenant and I mean this is probably to me the thing that makes it easier to find cash flowing rentals on the MLS, but it’s all of the other things that makes retiring off rentals for me possible, right?
Dion:
Because David Green recently put out a post on Instagram saying replacing your W2 with cashflow from rentals is a terrible idea. Changed my mind. And he talked about $5,000 in income from your job and $5,000 in income from your rentals being totally different. And he’s right. Rentals can be as complicated or as simple as we make it, and for me it’s finding the ways targeting the properties before I even buy them to make the investing simple so that it’s easier for me because it has to be easy and don’t take this wrong. If I had to be good at investing, I would quit. What I have to be is average and do it for a long period of time. I didn’t invest to create another job, so I wanted properties that would keep tenant turnover low. The binder strategy helps with that. And then I have systems in place.
Dion:
One of the last things I’ll do when I purchased a property with tenants in place, and this is missed by a lot of people because there’s already existing tenants, is contact the utility companies and put in place what is called a landlord policy. So if this tenant ever moves out or ends their lease and moves out, water doesn’t get shut off and I don’t have a water heater burn itself in the winter or I don’t have a pipe freezer or a leak that runs forever or something. There’s power on when handyman or maybe me too lazy to do it, but handyman or contractor goes there to actually fix or do something since there’s a tenant turnover going on and getting that landlord policy in place on the utilities gives me more peace of mind so that in the future, 2, 4, 6 years from now when something changes, it’s already set up.
Ashley:
Dion, during this whole negotiation with the residents, are you actually doing this in person, this conversation? Is it happening through mail, email, text, phone calls, and what is your recommendation of how to actually present the binder strategy and then how to negotiate from there? That’s
Dion:
A great question and I want to present it from my perspective, right? So six years in the Marine Corps, eight years in law enforcement, I’m comfortable being alone with tenants in their house. Not everybody should feel that way. Not everybody has situational awareness. Maybe you don’t want to do it at their house. So I would have a meeting at a public place to have the binder strategy. I’ve done this in restaurants, especially if it was a tenant who has a weird schedule, but it was easier to just meet at a specific time at a restaurant. I’d like to do it in the place to see, it’s a possibility to see what the inside looks like, but meet publicly. If you’re not comfortable with that, I prefer to do it in person with the binder because there’s a nuance to conversation. If you’re going to do it, you could do it through Zoom.
Dion:
I have a gentleman and his mom who moved to Guam and they’re on a contract. We did their binder renewal while they’re in Guam to do this through Zoom. Email works for section eight especially because what you want to do is do the work for the section eight counselor and with section eight I’ll actually have one of the pages in here is right off fair market rents what section eight, we’ll pay for that bedroom count in that county and section eight has, you can just Google fair Market rents and go on there. It actually the information for next year ask to come out by October. And ironically 2025 data is already out. So you can see what Section eight is doing next year.
Ashley:
Stay tuned after one final break for more on how you can set up your investment property for success.
Tony:
All right, thanks for sticking with this guys. Let’s get back into it. I guess what I want to know from you, Dion is looking long-term, what strategies should an investor consider for tenant retention or just transitioning to new tenants in general?
Dion:
I like tenant retention mathematically. Sometimes tenant turnover is the best thing and every time I sign a lease with a tenant, I own small multifamily, right? I don’t have a huge portfolio. I’m at 18 units now. I retired in 22 with 16 units, produces a little over 200. In 22, it was $204,000 in profit from 16 rental units. So I have a small portfolio with the right amount of cashflow, it takes me about 50,000 a year to live. So I’m not looking to continue to grow the portfolio. It will slowly grow as cash piles up, but my goal is to keep tenants in place long term even though the first conversation I have with tenants, as I say, you shouldn’t be renting, this is a duplex you’re living in. Did you know that you can buy one of these with the same loan you would go and buy a house with and then you can rent out the other side and reduce how much you’re spending.
Dion:
And I’ve had that conversation with every tenant for over a decade now, two tenants in that decade have purchased houses. Nobody’s bought a duplex matter how many times I tried to say that this is what it can do to you. They’ve bought houses. One was fairly recently. And so coming in with that, letting the tenants know, look, I would rather you got on the property ladder and proved your life than if I had a tenant. Starts the relationship off on such a positive note that I have tenants for the longest one is the tenant was in the property 26 years when I bought it, I bought it in 2016. They’re still there.
Dion:
My goal is that the tenants are there as long as I own the property, even though sometimes a tenant turnover would mean I could new cabinets, new flooring, spend 10 grand and add a bunch to their, I had a tenant move out this one where they bought a house, I had a closet. One bedroom becomes a two bedroom. I go from one bedroom rents to two bedroom. I was never going to do that while they were living there. How rude would that be to come in, I’ve improved your place, something you didn’t need or ask for, so your rent’s going to go up a thousand dollars a month, that would be terrible. But if they move out and I now have a two bedroom and I rent it for a thousand dollars a month more than it was before, it was like $800 a month more. Actually that’s okay with me. I’ll handle that tenant turnover for that big of an increase to rents.
Ashley:
Let’s go with the scenario of, because we actually had this happen where somebody has literally lived there since the property was built in 2002 and the only tenant that has been in this property the whole time, and they recently asked to have the unit painted, but they didn’t want to have to move their furniture away from the walls for the painter to come in. They wanted us to provide somebody or have the painters come and move their furniture, put their furniture back because we offered to pay for the painting. There was a couple other things they wanted done and they are still paying market rent because we’ve renovated all the other units. So they are not even close to paying what that is. And so we did say there would be a small increase in your rent because everybody else that has a new apartment pays more and they actually declined because they didn’t want that small increase, but they also didn’t want to move their furniture. So what is your advice for those gray areas and those situations that come up where you are trying to provide a solution but the tenant doesn’t agree and just ends up staying where they are. But also I feel like I do feel guilty as to like, well yeah, you’ve been a great tenant, you’ve always paid on time for the last 12 years, actually longer than that, 22 years and now you, we’d love to do something for you, but kind of like the ask just doesn’t work out.
Dion:
Please, please take this in the light. That’s incentive. I’m trying to help you, right? I watch you all the time. I have a ton of respect for you. But when you said something earlier about you had the tenant in place for six years and didn’t raise the rent, imagine the precedents you sent with that tenant that any increase going forward is a change. So you’ve had this tenant in for 22 years. They are below area average rents. They might be a good use of the binder strategy to explain why their rent might need to go up again, they don’t care about your expenses.
Ashley:
Well, to be clear, this one has had an increase, I think every, it’s an apartment complex so it doesn’t increase every two years, but small incremental increases. But all the renovated ones have been listed once. They’ve been renovated for a lot more. So she is used to an increase I guess on this case. Yeah.
Dion:
Okay. Right. No, I like it. So as a landlord that’s had it that long, I think I have repainted places with tenants in place and it’s not very easy. I have a hack for this. I also have a hack for if you have an issue where the place like you have a plumbing issue where they can’t take a shower for a day or two. I’ve heard a lot of people say, well, I put my tenant my first time I did it. I put my tenants in a hotel until this situation was resolved. This is an ongoing conversation where you’re trying to solve the problem. These are the ways to do it. The last time I had this issue, I did a gym membership for the tenant for one month. So it cost me a little more a subscription, but just one month gym membership. And I said, Hey look, while they’re fixing, because it’s a one bathroom unit while they’re doing this, you can’t take a shower for a couple of days, but here’s a gym membership so you can go take a shower. Tenant was happy. So you can negotiate those kinds of things.
Ashley:
That’s a great idea. Yeah, because done that, we set up tenants in hotels for different issues. But yeah, that’s a really good idea.
Dion:
Thank you. And so a lot of people, we think in landlord terms of if I’m going to have work done, I have a contractor, if it’s handyman work, they’re going to fix some trim or something. I go to Thumbtack and I hire a handyman. If it’s plumbing, I want a license plumber, I want to get the permits done. If it’s electricity, I want electrician. If it’s a roofer, I want to make sure it’s a roofing company that has roofing insurance. But when we’re looking at something like paint the normal go-to would be, well, how much would the painter charge to move furniture? Now think of the painting contractor that has the painters that their shoulders hurt because they’re painting all day and they say, Hey, can you move this couch? Can you move the fridge? Can you do this? Versus here’s my hack for when I paint or do work requires that two guys and a truck, if you ever go to move, because I house hack and I’m way too lazy to move my own stuff.
Dion:
I like to go to work and come home and all my stuff is in the new place whenever I do that. But you go online and you look up your local delivery company of two guys in a truck. I wouldn’t use the big nationwide ones. I think they’re called College Hunks or something else like that. But find your local one where it’s two people or five people that have little box trucks and they move people for a fee. They rent two guys and a truck for somewhere between 90 and the high end, 150 bucks an hour. And you say, I want to hire you guys to do a move. You’re going to come in the morning and you’re going to move everything away from the walls and you’re going to come back in the afternoon, you’re going to move everything back, or you’re going to come back the next day and move it all back.
Dion:
You’re going to charge me your hourly rate. You might get a trip charge if they have to come twice, but a few hundred dollars to have that problem solved so that the painting can be done without painting the two or $3,000 that a painter’s going to tack onto a big job if they’re workers that they know, they’re going to have to handle the emotional outcry of a worker having to do more work than what’s expected of a painter. Because I’ve seen massive things like a stairwell off by four inches and there’s a sign on the wall saying, painter will fix it. Don’t mess with the painters. They’re going to charge you a ton. But if you’re going to have that issue, that’s my hack for almost any major work that you need done. Find your two guys in a truck that are local to your area and develop a relationship with them.
Dion:
Use them for when you move, recommend them to your friends. But use that for if you’re going to do, because I’ve got a tenant purchased it, they had carpet in place and the carpet was seven or eight years old and they wanted new flooring. And my original response is, I’ll totally put LVP, I put LVP everywhere I own and once it’s vacant, but with you living here, it’d be really hard. You would have to move all of your furniture. And she says, I just can’t do that. And this is where a couple months later, I thought I had to move me. Maybe they can move her twice. And so they just moved all her stuff so the phone could be done, moved all her stuff back. So it would work for painting exactly the same.
Ashley:
Yeah, and we kind of did something offer the tenant, but I think where we messed up is we offered the tenant, here are some people you can contact, like moving companies or we have a disposal company we work with that would move stuff, but we gave them their information to contact. So maybe just spending the couple hundred dollars to have us pay for it and set it up would’ve been more valuable than giving the information to them and just the inconvenience to them of having to call and set out. The only thing that I would be curious about as to how that works out with insurance and liability as far as our insurance company doesn’t cover any of the tenant’s personal belonging. So if something did happen during the moving process as to how, if we hired the company, if there would be any pushback on us, if for some reason their insurance didn’t cover the tenants things because we were the one.
Ashley:
So that would be the only piece I would be actually curious about. But I think my mistake there was not trying taking the time to figure that out and that we should have provided that service for the couple hundred dollars you’re saying it would’ve cost to actually have the painting done. So cool. Yeah, see, I always learn new things on these episodes and that’s how I love having the guests on. It’s definitely an advantage to being one of the hosts on the Real Estate Rookie podcast, so I love it. But Dion, thank you so much for coming on today and for sharing your experience and for sharing your advice on the binder strategy. Everyone has learned so much today and hopefully they’ll be able to also send you a message letting you know that they put the binder strategy into effect and have had an amazing experience keeping those tenants in place.
Ashley:
So if you want to learn more about Dion, you can go to our show notes and we’ll have his information linked there. Make sure you visit biggerpockets.com/leases if you would like to find a lease agreement to use for your new tenant for the property you’re acquiring, or maybe you just want to update your current leases in place. I’m Ashley, and he’s Tony. Thank you guys so much for watching listening. Whether you’re on your favorite podcast platform or on YouTube, make sure to like, subscribe or leave us a review on your favorite podcast platform. We’ll see you guys next time on Real Estate Rookie.
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