CW 964 - Indianapolis Market, Property Management Best Practices & Tenant Screening with American Apartment Owners Association Rent Recovery Service Jeff Cronrod, Part 2

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He, he's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial independence day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating Wealth show, episode number 964. 964. Thank you so much for joining me here on Thursday. Yes, this is one of those extra episodes. We're doing four this week. Some weeks we only do three, some we do five. But certainly you can count on every Monday, Wednesday and Friday like clockwork. Hey, speaking of clocks, did you hear about this big clock that runs off the thermal earth and Jeff Bezos is involved or something and it's to inspire, I guess. I don't know. I gotta see this thing. I haven't looked it up. I just heard it on the news update, but I guess it's like 500ft high or something. It's some giant ginormous clock. It's to encourage long term thinking. That's the point. And you know, I agree. I think that's very good. You know, too many people in life, they're playing the short game when they should be playing the long game. The long game is so much more fulfilling. It's so much more profitable and frankly, I think also more ethical. I don't know, that might sound kind of odd, but I just think there's a greater degree of character or ethics in the ideology of playing the long game for playing for the long term. So hope you all agree and feel that way. And that's why we invest the way we do. Speaking of investing the way we do, we got some good interviews coming up. Interviewed Jim Paplava this morning and o probably put his show up next week. It was really good, I'll tell you that. You know, I used to listen to his podcast when I started my podcast, when I started podcasting, you know, 14 years ago when nobody knew what a podcast was. He has a show called the Financial Sense News Hour. You know, it's great. I mean, he's a stock market guy, he's a Wall street guy. So I'm not a fan of Wall street, obviously. Obviously. It's the modern version of organized crime. Why would I be the fan of that? But, you know, he's just got a lot of great insights. I really like his. He will be coming up on the show. I'm kind of surprised I didn't get him on sooner. But, hey, did that interview this morning. You'll have it soon on your device, whatever device you choose. So we're going to do the second half of Jeff Kronrod today. But before we do that, I want to give you a short little market profile. Our awesome producer Adam has been getting more and more involved in the show. If you were at Meet the Masters, you may have met Adam. It's a great guy. He was on the show before, lives in Austin. He is taking a more active role. I like this. I like people who are proactive. He's been buying a bunch of properties, building his own portfolio. He just told me yesterday he's buying another one from our network. So I think that's pretty awesome. Of course. And he decided to go and interview a few of our local market specialists and do these sort of quickie interviews. They're just a few minutes long, so unlike when I do it, you know, you hear it from the same perspective. You're probably bored with me by now. You hear it from the same perspective. So here's another perspective. And he doesn't blabber as much as I do. You know, I have that long winded kind of tendency. Anyway, we'll play that here in just a moment, but first I want to tell you two things. In the crazy world of cryptocurrencies. Now, I started another podcast. Yes, I need another podcast like I need a hole in my head, right. Called the Cryptocast. So if you're into cryptocurrencies, I've interviewed like every major player in the crypto space, I think. Well, not quite. It's a figure of speech, obviously, because there's so many out there. There's like 25 zillion new ICOs every week. It's initial coin offerings. So it's obviously getting ridiculous. And this is what I told you folks. I hate to say I told you so because I didn't tell you so yet. I can't take credit yet, but I'm gonna be saying that in the future. Just wait, just wait. I'll be right. I don't wanna say I'm always right, but I'm Right. A fair amount of the time. You gotta admit that. Okay, so 21 million bitcoins. The supply is limited. Fiat money, they can print it forever, blah, blah, blah. Yes, I've heard it all before and so have you.

But.

But they keep making new cryptocurrencies. That. That, my friends, is the problem. It's worse than fiat money. There's no central bank to control it. You know, this is. There were these coins. I can't remember what they called these. It was, like, around the time of the Civil War. You know, I'm a big student of monetary history and history in general. I like the subject a lot. And for the feminist in the audience, we will call it her story, not his story. It's her story because it really is his and her story. You know, I like to. I like to razz you, don't I? Yes, I do. I do. I admit it keeps you listening or makes you hit the device and throw it out the window because you're just sick of hearing me rouse you. Okay, they had these coins. I think they called them, like, grievance coins or something like that. Everybody was printing their own money, you know, around the Civil War and at other times in our. In American history. I mean, certainly in world history, there's lots more examples of this, but just in. In US History, it wasn't always all about the dollar. You know, we've discussed some of this stuff on prior episodes, and we'll discuss it again. We need a monetary historian on the show. That would be kind of interesting. But, hey, we really want to talk about real estate investing. So we've got a market profile, and we're going to talk about some best practices in property management with part two of Jeff Kronrod. But first. But first, two cryptocurrency stories that caught my eye. Number one, Poland. You know, Poland, right? That's part of the land of the supermodels over there in Eastern Europe. Yes. Poland's central bank paid YouTubers to slander cryptocurrencies.

Now, I hate to say I told you so. Right? I told you this would happen. Not exactly this, but the concept. I was exactly right. Okay? The concept is that governments and central banks, they view cryptocurrencies as their competitor for their primary product, which is their fiat currency. So if it's the dollar, the euro or whatever it is, the pound sterling, it doesn't matter, you know, the yen. Cryptocurrencies are their biggest competition, and they are not going to sit by idly and let them take over the world and displace their fiat currency. Okay, guess what? The crypto folks don't have a standing army. The government and central banking folks, they do. So watch out. Now, speaking of governments, the other very interesting story, and by the way, a Polish YouTuber with around 1 million subscribers, he was paid $30,000 by the Central bank of Poland, okay, In collaboration with the Polish government to slam cryptocurrencies. It's like, oh my God, how interesting is that? Okay, and then the second one really does involve a failing socialist government on the other side of the world. Well, not quite, but almost. Good old Venezuela. Yet another example in the dustbin of history of the disaster known as socialism and the disaster of its ugly big brother known as communism. Venezuela raised.

$735 million to launch an oil backed petro cryptocurrency. Now, hey, that might be the best thing Venezuela's done in a while. Okay, I give them some serious cred for that actually. But you know, I would not trust the Venezuelan government to run a petro backed cryptocurrency or pretty much anything else for that matter. But hey, someone paid me $30,000 to say that. Just kidding. That was the Polish YouTuber.

Oh boy. It's just, it doesn't get any better than this. You can't write fiction this good, folks. This is pretty much it's an amazing time to be alive. This is interesting, interesting stuff for sure. And we'll see how it all shakes out. You know, one of the best reasons to be healthy and stick around and live a while is to just see how it all turns out. That's for sure. Well, hey, let's go to this quick little market profile, just a mini one. And then I'll be back and then we'll get to Jeff Kronrod part two and talk about management.

What makes Indy attractive for investors?

Well, the biggest thing I would say that makes Indianapolis attractive is going to be the affordability. Cost of living here is low. Housing prices are inexpensive compared to the rest of the country. And that makes it attractive for not only people who live here, but also for investors.

What's the average price point for properties that you're offering?

The properties that we find are what I'm going to call a sweet spot for Indianapolis is going to be homes priced between 70 and about $120,000.

What industries support the local economy and what is the typical tenant profile that you have?

The industries or companies here are actually pretty diverse. Indianapolis is not dependent on any one particular type of industry. For instance, we are geographically within about 75% of the population of the United States. So that makes Indianapolis very attractive for companies that need to distribute goods and services across the country. For instance, Amazon has two headquarters here. FedEx has a hub here. So to be able to distribute merchandise or materials, whatever it may be, it's about a one day's drive to 70% of the population.

So what's the typical tenant profile that you're seeing?

Middle management type people. Blue collar jobs are plentiful here for those that want to work. What we want to do is remain in that sweet spot. If there's a combined household income of, gosh, let's say each person makes 30,000 a year. So a combined household income of 60,000 a year, that makes a good tenant profile for an investor. And that's why we like those 70 to $120,000 price point homes.

And are there any economic developments currently happening in the city? And if so, how do you see those impacting the rental market?

Well, a lot of those have already happened. For instance, we have got every professional sports team imaginable is in Indianapolis. We have professional football, baseball, basketball, soccer. The NCAA headquarters is here. But I would tell you that right now, the big announcement for Indianapolis, and it's still somewhat premature, but we've been narrowed down as one of the remaining cities that could receive the second headquarters for Amazon. It's called HQ2 is what it's being named. And there's a possibility that Indianapolis may receive that. That would result in 50,000 jobs and a huge impact on the housing economy.

Are there any specific neighborhoods investors should avoid or focus on? Like, are there any areas that the numbers may look good or really bad on paper, but the circumstances make them the opposite in real life?

Absolutely. Indianapolis is definitely a city where it can be. Some areas of the city are block by block. So for instance, if there's been some redevelopment and the city maybe has spent as much as 10, 15, $20 million for redevelopment in a particular area, if you go outside that redevelopment area by a few blocks, it could potentially be a war zone. So it's really important to have local representation, someone that's familiar with the city and what's going on.

What sort of inventory do you have currently and in general kind of your new construction, your rehab turnkeys, what's your inventory now and what's your typical inventory?

We probably have at any one time between 10 and 12. I will tell you that that's tight, as I'm sure, Adam, you're talking to other people around the Country. The real estate business is good. There's a lot of do it yourself channels out there. So there's plenty of local investors trying to buy and renovate homes. Most of those however, trying to flip our model obviously is different. We're looking at buy and hold long term strategies, which is real true wealth accumulation. The other stuff may or may not accumulate wealth, but you know, our inventory levels are in that 10 to 12 range on a regular basis.

And of those 10 to 12, what's the breakdown of new construction and rehab turnkey.

We do not find that it makes sense to do new construction in our market. It's actually cheaper to buy than it is to build.

And so what sort of renovations are you doing before offering properties to investors?

We're going to do whatever is necessary. And what I mean by that is it's not unusual for us to be replacing all of the windows. Our typical home age wise is anywhere it could be as old as 100 years. Most of them we're buying are probably built in the 50s to 70s, sometimes the 80s. Some of those the energy efficiency is not there. We're doing things to improve the energy efficiency for the tenant and obviously that preserves the tenant base for the owners. We're updating wiring, always updating kitchens and bathrooms.

Moving on to the property management side, how many doors does your property management company currently have?

We're about 150 doors right now. So we're not huge but growing. We're adding about between eight and ten doors a month.

What's your usual vacancy rate and what is your practice on rent increases?

We're about 95% occupied. So as far as rent increases, India is not necessarily a market. We'll do a marginal increase of maybe 2 to 3% annually. So one of the things that I like to do to attract tenants is offer a two year lease. What we find is once we get someone in for that two year period, they're staying longer, they're staying three and four and five years and that's really good for the owners.

Now is your maintenance done in house or do you contract it out and do you mark up or have a service charge for managing maintenance and repairs?

We do both, depending on the nature of what's needed. We have in house maintenance techs that are on staff. However, if it's something that's a little more, for instance, we do not sewer lines or something that we generally outsource to a qualified plumber to make happen.

And do you require a maintenance deposit from investors?

Usually what we do is we Ask the owners to put on deposit, I believe it's $500. And then they give us permission. And this is all part of our management agreement. So it is generally negotiated before we ever take on a new owner and work with them. But we want permission to take care of emergencies up to about $300. Anything in excess of that, we're going to reach out, talk to them and get their perm to make the needed repairs. But for emergency things, we obviously we need to take care of those things right away.

Is there anything that I haven't asked that you want to mention about the indy market or, you know, your construction company or anything like that?

Indianapolis has been a destination for investors for a long time. We've seen that. And I think that's going to continue. One of the things that I'm noticing is our tenant base. They're a little more educated, they're smarter and they're requiring and looking for a better class of inventory. So to, to have homes that are a little bit nicer. What that means is higher rents. So the good news is we're moving in a positive direction as far as rents are concerned. I think that makes Indianapolis very attractive. Part of that's due to our colleges that are so close and around to Indianapolis, along with all the things that make Indianapolis a good place to raise a family. And that's what employers are looking for. Companies like Salesforce has recently relocated headquarters here and they brought a lot of good jobs. And believe it or not, a lot of high tech jobs are moving to Indianapolis.

Okay. Hope you enjoyed that brief little market profile. And we have many other markets, of course, so check in@jason hartman.com or check with your investment counselor. And hey, I did a webinar today for our partner for our Silicon Valley event, San Jose March 3, and there were 52 people on that webinar. We're going to have a rush of ticket sales here. So get your tickets. Yes, there's urgency. Buy your tickets for San Jose. Plus, you know, the price goes up as the room fills up. You know, it's kind of like an airline. It's logical. Makes sense. So it's only 247 as I record this, but it will be 297 before you know it. This is an inexpensive event. It's JHU Live, Jason Hartman University Live. And we only do this once a year. There may be a time in the future where we do it twice a year, but this year we've only got it slated once. And so it is coming up March 3rd, hope you'll join us for the very practical hands on roll up your sleeves side of real estate investing, where we build a model real estate portfolio of nationwide properties. We analyze, Discuss Self Management vs Professional Management, what property investment acquisition checklist, all kinds of great stuff. So join me Saturday, March 3rd. We'll see you there. And let's get to part two of Jeff Kronrod. Oh, by the way, Jason hartman.com or Jason hartmanuniversity.com to register for that event. Here's Jeff.

Let's just talk about some general best practices. I mean you've been doing this a long, long time. You've got a wealth of experience, you've seen everything. Tell us a little bit about some best practices in the property management world, whether they be single family homeowners or small apartment owners. What would you say is some. Some of the keys touched on it.

Briefly a few seconds ago and I said for me, and I've lectured on this for years, again, it's really about doing tenant screening and doing it properly. It frustrates me when I see property managers, rental agents and owners rush not use common sense. And we have seen it all. And so the bottom line is you have to be somewhat intuitive and somewhat skeptical and you have to view every applicant thoroughly and review them thoroughly. We have sometimes a manager might be on commission and he's told if you don't get this unit rented by a certain date or if you get it rented by a certain date, you get a bonus. And so they look the other way. Or owners who are just desperate because the unit's been empty a long time, they need the cash. These are huge mistakes. You've got to do really good tenants. If you do good tenant screening, you have no problems going down the road. You have good tenants.

That's definitely true. I couldn't agree with you more. This is how you reduce your number of eviction problems or tenant problems. Tell us about the specifics of how you do good tenant screening or how you make sure your manager has done good tenant screening. You know, we teach people how to self manage from a distance. Never thought you could possibly do that, but it actually is very possible, especially nowadays with technology. But most of our clients have property managers. So you know, there are goods and bads of both ways. If you have a good property manager, they're worth the weight in gold. If you have a bad one, I say give self management a try. You can always change your mind five minutes later if you don't like it. You know, there's no Shortage of managers that will be happy to take your account. What are some of the ways you can do good tenant screening or make sure your manager does that?

I think there's some basic things you have to do. And again, running a credit report, running a criminal background report, running an eviction report, fraud to report. All these reports, which are available online, both from my company as well as others, are helpful tools. But that's not the end all. And that's part of the problem. People are running these reports and they get a thumbs up or a thumb down or a red light or a green light and they don't go any further. So some of the things they ought to do is we always advise, don't call the prior landlord. Although some do, because I hate to say it, but landlords lie.

In other words, they may want to get rid of that tenant.

Exactly. And they'll say, oh, he's a great tenant. He doesn't cause any ruckus. He doesn't abuse the place. He pays his rent on time because he wants that guy out.

Yeah, right.

But if you ask the applicant for copies of canceled checks and, or receipts for the last few months and let's see if they are on time, that would be. I think you need the documentation to verify that it's real. You don't take an applicant's word for a job. Ask to see the paycheck steps or a tax return if they're willing to give it to you. Always get a copy of a driver's license. Make sure the picture matches. I can't tell you how many times we've had people literally ask for a driver's license and the picture is somebody 40 years older than the person applying. It's stolen identities. It's a junior senior situation. Might have a young person who's messed up his credit. He's a Joe Smith Jr. And he uses his dad's Social Security number. And they pull a report and it shows the guy with his 70, but the guy in front of me is only 25. And they rent to him. They still rent to them. And so a lot of that is just they're not thinking or they're. They're highly motivated. Just put anybody in that they can. A lot of these things are red flags.

This is like being in business. Right. Avoid the. And we've all done it. Every entrepreneur has done this. Avoid the desperate hire, you know, fix up your property and market your property well enough so you have choices so you don't have to go with the first lousy tenant. That walks in the door, you know, out of choice comes power and you can do proper screening and you're not desperate and all of that.

So, yeah, desperation is a big problem and we've had so many red flags. We could talk for hours. When somebody pulls up with all their furniture in the back of the truck and they offer you cash, that's a red flag.

Yeah, yeah. It's even worse when some of their furniture is laboratory equipment for the meth lab that they've got going and then they're saying they're not going to give you percentage rent on the meth sales. That doesn't that suck? I'm Jackie, of course. Yeah.

So talk to us more about the different reports that are available since you've been in that business or are in that business. Drill down deeper onto these reports. Everybody knows there's a credit report, a criminal background check, unlawful detainer, which means have they been evicted before you can check for those things. But I think you mentioned a couple other.

There are eviction, landlord, tenant or eviction reports that will show if someone has been evicted, which is I think more important probably than criminal.

Yeah, unlawful.

Right, right. We always encourage people to get an eviction, criminal and credit at least. We also have a bank sift report which shows you their bank records as well as a telecheck report. Also gives you their history in dealing with banks or if banks have closed accounts because too many balance checks. Those sort of of things are important. Obviously what you really want to focus on is their character. A lot of people check social network sites to see what kind of person this applicant is and then the way they deal with their finances and how many late accounts they have and if banks have shut them out and if they bounce checks and so on. The other thing to really watch out for, I would always recommend is a Social Security search and, or a fraud check. Essentially they're kind of one of the same. You want to be sure that you're dealing with the right person. There's lots, lots of fraud out there. There are also sex offender checks. This terrorist search is available. Those are a little more out there, but we certainly would recommend those as well.

How do you do all these checks like the sift check? I've never even heard of the sift check. I mean you can check on the watch list. I mean, do you just have to subscribe to a background checking service if you want to do them yourself? If you're self managing or does your service do all this and how much does it all cost for all these.

Reports, both Tenlert and aaoa, American Apartment Owners association, both of them offer all of these. And the costs vary depending upon the volume. We do volume discounting on both sites, but compared to the losses that you might have in having a bad tenant, it's pennies. You're never going to spend more than $40 or $50 tops. And that would include manual verifications of employment. And we do employment checks, employment verification for HR departments. We'll do blood tests and drug screenings for them as well. So we're pretty far reaching.

Right.

So again, if you're hiring a resident manager, that's a job, not a resident. And you might want to do drug testing on someone like that. We do that as well.

Yeah. I don't think you can do that on your tenants, though.

No, no, but on a resident manager.

Right. If you got a resident manager in a small apartment or something. I do want to say one thing, folks. Be a little careful with some of this stuff. You know, you got to always be mindful of the fair housing laws and make sure that none of your screening becomes discriminatory. Okay? So be careful of that. But I'm looking at your site now, and for example, the most popular blue package that's $39 is credit report, credit score, previous address, tenant history, telecheck verification, eviction depend, you know, on a specific, specific state, state by state basis, nationwide. Criminal, sex offender, terrorist. It says federal search. I don't know what that means. Is that a Social Security.

No, it's a different database of federal crimes.

Okay. Oh, white collar cyber crimes, crimes against children, murder. Okay. Yeah. Okay. Well, yeah, we don't want any of this uglier stuff. Yeah. And then the lease guarantee analyzer is also included in that. And that's going to, you know, give you the opportunity or give your tenant the opportunity if you want to do the contract that we talked about as well, the lease guarantee thing, and then the gold package, which is 10 bucks more, includes Social Security number fraud. That's what it adds to that list. So. Yeah. Interesting. Okay, good, good. What else do you want people to know in terms of best practices? And let's wrap it up. Maybe one more thing.

You touched on the word discrimination, which is a hot button that everyone has to be super cautious of. And I'd like to believe that everyone can just use common sense and know that we don't discriminate. But both of our sites and a lot of our competitors also offer algorithm that essentially is a colorblind, religion blind, gender blind, and analyzes all this information for you and will give you a. We use a red light or green light. That way you're not accused of discriminating against someone. You're saying, well, look, the computer told me not to rent to you. Of course, the issue with that is that you still have to go deeper. You still have to do some of the things we just talked about. But discrimination is a big problem. We see it a lot.

Yeah, good stuff. We've talked about all the pitfalls today, but I think we should mention something in closing to cheer everybody up. Income property is the most historically proven asset class in the entire world. There is simply no better investment than income property. Of course, you've owned a lot of it over the years. Do you want to speak to that for a moment?

I'm a believer. I mean, I've had over 4,000 rental units over the years and it may be the last vestige where a small owner can compete next to a big one. You know, you can't, you can't open up a local stationery store anymore because those are all big boxes and stuff. And this is, it's an incredible business. It's a great way to make money. It's a great way to, to get appreciation long term and get good cash flow if you, if you manage right. I think that the one caveat is it's not a passive investment, right?

Yeah, no, there is.

And I would, It's a business.

I would argue that there is no such thing as a passive investment. And I've discussed that in depth on many prior shows. So I won't do it here. But you got to pay attention to it like anything in life, you know, if you want to be good at stock investing and you know, I mean, Wall street is the modern version of organized crime, but you better be learning. You better be constantly researching and learning and following all the news and reading all the newsletters and you're still gonna get, you know, burned probably. But yeah, income property is great. It's a multi dimensional asset class. It's awesome. So, Jeff, thank you for joining us. Give out your website, they can visit.

American Apartment owners association@aaoa.com or for tenant screening they can go to tenantaler, all one word tenderaler.com and by the way.

On the tenant screening thing, to be able to do these checks oneself, do you need to have someone like visit your house and make sure you have a locking file cabinet and take a picture of your desk and all that kind of stuff, or is that this is really outsourced screening, I believe.

Right or no, we offer both. We can certainly underwrite larger clients generally, which you've just described. We call underwriting. And we do underwrite them. We do have someone visit either their house, their office, make sure they have a shredder and a lock file cabinet and so on. But it is not a requirement. We do have products where the tenant gets invited to pull their own report and that's faster, it's easier, it's a little more expensive, but usually the tenant will pay for it. So we encourage both ways. It really depends how many units you have and how frequently you.

Yeah, my mom has her own and she told me about how they came over and you know, took a picture of her paper shredder and her locking file cabinet and you know, that kind of stuff. So, so she runs the reports. She can do it right from her iPhone and she just loves it. She just says it's incredibly convenient. So good stuff. Well, Jeff, thank you so much for joining us.

I appreciate it. And give your mom our website. We'd love her business.

I certainly will. She may already be a customer. I'm not sure where she does it through. But hey, happy investing to you.

Thanks a lot. Thank you.

Hey, I hope you'll join me in San Jose on March 3rd as we host Jason Hartman University event. Now this event is for the real practical, hands on interactive education on income property investing where you will learn how to actually do the math, how to evaluate the deals. We will go in depth into this subject of how to analyze a real estate deal. And once we do that, we'll talk about how to build a portfolio, how to properly structure a portfolio, how to diversify it, how to sequence your mortgage financing. And it is a fun event. We do some gamification. You'll meet a lot of people because you'll be working with the people in the class. And it's a one day event. You can check it out at jasonhartman university.com jasonhartman university.com We've been doing this event for about three or four years and people absolutely love it. We've done it in San Diego, in Salt Lake City, now we're doing it in San Jose. We've done it other places as well. I just can't remember where offhand. But it's a great event and we try to do it about once a year. Last year we did it in Oklahoma City. This time we will be in San Jose Silicon Valley on March 3. Jason Hartmanuniversity.com JasonHartmanuniversity.com get your tickets today and we'll look forward to seeing you in Silicon Valley on March 3.

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