CW 1045 - Good News Economy, Tenant Responsibilities, Saving Money on Repairs & Maintenance

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Welcome and thank you so much for joining me today. This is your host, Jason Hartman with episode number 10451045 and I've got mom back on the show. Mom, how are you?

I'm doing well, Jason.

Good to have you. So for those of you who haven't heard my mom on the show before, you might know that she's quite the real estate investor. The extreme do it yourselfer has been an avid self manager for many, many years. Really for her entire real estate investing career almost starting a long, long time ago. So we're going to talk about that, we're going to talk a little bit about how to get good deals on repairs and mainten contractors and things like that. Because I tell you, two people that I know who have both been on the show are really good at that are one who's here with us today and that's mom. But the other one is our client Drew Baker who's been on the show before a few times and he and my mom get very good deals on contractors and maintenance and stuff like that. So we'll talk about that a little bit today. But hey, first some great news. The economy as you all know is booming and small business confidence is now at a 35 year high. Wow. I mean imagine that. The highest confidence level among small business owners in 35 years. Some of you who are listening were not even alive when the confidence level was as high as it is today. So that's pretty awesome. Owners are reporting difficulty in filling positions and that is a sign of a strong labor market. And I tell you mom, you might remember many years ago when I had my traditional real estate company in Orange County, California and I learned that lesson the hard way. I will tell you when it was very hard to fill positions for especially my escrow company, I had an escrow company, getting an escrow officer when times were booming was incredibly difficult. Getting any service providers to do anything when the economy is booming, very, very difficult. And that's why I say, and I hope I don't regret saying this, but I could regret saying it. And that is, I am looking forward to a recession.

I hope I don't regret saying.

You think, well, I am a little bit too. I wish the prices of houses would go down.

Yeah. Well, we probably see a softening in prices. And we're going to talk about the mortgage sensitivity index here in a moment too, today. But it's kind of nice. Like, you know, I kind of love a good recession because you go into a restaurant and you don't have to wait and you want to get an appointment for a haircut or a massage or whatever, it's easy to get in.

And as I've said before, in complaining about dealing with providers, local market specialists and property managers and so forth, when things are booming, it is not necessarily good for human nature. People just don't try as hard. Right. It's kind of like communism, you know, under communism, nobody really cares because, you know, it's not going to matter either way if they give good service or bad service. We pretend we're working, you know, is the communist kind of thing. And during a boom time, the same thing kind of happens where people are just not grateful for the business, for the money that people are throwing at them, because so many people are throwing money at them. I don't know. I think there's a balance, a happy medium. It's kind of funny to say I love a good recession. Right. Just I hope I never regret saying that because it can get really deep and bad and I don't love that. But a balanced economy is a nice one. So, mom, new home construction. Construction is in the news, too. Of course, it was a little less than forecast in July, but it increased 0.9%. But permits for future construction were up by 1.5% over the previous month. You can't really judge much from such small samples like that. It's just worth hearing about. But here is a big one. This is really good. Jobless claims fell for the second straight week. And this suggests that there's no impact, at least not yet, from the tariff wars, the trade wars. And this is good news because I think that love or hate the Trump administration, it's going to be good for jobs. Complain about trade wars all you want, but you can't have free trade. In my humble opinion, when the regulatory environment is so imbalanced between countries. For, you know, in the US we got high regulations and in China they have very low regulations. And you can't compete. You can't compete when you've got OSHA and the minimum wage laws and the labor board breathing down your neck. You just cannot compete with companies that are in countries that don't bear those burdens. It's just not a, it's not a level playing field. Any thoughts on that, on the trade wars?

I think Trump is really, really doing the correct thing. He's doing it for the long term. You know, China always thinks long term. They think not next year or next quarter. They think 5, 10, 20 years into the future. And this is what is wrong with people who are criticizing Trump about those trade wars because he is going to get it so that America is not suffering from all of these other countries taking such terrible advantage from us. And really and truly, they should just keep their mouth shut and let him do what he can do. Okay, listen out the situation.

I don't want to get into a political debate or discussion here, but I will tell you, the libertarian view of trade is it should just be completely open and free. And you know, philosophically I want to agree with that, but you can't do that when the playing field isn't level. You know, it's the thing of, look, do you want to pay a little more for stuff when you go shopping at whatever store? Yeah, you see some inflation. If there are trade restrictions, if there are tariffs, you're going to see some issues there on higher prices, but you're going to see more jobs and higher paying jobs. And really, for the first time in four decades, depending on how you measure it, 40 years, four decades since 1978, for the first time, Americans are actually getting a raise in inflation adjusted dollars. There is a real raise, folks. You ought to be cheering that because it's going to make a huge difference in the economy as a whole, in the homelessness problem, in the unemployment problem, in low wage jobs. Minority unemployment is going to decline and that causes crime to decline. It just has such positive effects on society. So that's really good news. But on the flip side of it, when we look at interest rates, you know, the Fed and the powers that be trying to cool down the economy and keep inflation in check because there are real inflationary pressures now, more so than before. When we look at this mortgage sensitivity thing and when we had John Burns speak at our Meet the Masters event, he talked about this. I think this is a very telling Very telling chart. Okay? A $200,000 mortgage. Okay? If rates increase by one percent, it disqualifies five million households. Now, let me rephrase that. It's five million households from owning a $200,000 home, not a $200,000 mortgage. Okay? So this is hugely significant, and it's actually quite good for the rental market. But one of the things that people. And you've probably seen this, mom, over the years with your tenants, one of the things that people just don't really realize because it's not in the statistics, it's not very well accounted for in the stat.

How people adjust to just having a lower standard of living, less lifestyle, how the lots are getting so much smaller, the yards are getting so much smaller, the density is so much higher. You know, people are living with roommates more. So there's a lot of adjustment that goes on that you don't see in the statistics. People living at home with their parents. It's just quite a lot going on there behind the numbers, behind the statistics. Any thoughts on that?

I know that the renters are really adjusting very well to increases in rental amounts. Last month, it was effective with my rent. This last month, I raised four of my tenants, $100 each a month.

And they accepted that without any problem, right?

Yeah. One asked me to give them some window screens. Well, I was delighted to do that, but I can't imagine. Imagine that they're all accepting this so easily. These are just rents that are. Some of them are in the over $2,000amount.

Yeah, you got. You got some. You've got some expensive properties. So they're accepting rent increases. Without objection.

Without objection. It's absolutely amazing to me.

Yeah, yeah, yeah, yeah.

And before, in the peak of the recession, you know, sometimes we adjusted rents downward in order to keep the tenant rather than have to find a new tenant at a lower rent. Keep what you got.

Let me ask you this. I want you to think back, say, 20 or 30 years, though. And, you know, one of the things I'm always telling people to do on the podcast here is you must watch old movies and you must watch old TV shows, because I think that is just a great way to understand how much the world has changed. And when I say old, I don't even mean that old. Just watch things that are 20 or 30 years old. That's not that old. I'm not saying you have to watch 1950s movies. Okay. Or silent movies in, you know, 1920. Okay. But just watch stuff that's a couple decades old. Right? Not even that old watch. Something from the 80s, for example, the 90s, and see how much the world has changed. I want you to think back. Mom, do you remember any tenants from, say, 20 or 30 years ago? Were they. If you think of this, and I know it's a surprise question, maybe I should have given you some time to think about it, but has the tenant profile changed? For example, are people accepting a smaller house than they might otherwise accept because there's a little more squeezing there on what they can afford and they can't get it? Are they having more roommates than they did before? Are they cohabitating couples more than they did before? Are people driving up with more or less expensive cars than they did before? I don't even want to talk about clothing because nobody dresses well anymore. It's tragic. People used to actually dress up. It's amazing how that's changed. Have you seen any changes? You know, just anecdotal things that you've noticed about tenant profiles over the years?

Well, I actually had a tenant who was subletting out rooms and making probably more money than I was a couple of years ago. Of course, she got evicted. And I actually think that is going on in one of my houses right now. I think two families are living there and I rented to one.

Right.

But they're paying quite good rent, so you know what, I'll just overlook it for now.

You know, a lot of those people are probably doing Airbnb type rentals, which, by the way, I have a interesting article I just read on Airbnb that's kind of telling. I think about some things, you know, they might just be renting them out for couple of nights, not doing it all month. And you know what else I've seen? I mean, the sharing economy, it's really awesome because it allows people to make extra money. Right. But some of this changes the way we need to think as landlords because a lot of people are doing these hosting dogs and babysitting other people's dogs to make extra money or other animals. They're renting a room out maybe full time and subletting it like a roommate basis, or they're doing it on a nightly basis through websites like Airbnb. So there's all kinds of stuff like that going on that just really didn't happen before. So any more comments on tenant profiles changing over the decades?

Well, other than those two instances, I can't say that there's a huge change. The only thing that really, you know, rents were so low then. I mean, if you're thinking, you know, Jason, 30 years ago, my gosh, you were paying what, seven or $800 a month rent, and now that same person is paying way more than that, but they're paying definitely double and more than double.

Sure. And we'd have to get out the calculator to adjust for inflation to make sure the rent is inflation adjusted or is it going up much higher than inflation? And that's kind of another discussion. But it's worth considering, right? It's worth considering.

I love it when everyone has got the attitude of, you know, hope and that their the future is going to be good because it is so much easier to rent houses. There's just no excuse for houses being vacant for a month anymore. I mean, that's obscene.

Yeah. Okay, now that's, you know, people hearing that will say, oh my gosh, really? Are you kidding me? People have definitely experienced vacancies longer than that in the past. So let's talk about this now. You're very activist in terms of your properties. You really pay a lot of attention to them. And one of the things you do is you rent them quickly. But the other thing you do is you get good deals. You and Drew are the two best people I know that get good deals on repair and maintenance. So talk about your repair and maintenance stuff for a moment and how you handle that. And again, everybody, my mom is a self manager. She is what I call an extreme do it yourselfer. So you may want not want to go as far as she does, but at least you can glean a few tips. Tips from what she does.

Well, Jason, getting good deals is a numbers game. It's getting large numbers of estimates, getting large numbers of bids. And look, it isn't all that difficult. All you do is you go on Google and painters in whatever place, whatever city, Beverly Hills, wherever they are, okay? And you get this whole list of painters and you line up 10 people. Your pitch to the painter is so simple. Look, I'm going to be at the property at 9 o' clock Monday and you just schedule the people for every half hour.

Okay? Now you, you have your tenants do this though, right? You, you send them over when the tenant is there and the tenant meets with the contractor, right?

Well, when the tenant has moved out. No, I'm there to meet the person.

Right, right. But I'm talking about the example you gave earlier before we started recording. When the tenant is there, say something needs to be fixed or something needs to be done.

This is a very recent example. I just found out That I had termites in my house. So what I did, because I had another example of not getting it done very fast and letting the tenant get involved in it situation. So now here's the thing. First consult the tenant and say, look, will you be home such and such time? And you know, you have to get this on the weekdays because a lot of these people don't work on the weekends. All right? So you say on Monday and Tuesday, tell me, is someone going to be home from 8 till 12 in the morning or will you be home from 3 o' clock till 6 o'? Clock? In that period of time you schedule six people and you don't consult with the tenant at all. You just have to know that the tenant will be there. All the tenants function is to open the door when the doorbell rings and let the people in, even though they all come in a clump. You tell the tenant that it's just fine. And you also tell the tenant, look, if I do not get sufficient estimates, I will not be able to repair whatever it is that is bothering me.

So the tenant is motivated and their interest is aligned with you.

So the tenant should be motivated. Okay? Sometimes when you do it the old fashioned way, just having the repair person call the tenant, the tenant's not there to answer the phone, the tenant won't return the call and it'll go on back and forth, you know, just like a game of ping pong. And you'll never get the job done and you will not get the number of estimates that you need. So what happened in my termite house that I scheduled four appointments for Monday morning and I scheduled four appointments for Tuesday morning, they all showed up and I put a note, I sent this note to the tenant, I emailed them of what people were going to show up and approximately what time. And look, I got back eight bids. Okay, I never gotten that back.

Got it. So you got eight, eight bids on this maintenance issue. Okay, so how much do the prices vary? Folks, this is the most amazing part of it, and I have no idea, mom, what you're about to say, but I have had quotes for various work on houses I've owned throughout the years. I mean, it's shocking. I've talked about them on the podcast over the years, how much they will vary. And oddly, the quality of the world work does not necessarily match the price. A lot of people like to bandy about this term, and this is usually the phrase that you'll hear from overpriced vendors. You get what you pay for. I have not Found I have not found that rule to be true with anything in life. You know, sometimes you do get what you pay for and if you go cheap, you get something cheap. But sometimes you pay a lot and you get something terrible. It's, it's just all over the board, isn't it?

Yeah. Well, in this case also, I had another example. I had to do roofs in California.

Go back to this one though. Don't do your roof set.

Okay, well, this one isn't so extreme. The lowest was 700 up to a little over 1400.

Okay, but that's double. That's double.

$700.

Maybe it's double. Yeah, right, right. Do you always go with the lowest price?

Not always. Okay, but you know when a lot of people are at that lower price, you know that that price isn't wrong either because the majority of the bids centered around 7 and 8 and $900.

Right. Okay. All right.

And then one Orkin was $1,400.

Yeah, Orkin is the brand name type company. So you know, they're, they're expensive, they got franchise fees in there or whatever they are. Okay, tell us about the roofs. This was amazing to me. I can't remember the numbers, but I know they were big. So tell us about your roof prices.

Okay, I had to replace the whole roof or the insurance company wasn't going to renew the insurance. So I had probably seven, eight, ten bids on that house. I had to do three of them. So I don't remember exact numbers I had on each house. Okay. But the prices went up to over $26,000. Oh my God, a one, one roof on a little 1600 square foot house. You know, one store.

Welcome to California, first of all.

But yeah, I was just amazed. But you know how much I paid for that roof? I paid $10,000.

So price went from $26,000, which is absurd, down to $10,000.

And that is, look at everyone. It's all a result of getting a lot of bids. That's the whole secret to everything getting good prices.

You got to have a competitive market.

Jason said, mom, what do you do? Get three bids. I said, are you joking? Really? You have to get a lot more than three bids. Yeah, that's just for starters. And look, it doesn't really take you that long to, to make those phone calls because you are very practiced with your information. I have termites. Could you please go Monday at 9 o' clock and give me a bid? Right, you know, that's it, you hang up the phone and you go on to the next name.

Yeah. So you do it really fast. Okay, good. That is amazing. Now, I do want to say that, you know, when you're talking about these old California properties that you've owned forever, since I was a little kid, you know, prices of everything in California, much higher. Okay? So just understand that for some perspective. Now I want to talk to you. My mom recently leased up a property for me and handled all of the repairs and the turnover, and we did. Well, those weren't really even repairs. Those were upgrades. I decided to do some capital improvements to one of my properties and you did a great job. So. So thanks again, mom, for doing that. But you also wrote the lease for my tenant. You helped pick the tenant and everything. I just kind of wanted to see how you'd operate because I haven't seen this in many years or really paid attention to the details. You've got a rental supplement, a rental supplement here, and it's got some interesting things in it you talk about. Now, I think your late fees are way too lax. I think you're really, you're really nice on the late fees. I don't think they're very big at all compared to what I've seen out there. But some of the other stuff you have in here is interesting. You know, do you want to talk about any of these items? I know I'm surprising you with this too, and you probably don't have it in front of you, but do you want to just make any general comments about it?

Well, I don't have it in front of me, but one thing I'm going to put in the leases now is this painting situation. You know, a paint job should last five years. You should just have to do touch up paint. But some tenants are rough on places and they've lived there for a year and a half and you really have just got to paint the whole place out. So I don't know exactly how it's going to be worded, but they should pay the tenant. If the paint job should last for five years and that tenant has only been there for one year, they should pay for 80% of that paint job because paint jobs are becoming very expensive now. And you know, it's the best way to make your place look fresh. And if you don't paint, if there's not that fresh new smell of paint, you know, the tenant likes that, the new prospective tenant does. But I'm just not going to shoulder that whole cost for people that are there only a year or so.

Okay, I want to share with the Listeners. Some of the things that in here that are tenant responsibilities. Because I think a lot of people listening have had property managers and listen, you know how I feel about property managers. There's a few great ones, but most of them are far less than great. And they push too much of this expense onto the owner. And this is why I've recommended that, you know, everybody really consider self management. Okay, so in your scenario you say that these are tenant responsibilities. Replacing heating and air conditioning filters every month. If the landlord finds this has not been done, there will be a charge of $125. Clearing, clogged commodes, sinks, lavatories and disposals. Garbage disposals, you mean of foreign matter. The cleaning of sewer lines is the tenant's responsibility. If the problem is a broken sewer line or roof roots in the pipe, the owner will pay for the repair. So you make that.

That's the only time, right? That's the only time.

So it's only roots in the pipe or a broken pipe for the sewer where the owner is responsible. Everything else in terms of clearing those pipes is the tenant's responsibility. Okay, let me read the rest. C. Lighting of gas appliances, pilot lights and resetting tripped circuit breakers or replacement of blown fuses. Okay, so you probably have some really old houses with blown fuses. Wow, that's. I haven't seen that in a while. But you're not going to send someone out to light a pilot light or reset a tripped circuit breaker or stuff like that. That's the tenant's responsibility. By the way, pilot lights and things like that. The gas company will come for free pretty much everywhere, I think. Think. Okay. D. Pest control services are the tenants responsibility. Absolutely agree with that. Okay. Cleaning of blinds, draperies, windows, vacuuming, cleaning and shampooing of carpets and touch up painting at time of vacating tenants responsibility. The grounds contained herein must be mowed, watered, edged and shrubs trimmed and free of debris at all time. Stains on carpet, oil on driveway and holes in walls are not considered ordinary wear and tear. Well, I'd hope not. But it's interesting, the stains on the driveway, you know, from a car that leaks oil on a driveway and things like that. Yeah, that's tenants responsibility. Anything else you want to say about the addendum, the rental supplement?

Well, the only other thing that really isn't in there is that paint situation which will become part of that addendum. Now?

Yeah, now Aunt Joan, who spoke at our meet the Masters event with you, she has a house rules document that's four pages and we Want to get a hold of that from Aunt Joan? We definitely do, and we'll share that on a future show.

You know, there is one other thing in there, and I don't know if you read it or skipped over it, but when there is a false call, when the tenant says, oh, the lights are going off and on, there's something wrong with the wiring, I had a tenant that just put me through that, and I knew there was nothing wrong with the wiring in that house because it's a relatively new house. So the electrician came out, charged me $100. Well, I deducted that from her security deposit, so don't let that happen to you. If something goes out there and there's no absolute reason why that tenant couldn't have just put in a new light bulb or perhaps just turned the fuse, you know, in the electrical panel.

Got it, got it, got it. So false calls. So you charge the tenant for the false service calls. Now, I wanted to talk about this millennial thing. We don't have time, so we got to wrap up here. But I do want to ask you one thing to close. And this may sound like you are a tough landlord, but what I've noticed is the opposite is true. Your tenants seem to really love you and have good relationships with you the vast majority of the time. So how do you do that? I think, Is it establishing expectations up front? Is that why it goes so well? You know, I've talked a lot on the show over the years about how when you have a property management company and the tenant doesn't feel any pressure of maintaining a good relationship with the owner, and they don't view the person they're renting from as an individual. As a person. But some big amorphous institution, right, like some big property management company, the whole relationship takes on a different tone. I think you're very good at setting expectations up front when you're dealing with your tenant, when you're signing them up. Do you want to make any comments on that before we go?

You know, I go over the lease with them quite a bit, so they know what to expect. And I always do say I am a real stickler for getting my rent on time, and I really do not want your late payments. I simply want the rent to be there on or before the first day of the month. So, you know, I'm very nice to the people. I'm very fair minded with them. I don't know that they love me, but they know that I'm not some dummy that they can twist around Because I'm not a large corporation and I think it's important that you let your tenant know that you run things, you know, well. But you're not. You're not going to be slothful about anything and you're not going to excuse a lot of things. Jason, we have a minute. You know, there is one other thing about getting tenants.

Sure.

You know, I want to tell people about this new website that I just discovered. It was when I was renting out your house.

Okay.

I didn't know about it. Everyone knows you can go on Zillow and put your pictures of your house and everything there. The other thing is, you know, Jason says I take terrible pictures, but lately I have become much better taking pictures of the houses.

Good.

Anyway, there is one site, it's called Zomper Z U M P E R. That's vlightzebra umpaul er.com and wow, that gets more responses than Zillow does. Okay. With Zillow you go on a lot of other sites. Trulia and even on Facebook and all sorts of things. But Zumper, it seems to me that a whole bunch of people really know about it and I knew nothing about it. A property manager and told me about it. So that's just an extra place where you put pictures and just as you do with Zillow. So for people who are worried about getting tenants. Okay, now you've got three good places, plus that other ones that list. I never use them very much. I never. I can't think of the name of it.

I don't know what you're referring to. Okay.

Are very good.

Okay, good. Good stuff. Thank you for sharing that. We appreciate having you on the show, Mom. And let me just say a couple things before we wrap it up here, folks. Be sure you have subscribed to the PropertyCast. That's our newest podcast where you can get the properties right in your RSS feed. And you will love that. A lot of people do. Be sure you have turned on activated our Alexa skill. If you have Alexa and you want to hear yours truly, as if you don't get enough of me on your Flash briefing every day, be sure to turn on that skill. And we will be creating some nice new content for that as time goes on. And then be sure to join us for our Hawaii event. We've got our first event coming up in Hawaii. Profits in paradise. And our Venture Alliance Mastermind is there right after that event. We are at the most iconic hotel on Waikiki beach first week in November. Go to jasonhartman.com to check that out, and we will look forward to to talking with you on the next episode. Thanks for joining us, Mom.

You're welcome.

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