ITF 66 | Landlord Mistakes

 

When it comes to acquiring properties, we turn to realtors and property managers for help. But no one is safe from all kinds of landlord mistakes, and sometimes you end up getting help from unreliable people. Craig Curelop and Zeona McIntyre are joined by Dan Haberkost, who looks back on his messy first deal, the lessons he learned from them, and how they propelled him to much better transactions in Colorado Springs. He talks about his tactics in finding the right tenants by keeping friendly relationships and following a strict screening process. Dan also shares his land development business by discussing his most effective furnishing strategies.

Watch the episode here

 

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Dan Haberkost On Addressing Landlord Mistakes The Right Way

Dan Haberkost, welcome to the show. How are you doing?

I’m great. How are you, Craig?

I am doing great. It’s a pleasure to have you here. We have learned a little bit about you but let’s tell the world about you. Tell us, how did you first hear about financial independence?

Thank you both very much for having me on the show. I remember listening to you on BiggerPockets years ago, wondering how I was going to build a business myself. It was exciting to come and do this. That goes back to college. I was about twenty years old when I read Rich Dad Poor Dad, and like many other people, a light bulb went off. To backtrack quickly from there, I started working pretty young.

When I was sixteen, I managed a portfolio of rentals, a farm, and I worked all through high school and college. Everyone I grew up around my family and my extended family was lower-middle-class, and money was a huge concern all the time. It was constantly causing fear, worry and anxiety. By the time I’ve got to college and had already been working full-time while going to school full-time, I decided, “I don’t want that to be the same for me.” I started reading to figure out how I could change the situation for my life.

Let’s dig into a little bit about your sixteen-year-old self. You came from a lower-middle-class family, whose rental properties were you managing?

The first job I ever had was on a tree farm. He had a portfolio of rentals as well. At that point, I had been working for him, and he trusted me. He gave me his portfolio to handle while he was gone and the farm as well. He spent a good portion of the year traveling.

Did you see that was a way to wealth when you were sixteen or you caught up in who are you going to take it from and all that stuff?

No, I was caught up in the unpleasantness involved in tearing up carpet covered in dog feces on a 90-degree humid Cleveland day. That made me want nothing to do with real estate. In hindsight, it taught me not to buy C minus, D properties and to screen your tenants well is what that. At the time, no, I had no idea. It was only a job. It wasn’t until college.

In college, that’s what you read, Rich Dad Poor Dad. Did you have that reflection point where like, “Back when I was sixteen working at this farm, this is what that guy was doing?” Did you connect those dots?

It did. It’s funny you say that because when I went to buy my first property, I ended up talking to him. I forget why but I’ve got him on the phone. We chatted through it and I said, “I see why you want all those rentals.”

You did connect the dots. You were twenty years old. You were maybe a sophomore or junior in college reading Rich Dad Poor Dad. What do you do next? What action steps did you take?

I was a junior in college, and again, I was working full-time. At that time, I did have a middle-class income. I ended up going and buying a duplex a few months after, then that was I into my senior year 5 or 6 months after. That was the first big step.

Were you in Cleveland going to school or where did you go to school?

Right next to Cleveland. I grew up 45 minutes South of Cleveland.

You are in Ohio somewhere, you go to school and buy your first house hack at age 21. This is the real deal. Why don’t we dig into the numbers and how you found it and all that stuff?

I do think it might be a little more useful for your audience if we dig into the first property I bought in Colorado because this first one in Ohio was a learning experience, and it is a little bit boring. I have the issue where I jumped into things too quickly as opposed to analysis paralysis. For those of you who tend to overanalyze, it’s problematic to dive into quickly as well because I did everything wrong.

The previous owner made promises that weren’t kept, and I had no way to come back and make them follow up on those. After closing, my realtor didn’t want to help me in hindsight. She saw me as a way to get another transaction. I bought it at $134,500, I believe, and this is in Parma, Ohio, which is one of the first suburbs out of Cleveland. I moved into the unit that was trashed then went to rent out the other unit.

I’m curious about what things they promised you and why weren’t those in the contract?

ITF 66 | Landlord Mistakes
Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

There were a couple of things I specifically remember. It was all the appliances. This was a few years ago. I remember going back to my realtor and she goes, “I can’t do anything since the transaction is closed.” I talked with some friends in real estate, and they told me that was ridiculous. It was less than $1,000, which at that time was a meaningful amount of money but there wasn’t a whole lot I could do. I did somehow find the owner’s number and call him, and he ghosted me. He went through the previous owner, I should say. That was one of the mistakes. Why weren’t they in the contract? In hindsight, I can’t tell you. I don’t remember at this point.

As a realtor and Zeona, I’m sure you know this yourself. That is the realtor’s responsibility to make sure that it is explicitly detailed in your contracts. It includes a washer, dryer and refrigerator. It spells out every single appliance. Sometimes, you don’t end up with the best realtor. You couldn’t blame the realtor or yourself. Clearly, maybe you didn’t look at that contract and couldn’t see it as much.

This is why you are following this show. When you are buying a place, make sure the appliances are included if you want them included. This happened to someone on our team. In the contract, they said, “All appliances in the kitchen included if a laundry room like the washer-dryer was in the kitchen.”

We thought, “The washer-dryer counts.” However, they said the washer-dryer wasn’t in the kitchen. It’s in the laundry room. It’s very clear in the contract. The sellers took the washer-dryer, so we had to buy a new washer dryer for our clients. That’s what your realtor should have done. It’s funny. The most common purchasers of appliances are real estate agents for this exact reason. It happens all the time. Again, it’s a great lesson learned. Keep going. It sounds like there were other things.

Mistake number two, the previous tenant in the unit that I ended up moving into. He says, “Can I pay last month’s rent with the security deposit?” “Sure.” I’m sure you have heard this before, and then he didn’t do much of what he was supposed to. He left trash everywhere. There was a basketball hoop in the backyard ripped up shreds. It’s garbage everywhere. They didn’t clean. Nothing. Mistake number two, do not accept last month’s rent via the security deposit. Take rent as you always would, and then refund them the security deposit assuming that everything was done that they were supposed to and have taken care of the place.

The numbers on that one at this point, it cashflows about $300 to $400 a month but at that time, the mortgage was over $1,000, and the other unit was running for $750. I looked at it as, “I will live on one side and have the vast majority of the mortgage paid by the tenant.” Again, a lot of mistakes were made on that first deal.

A quick recap, lots of mistakes made but obviously, you came in. Real estate tends to be pretty forgiving. It was $135,000 or $134,500 purchase price. Your mortgage payment was $1,000. You were getting $750 from the other side. Basically, you were paying $250 a month to live there. Not quite living for free, which is perfectly fine at the house hack, by the way. I know a lot of people want to live for free but $250 a month in rent is pretty darn good, I would say, no matter where you live. When you moved out of that place, what was it renting for?

It’s $775, they’ve got with the other side with the property manager. That’s when I moved to Colorado. I can talk through that too because again, I made another mistake. That property manager was a problem. We can talk through that as well if you would like.

A quick recap. It sounds like you are making about $1,525 on a $1,000 mortgage with you moved out. This doesn’t include reserves or property management, so maybe you cashflowed at a couple of hundred dollars a month but you’ve got a property and it’s making you money. Let’s talk about your problems with your property manager.

They were terrible. I caught them trying to bill me twice for work that I had done. They apologized and said it was an accident. They were very slow to respond. Everything was a hassle. They were a pain and, of course, had issues with the tenants. They placed with paying on time and constantly having things breaking. Again, I had to rip that band-aid off and switch property managers but now, it cashflows, and it’s gone up quite a bit in value. I would rather have learned on a $134,000 property than $400,000 or $500,000 property. That’s that.

That’s a good thing with getting it a cheaper price. I have to ask. How did you pick this property manager you didn’t like?

I’ve got a referral from my CPA at my job at that time. He had used them and had a good experience with them but in hindsight, he only had a couple of properties with them. Even a poor property manager can get lucky on a couple. I should have interviewed more property managers and asked more questions, which I didn’t have. I didn’t know what to ask and probably looked online a little bit more.

Anytime there was a mistake being made, I always like to ask what you could have done better because property managers, realtors, and lenders suck but you can’t solve your problems by saying everybody else sucks. What could you have done better? You answered that question. Thank you, and I appreciate you being able to do that.

I’m curious, for the audience, what did you do the second time? What are the questions you asked that property manager to vet them now that you have had a bad experience? I bet you were a little more on this.

I’ve got a referral from someone who was doing business as a realtor and owned a bunch of rentals in the area. I asked questions as far as what’s their leasing process looks like. “How do you respond to tenant problems?” I went through the fees, that’s important. “What can I expect as far as response time? If I have an inquiry, how do I communicate with you?” One of the big things is there was the primary property manager with who I was in contact. I had a cell phone. I could call or text him any time, whereas that was not the case with the prior one.

I went through the screen parameters that I use here on my rentals. I call the last two landlords. I call their boss, background check, and verify income. You want their income to be three times the rent, and they did all the same things that I was doing. At that point, had I success with my rentals out here. Being able to call or text him and get ahold of him quickly was a big contrast to the other company. That, plus a referral from someone I knew and trusted a bit more good reviews online. There’s a number of different factors that made sense with this manager.

It sounds like you checked all the boxes the second time. Everyone makes that mistake. You take a before referral, you blindly it, and then, “No, it doesn’t work.” Again, the more boxes you can check off, the lower the odds of you having a crappy teammate. I think you realize that. It’s super easy to fall into that trap. I have fallen into that trap before. I feel like everyone touches that fire. Do your due diligence and take a little bit of time to do it. Don’t rush into any decisions.

That is something people like me need to learn.

What year when you move out of this house hacking?

If tenants are always the victim in a landlord's story, that is a bad sign. Click To Tweet

It was 2018.

Was that when you moved to Colorado?

Yes, I’m South of you in the Springs.

Why don’t we talk about that transition?

I didn’t want to spend my life in Ohio. I’m not a big fan of the lack of sun. My brother lives out here with his wife, and I came to visit. I loved the mountains, saw that it was growing, there was an opportunity in both businesses, and I enjoy waking up every day. I moved across the country. I said, “I was going to build a business and climb all the mountains.” That’s what I have been doing.

In November 2018, I bought my first property here, which was a house hack. It was on the Northeast side of Colorado Springs, and that has been important. You talked so much about house hacking and running by the room. Off the bat, it eliminated my living expense, covered utilities and cash load a couple of hundred dollars a month, which is the only reason I was able to leave my job to start an active business.

We expanded down to Colorado Springs. This is the time in the episode. We’ve got some agents down there but I wanted to ask you. What drew you to Colorado Springs over Denver or any other place in the country?

My brother lives here, so that’s where I came to visit but I’m very outdoorsy. I love the warm and dry because it’s very much in contrast back to East. That’s what drew me here. Your agent comes to my Meetup down and introduces himself. He’s doing what he’s supposed to.

You met Ryan. How did you buy this place? Did you go stay with your brother for a while and look while you were already in town? It looks like yes but sometimes people do the search online before they even get there.

I was with my brother for three months. I remember showing up to the real estate club here that I now host about three days after moving. I go up to one of the lenders in the room and say, “I’m going to buy a house hack here.” She goes, “That’s great. Where do you work?” I go, “I don’t have a job yet.” She wrote me off. I ended up getting a W-2 job at enterprise so I could buy another house as owner-occupied.

I started by renting out two guys I worked with. That was how I started ended up renting out the other bedroom that I had been using as my office. It has been a killer property. I left that property beginning of 2021, and it kept it rented by the room. I would say one of the biggest things about that house that makes it work is it’s in a nice area, quiet neighborhood, backs up to a park, and I will never buy low-end real estate again.

Let’s dig into this property a little bit more. It sounds like you are in 2018, 2019, when you first bought this property. You get a job at the enterprise. I suspect that you don’t want that to be your career. You wanted to have a W-2 to get the loan. You mentioned how the location was great, and the house looked good but what was the purchase price on it? Let’s get into the numbers a little bit.

I closed on it at $275,000, and property taxes are much lower out here but my interest rate was decently high. I remember my initial payment was right around $1,700. Once I’ve got it fully leased up, I had $2,100 a month coming in on that while I lived in it. The reason that it worked, beyond the location and the fact that there are lots of people moving here, is the way the house was laid out. Remember, real estate is a creative and flexible asset.

You can make it work, whether it’s through value-add, financing or how you structure the deal right. In this case, it was a split level where the downstairs is almost its own unit. It doesn’t have a kitchen but a separate entrance, bedroom, bathroom, and living room. I rented that for $900. There are two extra bedrooms upstairs for $700 apiece, and I lived in the master. At $1,700-ish mortgages, $2,100 coming in, about $200 a month in utilities, and then I bought it at $275,000.

Is that a four-bedroom? Is that what it was because there was a master and three?

Was it a 3-bed, 2-bath upstairs and 1-bed, 1-bath downstairs?

Yes.

You rented out the entire downstairs almost as the total unit. Probably a little bit more privacy for a little bit more. You have more space. Each bedroom is $700, and you decided to take the master. Why did you take the master? I know a lot of people that want to do the crappiest room or even the downstairs have their own space there. What was your decision there?

I wanted my own bathroom. I could have taken the downstairs but I thought, “I can have my own bathroom,” because that bedroom I thought of as being worth $700, whereas the basement is worth $900 where I can have my own bathroom but take away the least from rents.

ITF 66 | Landlord Mistakes
Landlord Mistakes: Do not accept last month’s rent via the security deposit. Take rent as you always would.

 

You are making money while living there for free. It’s your iconic house hack. How did you find those tenants in Colorado Springs?

The first two were guys I worked with but since then, I would probably never rent to someone I know again. I will tell you, Facebook Marketplace, especially Craigslist, I have consistently got excellent tenants. I have made a lot of money on Craigslist selling other things as well.

We won’t get into the other things you sell. I have heard Craigslist. It’s a dying breed. Do you have a secret or anything that you do on Craigslist that works?

I don’t think it’s a secret. There were a lot of scammers on there, so it got a bad reputation. A lot of people or people that would sell things on there have gotten off. I’m speculating but I have gotten more land buyers and good tenants. I met one of my investment partners initially from an inquiry off a Craigslist Ad I had. It has been an excellent platform for me. As long as you are screening your people, it can be a great resource for tenants.

What do you do for pictures? Do you do professional pictures? Do you take them yourself?

I took the ones off the listing from when I bought it, honestly.

Technically, I don’t think you are supposed to do that, legally speaking. For anyone reading and you want to play extremely by the rules, you are not supposed to do that. You are supposed to take your own pictures and use them. However, you probably won’t get in trouble but you could. That’s cool. The tenants came in, and how did you go about screening those tenants? Is there any particular idea?

Background check always, call their last two landlords and their boss. I looked for three times the income relative to the rents. If it’s closed, and they have excellent referrals and a strong credit score, then I can be a little flexible on that. To me, if their boss and their prior landlords tell me they are tenants and have a strong credit score, it’s hard to go wrong. They can’t move in without the first month’s rent and security deposit.

I look at the little things, too. The last actual job I had was a staffing job. I was screening people for positions. If they tell me they are going to be there at 10:00 and 10:10, if they tell me, they are going to have the application done, and they don’t have it done, they are gone. I can’t stress enough. I would rather have an extra month of vacancy, which I have never had but an extra month of vacancy, and get a good tenant, then allow that thing to slip. Those little things are important.

We say this all the time. The only thing worse than no tenant is a bad tenant. Offer the no tenant every time. I will say I have done my fair share of tenants screening. I have talked to hundreds if not thousands of how sackers in real estate investors. I have never met anyone who had a bad tenant with a good credit score. I think a credit score is the number one important thing.

That’s the only thing you do because there are times where they mess up. Make sure you check all the boxes but I would say, “Make sure you don’t skip out.” I personally like to keep my credit score minimum at 650. If they are below that, no thanks. Zee, do you have something to add? Are you going to fight me?

No, I’m laughing because I am literally thinking about a person now who has all the good stories to match their bad credit score but I have been teetering on it since Thanksgiving. I’m like, “I don’t want to do that.” Hearing it from both of you, I’m like, “I’m going to wait for the next person. I’ve got a couple of weeks. We could find somebody.” It’s easy to make exceptions because the person is nice. They have a good story. If you are empathetic at all but you have to literally be like a robot, “You don’t meet it. That’s it. Sorry. You are kicked out.”

I will say a couple of other thoughts, especially if you are house hacking and people are living with you. That can be uncomfortable. It’s non-traditional but if you set your expectations very clearly, that makes a difference, too. What I would always say is, “Pay me to pass the first. Do not leave a mess in the kitchen, and don’t make noise at night. I’m a very early riser and early to bed, and we will be fine.” I have had no issues because I’m very clear with my expectations of people, and that is super important. Real quick, along your line of thinking there. If tenants are always the victim in their story, it’s not good. If someone is always a victim, it’s always everyone else’s fault. That’s a bad sign.

I’m giggling to myself because I’m thinking about you as a roommate. I’m like, “This guy does not sound like the life of the party, no late payments, and don’t make noise. “If I see a dish. I’m tired of you. You are out.”

In that context, I would prefer people think that way.

Living with your roommates, let’s talk about that for a little bit. How is that dynamic? Personally, when I was living with my roommates and my tenants, it was hard not to be friends or friendly with them. You are a good person. How do you juggle that relationship in landlord versus friend?

In general, a lot of people inadvertently leave question marks at the end of their statements. People find quickly that that person can be taken advantage of. Holding up your end of the bargain, speaking confidently, being clear in your expectations is important. On the flip side of everything, I requested from them, “If there is any problem if anything needs to be fixed, I would handle it or get it handled immediately. I would keep the kitchen clean on my end. I wouldn’t make noise at night.”

There’s always generally reciprocity if you are dealing with decent people, which assuming you screened them correctly, then you probably are. They will want to reciprocate that. I am speculating. That’s a good question. I don’t know. What do you think? Both of you have a house hacked. Would you agree? Do you have other thoughts?

I can talk about my experience. I’m friendly but I try not to be friends. We may go out. I have grabbed a beer with my roommates a couple of times but I try not to make it an everyday thing. I try not to become their best friends. In any event, where something comes up, and I have to handle an issue, I’m like, “Now, I’m not your friend. I am your landlord.” I’m putting my landlord hat on and like, “This is the role I’m playing. This is what the lease says. This is what you promised. This is what’s happening. We need to change this.” That’s labeling the roles, especially when you are the landlord because most times, you are roommates. Most of the time, there are no issues but they may come up.

People who move all of their stuff in most likely won't move out. Those who don't have a lot of things to move in would move out rather easily. Click To Tweet

There’s something you said there. You used the lease as the bad guy so that you are not the bad guy, and that’s smart. If there’s something like that, “Fair Housing Laws or the lease.” That is a good way to make it so that you are not the bad guy. To your point, a lot of them were twice my age. I have read into a lot of divorcees or, for whatever reason, people that weren’t my age, that helped. It’s a coincidence. You can’t pick people by age. I never had an issue where I became friends with them. Only casual and pleasantries.

How do you handle that? How do you handle someone who’s in their 40s or 50s that wants to live with you?

Those have been the best tenants. I had a guy with an 800-credit score rent a room for me for well over a year. He went to work, got home late, went to bed, went out with friends, never saw him. I had a guy who was in his probably 30s. He works down in Canyon City, so it’s about an hour South of me. He worked the night shift. I wouldn’t see him for weeks. He was in the room right across from the masters. Renting the people that work a lot has helped the whole dynamic.

Another thought, I’m glad you said this. Real quick, I want to get this in. Make sure if you have a 4 or 3 and there’s going to be four people in the house. You don’t want four people who all work at 9:00 AM. If you have that, everyone is going to get up and want to use the shower and the kitchen at the same time. When I was at the carousel house, the one that I have been talking about, I had the night shift guy. I would get up around 5:00. The other guy got up at 7:00-ish, then the girl had a late retail job. She would get up at 10:00, so it worked really well. That thing is important to take into consideration as well.

That is smart. I love hearing that because I wouldn’t have even thought to ask, “When do you wake up?” I have lived people and ask these questions of, “How clean they are,” and stuff but that’s a great question. I was going to put in my two cents from having a house hack. The type of house hacking I have done has mostly been Airbnb.

It’s different than you where I have been, “Let’s be best friends for the next three days.” You lean into that person, and obviously, you let them lead whether or not they want to do that. It has been a different experience. I lean on being more friendly but I do love what Craig said, make the third person. At least the bad guy so that you guys can still have a relationship. That’s great. It’s all good points.

We have dug pretty deep into these first two houses. It sounds like you’ve got a third one that you purchased in 2021.

I have five houses now. Three of which are house hacks. The one that I’m sitting in now was a little more interesting. I’m doing a talk on this at the real estate group down here because I bought it in June 2021. I closed it in June, so I’ve got it under contract in April. It was a long closing period.

Was that in April 2021?

Yes, in the midst of one of the craziest frenzies, the craziest seller’s market. I wish I had my points from my presentation in front of me but it worked well because it was a combination of value-add, distress, and motivation because they wanted to get out and close on the next house. A number of different factors that cause motivation came together, then add in an incompetent realtor, which I’m sure both of you deal with all day long.

I was able to close on this at $327,500 and appraise it at $340,000. I put 5% down. I added a bathroom, which costs me $7,000, then it rents. I have $2,600 a month coming in our rent on a $1,670 mortgage while living it. I also rented out the master bedroom at that other house, and that went for $800 a month. This was a great move.

You left that other house. I believe you said you were getting $2,100 in the rent prior. Now you are adding $800 on top of that, so $2,900 on a $1,700 mortgage on the first Colorado Spring’s house?

That house is $800 and $900, so $1,700. Whatever that comes out to, then that mortgage is down to $1,470 because I refied it.

You are pushing almost $1,500 and $2,000 over the mortgage for that house. That’s a cash cow. We see this in Denver, too. This is what a house hack can look like. That’s why everybody is like, “There’s no way you can cash $1,000 a month.” That’s BS. We do it all day. The second one is pretty interesting, too. Did you purchase it for $335,000?

$327,500, I closed on it, and there were quite a bit and concessions there. Think about what areas of expertise or advantages you have because of people you know. I initially had it under contract at $340,000, which is what I appraised at but there was a big crack in the foundation. What do you know? I have a friend who owns a foundation repair company. It’s all he’s done his whole life.

I had him come and look at it and he goes, “I would buy this in a heartbeat. It is visually much worse than reality. This moved decades ago. There’s no science that there’s an impending issue.” That got me quite a bit off. The house was gross, too. $327,500 purchase, $1,600 mortgage, and $2,600 a month coming in on rents while I’m living there.

Were you back into your old days of ripping up poop carpet and everything? Wasn’t it reminiscent of being sixteen years old you? You were like, “Here I am.”

This was gross. I’ve got my brother and his wife over here then her family, they will come and help, and did some painting. I had my contractor build out a new bathroom downstairs. That was part of it. It was 5-2 with 2 bathrooms upstairs, and it’s a tri-level. That basement had its own living space but no bathroom but there was space for it, so I added that.

The basement goes for $1,200 a month, two bedrooms upstairs for $700. One of the bedrooms is an office. I don’t want another person. I live in the master on my own little living space up here. It works well. I’ve got a balcony. I was laying out there in the sun, looking at the mountains before we’ve got on. It’s not bad.

ITF 66 | Landlord Mistakes
Landlord Mistakes: You don’t want four tenants who all work at 9:00 AM. If you have that, everyone’s going to get up and want to use the shower or kitchen at the same time.

 

$7,000 for a bathroom sounds relatively inexpensive. Were you able to look at the house and be like, “I can add this cheaply?” What did you look for to be able to add that bathroom for so cheap?

I wish I could show you. I’m very visual, and most people are to try and describe it. In the basement, there was a Waldorf portion that was 9×6 or 9×7, it looked like. It had the plumbing all exposed from the bathroom upstairs. Upstairs bathrooms directly above it. I thought, “I can’t imagine it’s that hard to add a bathroom.” I sent out some pictures to a few of the contractors I know, which again, relationships. You’ve got to know people and bids back right away. That was all factored into it. I was expecting to pay a little bit more but this contractor likes me. I have done him favors, and so he’s doing another rehab for me now.

Look to see where the bathroom’s pipes are above you and below you. Next time you go into a building, even a commercial building, you will see the bathrooms are on the same spot on every level. In every house, the bathroom is either below the kitchen or another bathroom. Water usually only flows through one side of the house. Once you start looking at that, you are like, “That makes sense.” That’s a way to do it. You mentioned the whole house is gross. Did you replace the carpets, the floors, and the painting? What did the whole rehab run you?

I painted everything in the kitchen and cleaned everything thoroughly. Steam cleaned the carpets. For house hacking, it works. That new bathroom, plus maybe I spent $500 upstairs on paint, and Michelin and supplies then closing costs. All in, off the top of my head, I was between $2,500 and $3,000. Not bad because I’ve got a little bit of equity-based on the appraisal, too off of getting it a little bit under appraised value.

Are you doing the traditional thing of furnishing most of the common areas and the kitchen? It sounds like you are not.

I disagree with this. People who move all their stuff in don’t want to move out. People who don’t have the stuff to move in and want to use your stuff can move out easily. I had the girl that has been running my basement over at Carousel who has been there for over two years. She’s not going anywhere. She’s got moved her whole life in there. She likes it and loves the neighborhood.

One of the most important lessons I have learned that I don’t hear in the books or on podcasts is the longevity of tenants. We talk about how great getting your deal is, which is correct. You make money on the buy, most of the time but if you get a tenant that stays ten years versus turnover every two years, that’s a huge expense.

I totally get not letting him out. Not giving them beds, desks, and stuff in their personal rooms or even in the basement of the basement’s all theirs. What about the things that are otherwise going to share like kitchens, the kitchen table, TV room, and that stuff?

In the last house, I had a table and two couches in the TV room and a kitchen table. This one, I have a kitchen table. The living room upstairs is up by my master. They don’t come near it. They don’t use it anyway. It’s only a kitchen table in this house.

You are very limited on the furnishings.

I would say that’s like such a dude thing, too, because what it’s going to give you is a total mishmash. It’s like this person is going to have a weird leather couch, and this was going to have a Goodwill table. Not photograph as well and things like that. I see where you are going. I’m not sure I agree. We all have different strokes.

That’s a good point. The girl that’s in the basement in the other house, she would always make the house nice, decorate, flowers and stuff. That always helped spruce things up a bit.

I was thinking whatever your situation is, whatever works best for you. Again, I have heard people furnish all the place and had a lot of success with even furnishing the bedrooms. You had a lot of success doing your thing. Again, every podcast you have listened to, every book, piece of advice you hear, absorb it and figure out if that’s best for you. You don’t have to take every piece of advice.

I’m curious about the other property that you moved out of in Colorado Springs. Did you get a manager or are you managing it all because you are in one area?

My acquisitions manager from my active business has been filling vacancies there, and that thing for me. Technically, I’m still managing it but she wants to learn. I have been offloading things or paying her and teaching her at the same time. I don’t do much. Again, having nice tenants in a nice house requires far less management.

For sure. The less tenants are good. In Colorado Springs, it sounds like you did a pretty turnkey house hack, and you had to put some work in. Which one would you recommend? If you have to do it over again, which one would you do again?

That depends where you are at in your business or a job. I have a buddy who’s a doctor, and he was doing some repairs on his house. He makes $300 to $400 an hour. I’m like, “That’s ridiculous. Go hire someone.” If that’s you or you are a well-paid business owner, or you have a high-paying job, then I would go for the turnkey model with house hacking, personally. You will get it rented immediately. Nice houses, get you nice tenants. On the flip side of that, if you are still, maybe you are not making a whole lot of money from your job or you are getting your business started, it’s worth putting the time in maybe to make the house nice yourself and save some money there.

You’ve got three house hacks. It sounds like you have picked up to not house hacks with traditional rental properties. Why don’t you talk a little bit about that? It sounds like that’s going to lead to where you are now.

One of them was through a wholesaler, and this is a fun story. A couple of lessons I can pull out of this. This was the beginning of 2020. You both go-to real estate meetups, and every week, someone shows up and says, “They are a new wholesaler,” because we all hear about that as a no-money-down thing. People don’t realize how difficult it is. Usually, they disappear.

Getting started is the key to learning how to make money down the road. Your first couple of deals doesn't matter at all. It's about getting started and learning from those. Click To Tweet

A girl shows up, says she’s a wholesaler, and was super shy. I’m like, “You are going to have a hard time,” but I gave her my contact info because what’s the worst that could happen? The next day she sends me a deal. At this point, she accidentally shared her cash buyers list on her drive, along with all the pitchers. Four people on it is me. I’m one of them.

Not a lot of people knew about it. I don’t know how familiar you are with the Springs but it’s up off of Woodman right up against the park, in the best school district. It’s a nice section on the Northeast side of town but it was the nasty house in a nice neighborhood. I get my inspector up there to come with me for the walkthrough, and all the bones are solid.

It needs complete cosmetic rehab. That’s it. It was 1,000 square foot, 2’2. Simple and pick that one up through the wholesaler and get the tenants out. Thankfully, without any issue, which important note. The son was a wanted felon who had got out of prison, and the cops ended up showing up again. He was very emotional, let’s put it that way.

His “girlfriend” turned out to be a prostitute. She was paid to pretend to be his girlfriend. The only reason we’ve got out of the house is to spend a couple of hours talking with them, empathize with them, help them look for a rental, and got them out without issue. I watched them get in a fight in the front yard. These were easily combustible people. Taking time to empathize with people and talk to them is important.

What you did there was you solved the problem. There was a problem that you wouldn’t typically solve. Their problems weren’t by their house. It was, “I need to find a new place to live.” Obviously, there’s some emotion there, so you had to make sure that you kept your emotions at ease. You guide them through that. You mentioned this newbie wholesaler who gave you a deal. Maybe she knew it was a better deal than she thought it was. How did you buy this thing? How much did it cost? I’m sure the wholesale is not going to do like a traditional mortgage.

This one and the other house I didn’t buy via house hacking, I bought it with a partner. He’s the doctor I was referencing. We went and got a traditional loan. I did more of the work. He put up more of the money and brought the financing. We’ve got that thing rehabbed. It ended up being very cheap because it was a small house. It’s just cosmetic.

I want to say less than $10,000. I rented it out to a nice young couple. They are renewing again at a higher rate even though it’s 3 or 4 months wait until renewal, they texted me because they love the house. Again, that shows the importance of nice houses in nice areas. You get great tenants, and they will stay in the long-term.

What did you buy it for?

$200,000.

Do you know what the whole center made on it?

$15,000.

She had it for $185,000. You bought it for $200,000. Were you happy to pay that $200,000 even though she got it for $185,000?

We prefer to have gotten it lower but in hindsight, I’m perfectly happy. The area can’t be replaced. You cannot pick up and move houses. It backs up to a park, a great school district, and a great section of town. I’m very happy that we own that.

I want to say a lot of times, it’s a win-win, where maybe you want to get it lower but you would be squeezing the profit out of the wholesaler. Maybe the wholesaler wouldn’t be happy. A lot of people were in this to make money. It sounds like the seller was happy with $185,000. You are happy with $200,000. The wholesaler got you guys together, and she earned that $15,000. Everyone should be happy there.

What did it appraise for? Did you mention that?

I believe $240,000, and we only put $8,000 into it. A little bit of the spread there, and it’s worth quite a bit more now.

That’s great all around.

The rent is $1,725 and $1,100 mortgage.

There are no deals in Colorado Springs, Denver or anywhere anymore. It’s too expensive to get in.

ITF 66 | Landlord Mistakes
Landlord Mistakes: If you’re a well-paid business owner or have a high-paying job, going for a turnkey model with house hacking personally is a good idea.

 

This is going to be the focus of my talk at the Meetup. The things that people complain about now. If it was 2008 and people are hurting, lenders are scared, and everyone is scared, you are not going to buy them if you are not going to buy now. That’s my opinion. That’s more the newer people. Maybe if you are wealthy already, that’s different. Anyways, I don’t want to get off on a tangent there.

It’s funny if everyone is waiting for this crash but what’s going to happen is even if there was a crash, it will probably be a slowing down increase but it will still be an increase. You will still be better off buying now than you would be buying a year from now. We will see what happens then, who knows? We are headed off into the final part of the shows. Zee, is there anything you want to add before we get there?

Dan, do you have any final words of wisdom for us?

If most of your audience are newer investors, the biggest thing I would say is don’t get caught up in what Craig went through, and you are worried that the market is going to crash. In 2017, I remembered listening to podcasts where people were preparing for the obvious impending crash. I was scared to buy my first property. When I bought the first Colorado Springs property, I was certain that it was going to crash but I’ve got to live somewhere.

That thing is, it’s worth it in the mid-4’s. I bought it for $275,000. Maybe the market will crash but if you buy solid real estate, that ash flows in good areas, and your own financial situation is under control. That’s key because even if the market is going up but you are irresponsible, it doesn’t matter. You need to be responsible for your own finance. It’s hard to go wrong. That’s the first thing I will say, a couple of other thoughts there.

I did a TED Talk on that exact thing because this is exactly what happened to me. I purchased it in 2017. Everyone was scared. I purchased anyway. I purchase a duplex in an up-and-coming apart at Denver for $385,000. It’s worth over $600,000 now. It’s like, “If I would have waited.” You are talking like probably in the millions of dollars that I probably would have left out if I didn’t buy any houses from 2017 until now.

Along that train of thought is you are developing skills that add zeros to your income. That’s what I love about real estate. I don’t have to think, “If I made X this year, how do I make a 120% X? How do I make 10 times X that’s feasible?” I’m doing that now in my active business. I’m going to do it again in 2022. You can do that both in the investing but buying the assets, moving to larger assets. Also, the active businesses in my world that’s land in development. Getting started is key because you learn to make much money down the road, and those first couple of deals doesn’t matter at all. It’s that you’ve got started and you learned that matters.

You have mentioned your active business a couple of times. We should at least touch on it. What is your active business?

Front Range Land. I built a marketing system to buy land off-market at a discount, and I sell some for cash. I sell some on notes where I carry the financing, and then I build on the prime parcel. Now, three houses going as far as new builds, several in processes, as far as being sold. I have a bunch of notes, and that has been an excellent means for scaling my income so that I can then go buy more properties.

Transitioning into 2022, the biggest thing I need to figure out is how to bring my investing up to the level of the active business now because I’m pretty simple. I spend money on outdoor activities and not much else. I don’t care about fancy things. I need to figure out what to do with all this cash. I’m going to be looking at some commercial buildings in 2022 but that’s a whole other conversation.

Where’s your cashflow now on your homes, and where are you trying to get it too? It sounds like you are saying you would want to build it up.

I’m doing a lot of thinking now, as far as where I want to go. Honestly, I haven’t even totaled it because I don’t look at it as cashflow. It’s marginal. I think of it as holding the asset for the long-term and what it’s doing for me as far as tax benefits and the appreciation of the assets, or hedging against the inflation of the dollar or the appreciation of the dollar.

It’s a couple of thousand dollars, $2,500 or $3,000 a month. I have a friend of mine who owns a bunch of strip centers, and he’s making hundreds of thousands a month. What I’m looking at is how to go and move into that space. It’s a few thousand dollars but that got me started. That was training wheels. That’s how I look at it.

I want to say that it’s not nothing, even $3,000 a month where you live for free at a place. That is financial independence for so many people. It is cool to show that you were able to do that in three years.

I’m glad you said that because who you are around and who you talk to every day changes your perspective. If you talked to me a couple of years ago and I’m working a traditional job with the traditional income, that’s super powerful. The beauty of it is once you have that, you get out of the fear mindset. You are not worried about, “Can I pay my mortgage or can I pay for food?” If something breaks, “Can I fix it?” You can think about, “How do I go make 10X or how do you do bigger deals?”

It frees you up to go try new things and fail at them for a while, while you figure them out. It took me a while to get my active business going. I made a lot of mistakes there, too but that’s a great point. I’m glad you stopped me there. House hacking is one of the best ways to get that started because if your living expenses are covered, you have a lot of freedom. I would have never been able to leave my job if I hadn’t done that.

I say this all the time, too but I will say it again, you are no longer playing not to lose. You are playing to win. You are all on offense. Your defense is covered. Your personal expenses are covered with your rental properties. Now, you can focus on growing that passive income. Maybe someday you can have a house to yourself or someday you can live on a nice piece of land and have all the shiny objects you want or whatever. Life is now in your hands.

That’s exactly that. I’m glad you stopped on that point for sure.

Let’s head into the final four. Zee, take us out.

Exponential functions grow exponentially over each iteration. Click To Tweet

Dan, what are you reading now?

Freakonomics.

That’s an old one but it’s good.

I made a rule. I will not read any new books until they are tried and true. I have read so many books in the last couple of years that were touted as being great, were new, and were the same recycled. I have gotten away from new books. It doesn’t have to be. If it comes highly recommended, I will read it but generally, I read older books. I read a lot of real estate or motivation books anymore.

I read a lot about history, science, and that thing. I could rant about this forever because I love reading but Charles Munger, Poor Charlie’s Almanack is excellent. All the books he recommends within that are also excellent and his framework of applying concepts from different areas of life and showing how these things are applicable across the board is useful. That’s highly recommended.

What is the best piece of advice you have ever received?

I remember when I was nineteen, I had a financial advisor tell me if I think you have an exponential curve here. The money you invest in your twenties is worth more than the money you invest through your 30s, 40s and 50s. Now, there are a lot of variables there. I don’t know if it works out in practice exactly like that but conceptually, right time, the longer the compounding has to take place, the better off you are. I took that to heart. I don’t always love having roommates.

I have had the same car since I was nineteen but I’m 25. I took that advice and applied it. That has been huge. For those audiences that perhaps are a little further down the road, don’t feel bad. That means now is the most important time to start investing because then it gives that compounding the time to take place. Exponential functions grow exponentially over each iteration.

I have never heard it put that way to tell people that the money that they are going to invest early on is going to be worth more. That’s a great way to frame it. Question number three, what is your why?

It goes back to childhood. I remember my parents, siblings, older cousins, older aunts, uncles, and everyone was broke, money was such a worry. A lot of my friends were. That’s where it’s like in a lot of the Midwest. Having gone through high school and college, and all I remember was working. It was right around the time I read Rich Dad Poor Dad that I was frustrated. I’m not going to do the same thing that my parents and everyone else did. I’m going to go figure out how to make money so I have freedom.

Again, it’s not about the things. I only want freedom. I want to buy my parents a house, pay off my sibling’s debts, and that thing. Also, be able to take care of my own family when I have one. That’s it. It’s freedom and being able to help the people I care about. Also, with a little bit of selfishness, they are having the freedom to go snowboard, climb, hike, and do all those things that I love to do.

What is the most expensive thing you have ever broken?

I brought a brand new snowboard at Evo in Denver and bindings. It was $800. It got stolen a few days later. I don’t know if I have broken anything. I wasn’t expecting this question. Although, that’s not me breaking it. That’s probably one of the bigger losses or maybe the cost of having a bad tenant at that Ohio property with that old property manager. It costs me $10,000. Maybe I didn’t break it but through my poor screening and my property manager, I did.

It’s funny. Nothing feels worse than that moment when you realize something got stolen from you. I may have shared this story on the show before but I’m training for an Ironman. I’m swimming in the pool in my gym and literally have my house hacking T-shirt and a pair of shorts with my keys in them. I go and take a shower. I came back and opened the locker, and my clothes were gone.

Literally, I have nothing. I’m sitting in a towel with nothing. I’m like, “How the hell do I get out of here? I’m naked, basically. What do I do?” I called my girlfriend at that time. I’m laughing hysterically because I feel like I’m such an idiot. She’s like, “Are you serious? You don’t have your clothes?” I was like, “Yes, I need you to come to the gym and bring me some clothes.” That feeling of like, “Where did that stuff go?” Dan, where can people find out more about you?

I have a website with my name DanHaberkost.com, on Instagram or Facebook. You see lots of pictures of the mountains and projects I’m doing.

Thanks so much for coming to the show. It was awesome to learn about your story. It’s crazy because you are also young and well on your way, which is amazing. You are doing a lot of big things. I love that you also like help spreading the word by coming on shows like this by presenting at Meetups and all that stuff. If you are in Colorado Springs or the Denver area, hit Dan up. If you even want to pick his brain, hit him up.

Thanks, guys.

Thanks for having us.

Zee, that was Dan Haberkost. What do you think?

ITF 66 | Landlord Mistakes
Freakonomics

I thought it was a really great episode. You could tell that he has been running Meetups but he has a good, clear way of breaking down concepts. I thought there were some smart nuggets in there about how he’s screening tenants, the way that he’s trying to do tenant retention, and some of his pieces of advice. He’s thoughtful and clear.

He’s very eloquent. He went and kissed the Blarney Stone because he was given the gift of eloquence for sure. As you said, he explains everything clearly. Again, he’s very impressive for how young he is. Definitely, at this point, he’s very approachable, but in the next couple of years, he may not be very approachable. I highly recommend if you do want to get into anything or even house sack or whatever, you can reach out to Zee and me but feel free to reach out to Dan, too. He would be happy to help at this point.

He’s super knowledgeable, and I really love that they pointed out, you and him both brought up this idea that if you wait, you may be missing a huge opportunity. Run your numbers and wait for the right deal but not wait forever. That was a really good theme of this episode.

If you ever know about Index Fund Investing and all that, it’s better just to keep buying, buy at the highs, buy at the lows, and over time you will do okay, then try to time the market because no one can time the market. If someone could turn the market, I can guarantee you, they would probably be a hundred times richer than Elon Musk, Warren Buffett, and Bill Gates combined. No one is able to time the market, so don’t try to do things that no one can do. Do things that stay in your control, and your market is something that you just can’t control. I’m glad that I bought it back in 2017. Zee, when did you buy your first property?

In 2014. Those have come up a lot. It has been great.

It’s a great episode and tons of advice. If you like the show, Zee and I or if you think there are ways that we can improve, please leave us a rating and review on iTunes and wherever else you can. Shoot us a DM on Instagram. I’m @TheFiGuy. Zee, what’s your handle?

@ZeonaMacIntyre.

Let’s make it happen. Let’s grow something together. Thank you all so much for reading. We will see you next episode.

 

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About Dan Haberkost

Throughout high school and college, work dominated my life. I’d go to school and then go to work and that was about it. As time went on, I quickly became tired of this sort of routine, there was no way that my entire life was going to revolve around work. Consequently, my junior year of college I began reading about different types of investments and businesses that were passive and would (once set up) allow me to receive passive income without constant input. It was at this point that I discovered real estate investing. Real estate appealed to me as it’s a malleable asset, is more esoteric than many others assets, is extremely tax advantaged, and can be almost entirely passive with the right systems in place.

Fast forward to the present and I’ve made several acquisitions, quit my job and relocated to Colorado where I’ve always wanted to live. Because of the financial impact of real estate investing, I left traditional employment at 23 and now have the freedom to work on what I want without being tied to any sort of job. Within the real estate world, I’m currently working on a mixture of new development, land investing, wholesaling and am always on the lookout for a property that makes sense as a long-term buy & hold. Aside from real estate, I like to spend my free time snowboarding, mountain biking, climbing 14ers, weight lifting and writing. Thanks to real estate investing, I’m able to pursue my passions at my leisure.

 

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