Nancy Wallace-Laabs (00:00)
You know, you can buy your first rental property and still stay financially exposed if you do not know what to do next. So most people think getting the property is the hard part. Getting approved, closing, it's not.
The hard part is the next steps that you take over the next few months. So that's where you want to protect your cash flow, where small things can turn into big things, costing you more money. And many first time investors quietly decide real estate does not work for them because they had no clue or didn't know what to do once they
bought that first property. So stay with me. We're going to walk through the things that you need to do right after you get your first rental property.
Most people when they buy that first rental property, they focus so hard on learning the numbers, you know, learning how to read a spreadsheet, learning how to hire contractors, that they even forget the most simplest things after they purchase their rental property. So the real success of your first rental starts after the purchase, not at it.
So these might seem common sense, right? But, you know, if you bought a vacant property, you might not even think about it. The first thing you need to do is rekey that property. β Even if the seller hands over the keys to you, always, always rekey the property because you don't know who else had keys. So number one, you want to secure the property, you know, change the locks, and then you want to set up utilities. So a lot of times, sellers will forget
to turn off the utilities and then months down the road they contact you or their realtor is contacting you and going, hey, because you just assumed that the seller was gonna turn off the utilities and the utility company magically would know that you're the new owner. So you've got to be proactive and get those utilities turned on. The other thing you wanna do is make sure if you wanna rehab, so let's say you're closing on a Friday.
and you're not really sure, but if you don't get the, you can do a couple of things. One, you can ask the seller not to disconnect the utilities until Monday. Usually that few dollars is not that big of a deal. β Or you can put the utilities in your name. I would highly not, I would say to you, do not put the utilities in your own name or your company's name until after you have β purchased the property. Now, the other thing to find out about is sometimes in some localities, some jurisdictions,
There's an inspection process. I know in a couple of areas where I live, you have to have the property inspected by the city. You have to pay the fee before they'll turn on the water, the utilities, or the electric, or whatever it is. So kind of research that first off, because you don't want to be sitting there, you know, with waiting two, three, a week, two weeks just to get the water turned on. And then you want to have a dedicated bank account. Why?
Because you don't want, when you start taking rent, security deposits and that kind of thing, you don't want to mingle that with your personal money. So you need to go in. Now, so if you have an LLC, you know, it's very easy to find a bank that will open an account with LLC. Most of them will if you have all of your formation documents and things like that. If you don't have an LLC, it's completely fine to just open up a bank account in your name.
And that's just so that that money can, from the rental, can go in there. You'll thank me later when you're getting your taxes done, and so will your CPA. And then you want to organize your documents. And you're like, what? What are you talking about, Nancy? Now remember, you're just buying your first rental property, but you want to set up sort of a system to kind of keep track of, you know, all the documents that go with a property. And there's a lot. Like the file could be this thick, right? So you want to make sure that
in that folder that you have that the property, when I have my property management company, what we would do is we would label all of the properties by address. So then I could go, okay, I know what's in there. And in there would be the contract when we purchased the property, any addenda, the seller's disclosure, the survey.
You will thank me down the road, like in two, three years from now when you want to refinance that property and you have to dig out all that stuff and one of the things the lender's going to want is a survey. So it's always good to just throw all that paperwork in the same folder so that later on you can have access to it. The other thing you can do is like all the utilities, all the confirmations, anything, the re-keying, all of your invoices, throw them in that folder. Now as you...
grow to more than two, three, four, five properties. Having a simple filing system, you'll thank me. You just will. And you want to make it simple. Don't overcomplicate it, right? Especially if you're working a full-time job, you're raising kids, you're trying to go on vacation. Just make it simple. Just get out some folders, write the address on it, and then put everything in there. And then if you have a file cabinet,
Great. You know, get a banker's box and put that, you know, put a system in there. So remember, just all of the papers that go with that property should go in that one folder. Don't try to make a folder where, you know, okay, I'm going have all my surveys in one folder, or I'm going to have all my contracts in another folder. No, no, no, no, no. Make sure every single piece of documentation, every single paper, HOA documents, whatever it is, goes into that one folder.
marked by the property address. So cash flow, okay, we've talked about cash flow ad nauseam maybe in my prior videos. And so maybe your cash flow is $10, maybe it's $100, maybe it's $500. But the thing is, is that cash flow is built on management and overseeing your rental property. If you just buy a property, throw a tenant in there,
you know, six months down the road, you finally decide to look at the monthlies, I can guarantee you're going to be going, what happened to all the money, right? So the first off, you need to have, what's the process going to be to collect rents from your tenant? Now I'll be doing some other videos about tenant screening and all of that. So let's just pretend like you have a great tenant in there, but when they pay rent, you have to decide, are you going to take checks? Are you going take money orders? Are you going to do ACH? Are you going to take credit card payments?
I'm going give you some tips about that. Do not accept credit card payments for rent. Why? Because two, three, four, five months down the road, that tenant could come back and say, β that was fraudulent charges. And 99 % of the time, the credit card company will refund. They'll swoop the money out of your account and refund it to the tenant until you can go in and prove that they owed that money. So just don't take credit cards.
β I used to take personal checks. I don't do that anymore. So I set up, know, where they can do ZAL. That's a good way to get payments. You know, ACH, you know, so there's a whole lot of different apps out there too that you can get. β Don't take cash unless you're going to write a dedicated β detailed receipt. Like if you're driving around, you know, getting your payments or whatnot. And then on the other end of it, you might have a problem depositing it. So, you know, cash is not a...
You want a paper trail, that's the point. You want a paper trail of how the rent is going to be collected and how are you going to verify that the tenant, you ever have to evict them, one of the things the judge is going to do is look at, well, have they paid the rent? Are they current and it's up to you to prove that they have? Then are you going to charge late fees? And these cannot be arbitrary. So you need to have a written lease. Late β fee policy, you're not going to get rich off of late fees. So if you're trying to make up cash flow, don't do it through late fees.
You need to have a standard acceptable late fee. Generally, I charge $50, right? $50, your rent is late, but you have to be consistent. Because let's say one month, the tenant pays on the 5th, and you charge them $50. Then the next month, they pay on the 10th, and you're like, that's OK. They have a story. They can't pay the 50. And you don't accept it. And then the third month, they're paying way late. They're only paying partial rent. They're not paying any late fees.
Guess what, when you go to evict them, you're not gonna get any of those late fees back. So there's a process that you can do to make sure that you get all your rent and your late fees as well. And then a maintenance request system, and this is probably where a lot of new investors get hung up. So this is, I'm gonna assume that you're managing the property yourself. And number one, because if you have a property manager, they're gonna handle all this. But, you know, I think that everybody on their first rental should learn this process so that you know when you hire a property manager,
if they're doing a good job or not, right? So, number one, how are you going to accept maintenance requests from the tenant, right? And that should be written out in your lease agreement. So for me, they can call me, but I don't do anything until I get it in writing. And here's why. When the tenant emails me, because we would accept it via email, when the tenant emails me, they're describing whatever it is that's wrong. Then I in turn can copy and paste that to my vendor,
and say, this is what the tenant reported, da-da-da-da-da. And sometimes the vendor can troubleshoot that or say, that's a tenant thing or whatever. But just how are you going to accept β requests, maintenance requests from the tenant? And again, they would email me. They might call me. But I said, hey, great. You know what? Go ahead and send me an email about that. So that's how you handle that and how you kind of control your tenants. And then you should set up some kind of reserve account.
You know, when you're first getting started, you might not have much money to put in a reserve account, but if you have like $50 left over, you know, start building a reserve account. And also, you know, we talked about this in prior videos about, you know, unexpected if you didn't do your due diligence and you found out you need a new roof or foundation or new water heater. So you want to kind of make sure that you're protected in terms of being able to have money for unaccounted expenses.
This is probably the biggest one that I think people struggle with is they're so excited to be property owners and so excited to have their first tenant if they've done their tenant screening. And what I find is that a lot of investors that are new, you know, think that the tenant is their friend. And so they spend too much time talking to the tenant.
And I'm not saying you can't know about the tenant, but you need to keep it where you keep your boundaries, right? I always kept that it's a business. And so the tenant is a client, they're renting one of my properties. So I treated it as a business. β You know, I didn't β make a lot of routine visits to the property. β had, what we did is we set up just a system where they could request β maintenance.
We set clear boundaries via the lease agreement, right? You know, like especially if you have tenants that turn out to be super needy and they're trying to call you at 2, 3, 4 a.m., it happens. So what are you going to do to protect your time? And then you have to decide early on, you know, are you going to self-manage or are you going to hire a property manager? Sometimes people just say, you know what, I'm going to hire a property manager. If you have systems in place and you do your tenant screening,
in accordance with getting the best tenant possible. know, managing your own rentals β is not that hard. It's not that time consuming. It's when you don't set the boundaries and you don't set up systems, and they can be very simple. They don't have to be, you know, convoluted and, you know, huge CRM or anything like that. It's just setting boundaries, setting expectations, and really a lot of that is incorporated into the lease agreement. And you've got to know your numbers, right? So let's say you get that rental property and you're like,
I didn't know it was going to take two months to find a tenant. So if you bought in an area that says, let's say they have a lot of rentals, it might take a little bit longer because there's a lot of rentals. So you kind of need to know what the vacancy rate is. So rent collected, how are you tracking that you're keeping 100 % of your rent? So if the rent is $1850 and the tenant's only been paying $1800,
but you didn't pay attention to that, then it's going to be very difficult for you to go back and recoup. You know, if it's a year later, they move out, you know, let's just say this actually happened where we inherited a property under the property management and the rent and the lease was $1850, but the tenant only paid $1800 and the landlord for like eight months didn't catch that.
So then when the tenant left, the landlord tried to recoup that $50 a month out of their lease agreement. And the tenant sued them, saying that they had consistently paid. Because they did. They paid on the first every month. And guess what? The judge sided with them. So just let you know. Make sure you know what your tenant is supposed to pay and how are you going to make sure that they did pay it. And then do you have a stable tenant? Now, a lot of that can be.
answered by how you did your tenant screening. So if you just rented to a friend of a friend of a friend, you know, they're probably not going be very stable. So there's lots of ways to tell if a tenant is going to be stable. Their prior rental history, you know, if they've been evicted, they're probably not a very stable tenant. β You know, if they have a tendency not to pay their auto bills, they're probably, when I say auto, I mean automobile, β you know,
repairs and maintenance. So when you get ready to do your taxes at end of the year, what were deferred maintenance, what did you spend and what did you defer, right? And how are you going to recoup those numbers? Your mortgage, taxes and insurance, and then the true monthly cashflow at the end of it. you know, I like to do a simple P &L. You can download it, you know, via Excel. β You can set that up and that accountant loves that. So if you only have a few properties, I mean, you can get QuickBooks. I had that for years and years as well, but
You know, if you don't have very many properties, you can just do a simple profit and loss. This is the money I received, this is the money that I spent on repairs, postage, marketing, know, mileage, you all the things, and then you give that to your accountant, and then because of the CPA β rules, they'll know like how to depreciate all the other, like if you had to buy appliances and things like that.
So remember, your small problems that you don't take care of today are going to turn into major problems tomorrow. So if a tenant, β you know, one of the things that you really need to stress with your tenants, if they see any water leaks, because water is one of those things, it can be a drip, drip, drip, but if you, you know, could be behind the wall, you know, and if you don't take care of that, you know, what's going to happen? Well, you're going to sort of like this picture here. You're going to get mold.
You're going to have drywall repair. You're to have an unhappy tenant. Flooring could be damaged. So just remember to take care of the small things because they won't get any better over time. Also, weak tenant communication. So if you don't have a system in place where the tenant can communicate to you about different things, whether it's the rent. The other thing on tenant communication, if I have not received their rent by the third of the month, I'm emailing them. Where's your rent?
When can I expect it? I want to have a, I like to document and you can automate all of this stuff, right? And then poor record keeping is only going to hurt you when it comes to tax time. If you're trying to evict somebody, just a quick little story. We took on a property by a landlord who kept terrible records on what the tenant was paying. So it's a different one than the other one I saying. So he wanted us to evict the tenant. So the tenant had always paid with cashier's checks.
And so the landlord, inadvertently, made a duplicate copy of the cashier's check and sent that to us. So, of course, the dates don't even match up, and he was not able to prove that the tenant did pay rent. And the tenant brought their documentation, so guess what? They had to start all over again, and the tenant got to stay there another 60 days without paying rent.
So, remember in one of the videos I did about how I said you can use the first property that changes everything and you can use it to buy property number two. So, depending on how you bought it, you can actually start tracking your equity growth on this property, right? Watch how that asset appreciates over time and how the tenant, so one thing that's happening is it's appreciating in value going up, but then your mortgage is going down because the tenant is paying rent and you're taking that money and applying it to the mortgage.
You wanna track rent increases in the area. So like every year, I made a big boo-boo when I first started out many years ago. So I said, I have such a great tenant, I'm not gonna raise the rent. So I literally had tenants in my property for years where I might have only, over the course of five or six years, they might have only gotten like a $50 a β month raise. Don't do what I do. Start giving, you should do rental increases every year. They're not to be huge, know, 25, 30, you know, but check out the market to see what
is what you can do and remember when you verified your tenants income are they going to be able to absorb the new rent. So if you try to jack the rent up like a hundred, a hundred and fifty dollars a month well maybe the tenant can't pay that and you already know that and so now you're going to have to be aware that you might have a vacancy for a little bit right. And then you want to improve your operations refine your systems make it simple easy to use and then that helps you
to build your confidence because when you can show that you have bought a asset that is appreciating in value, when you go to a lender, you can show that on paper that you know what you're doing. So you should learn that you don't need 10 properties. You need only one, a handful of properties. Most landlords in the United States, and I think the number I did before was like 85%, own five or less.
Right? So one can shift your income. Two, you know, can't quit the day job after just one. But you want to start with one property and then you build on it. Right? So one property done right beats five because if you, you know, get the wrong person in there or whatever, then you are, you're going to lose money right off. You know, your systems, I think I've said this before, make it boring.
Make it where you don't have to feel like you have a side hustle, that this is just another stream of income. And then this helps to diversify your income so that if you all rely on one paycheck or you have that dependency on a paycheck, this kind of gives you a peace of mind that you know what, you don't have to just, you you have a way to build growth and to move away, to transition, if you will, off of that β employment dependency.
So are you ready to take action? So whether you already own your first rental or you're ready to find your first deal, you know, what we want to do is help you get there. So my name is Nancy Wallace-Lobbs. I might have forgot to say that at the beginning of the video. But I want to help you find the deals that you're missing. So in the description, there is a link where you can download our find the deals you might be missing. And it has some seller scripts in there. And we want to help you start identifying what a good deal looks like.
You can also schedule a strategy call with me by calling me at 469-430-9885. So I want you to feel comfortable when you start your journey. A lot of people have questions and that's why I've been trying to make these series of videos so that I can answer some of those. So whether you're buying your first real property or maybe you already found a property and you want to know if it's a good deal or you just want to know how you can expand, know, give us a call.
β And don't forget to watch our next video about how the three numbers that you need to know to make sure you have a good deal.
