Will It Cash Flow? Analyzing BRRRRs, Hotels, & Commercial Deals


To land a great investment property, a true diamond in the rough, you’re going to need to master the art of analyzing deals. Whether you plan to use the BRRRR method or buy commercial real estate, we’ve got several tips, tricks, and tools to help you find the perfect property!

Welcome back to another Rookie Reply! Not sure whether a property will cash flow? In today’s episode, we’ll help you distinguish a great deal from a not-so-great deal. Do you need to pay back a hard money lender? You’ll want to hear about the creative solutions you can use to get out of short-term debt when refinancing isn’t an option. We also talk about short-term rentals and the best ways to furnish your Airbnb on a budget. Finally, we’ll show you how to manage difficult tenants when they push back against rent increases and damage your rental!

Ashley:
This is Real Estate rookie episode 386. Where do you draw the line when it comes to your tenants and appliances? My name is Ashley Care and I’m here with Tony Jay Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, three times a week, we’re bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today we’re going to talk about things to think about when buying properties in a vacation market. What exactly is Burr, PITI and a RV plus so much more broken down. In this episode, we’ll be evaluating a bird deal and how to analyze the fundamentals to make sure your numbers are correct. So we’ll get into all of this and more. Now, don’t forget, you can submit your questions so Ash and I can answer on this podcast. Just head over to biggerpockets.com/reply. Again, guys, we want to hear from the rookie audience. We want to answer your questions. We want to highlight what’s going on in your business. So again, head over to biggerpockets.com/reply.

Ashley:
Okay, today’s question, our first one is from Jordan Wisdom. I have a question on the BUR strategy. First of all, Tony, speaking of bur, it is freezing right now in the end of March, and I also get a ton of snow last night, so I can relate to this word right here. Okay, so Jordan goes on to say specifically on the cash out refinance part, when you do the cash out refinance, it’s being refinanced at the higher appraised value. This would result in a higher monthly payment. So when running your numbers, are you using the PITI of the RV or the PITI of the before repair value? I’m in my head, I’m thinking you would have to use the PITI of the RV to make sure the deal will still work after the cash out refi. Is this correct or am I missing something? So I think first what we need to do is call out and explain a couple of those words that he called out there. So first a burr, you’re going to buy the property, you’re going to rehab the property, fix it up, you’re going to rent out the property. Then you’re going to go to the bank and you’re going to refinance it and pull some of your money back out or all of your money back out, and then you’re going to repeat it and you get that money back. You’re going to go and take it and buy another property and do the same thing. You’re adding value to the property, you’re adding income to the property.

Tony:
And then some of the other terms that we’ve called out here as well, we have RV and PITI. So a RV stands for after Repair value, and basically this is what the property will be worth after you complete all of your renovations on the deal. So say you buy a property for $100,000, you put $50,000 into the rehab, and now it’s worth $300,000. Your A RV in that situation would be 300,000. And then PITI is principal interest, taxes and insurance. So it’s basically like what most people refer to as your mortgage payment, your principal, principal, interest, taxes, and insurance payment. So I think the first thing that I’d say is, it’s a great question, Jordan, and luckily for you, there is a tool, a resource that BiggerPockets offers to help you make sure you’re doing this math the right way. Because analyzing a property as a burr is slightly different than analyzing your property is a traditional rental because you’re absolutely right. You want to make sure that the property not only cash flows at your initial mortgage payment amount, your initial principal interest tax and insurance, but that it also cash flows on the backend once you refinance. Now, BiggerPockets, if you go to biggerpockets.com/tools, we actually have a Burr calculator, so you can use that to make sure that you’re accounting for all of those things. But the short answer to the question, Jordan, is yes, you want to make sure that you’re actually leveraging that post refinance PITI to make sure it’s still profitable.

Ashley:
So the next thing to kind of call out here is talking about the PITI. Okay, so the principal interest, the taxes and insurance, and usually you think of this as your mortgage payment, like Tony said, and you have stuff in escrow. But even if you are purchasing this property in cash to begin with, or maybe you’re using a hard money lender or private money lender or the line of credit off your primary, you still are going to have to pay the taxes and the insurance in this process too. So even if you’re saying, oh, I’m not going to be paying that mortgage payment, paying cash, think about the holding costs that you’re still going to be paying. Even utilities on the property too. I don’t think your contractor’s going to want to work in winter with no heat and no lights on to see what they’re doing.
So all these holding costs will be calculated when you use the BiggerPockets calculator to do your Burr report or if you build out your own, but make sure you’re including all of these holding costs when you first purchase property before you go and do that refinance. And as far as the time period of doing that refinance, you want to make sure you are accounting for enough time to actually repair the property, and you want to make sure that your property is completely done and rehabbed by the time the bank is going to do the appraisal. So talking with your lender and finding out how long does it actually take to usually get the appraiser out to the property after I submit my loan application. So if you know kind of have two weeks there, then you want to make sure that you’re applying for that loan and by the time that appraiser is coming out to look at the property that your property is done. And then you’re also looking at, you’re still going to have those same holding costs until the loan actually finalizes. So how long is it taking your lender to actually close on doing a refinance too?

Tony:
Yeah, and I think the only last thing that I’d add onto that as well is sometimes Jordan, you can, well, I guess two things I’d want to mention first, that’s the benefit of using a calculator is that it forces you to make sure you’re accounting for all these different things. Like Ashley was talking about your different holding costs and how long is a rehab going to take, how long before you refinance? So again, biggerpockets.com/tools to use that calculator, it’s going to force you to recognize all of those things. But the second thing I’d say, and this was actually the situation I fell into for my first burr, was the bank that I was working with, they did the construction debt and they were giving me the long-term debt as well. So they gave me a quasi combination loan of sorts. So my first loan was a 12 month interest only for the rehab, and then I got a 30 year fix, but they actually did a, I can’t remember what the phrase was.
So basically they looked at the current condition of the property, they looked at my scope of work and they gave me an estimate of what they thought the RV was going to be as well. So I had my agent giving me an A RV, I had the bank themselves giving me an A RV, so it allowed me to be pretty confident in my numbers when I was doing that calculation because I had two different frames of reference for estimating that after repair value. So just something to look through, Jordan, if you’re working with a small local lender or credit union, they might give you that kind of service. I don’t know, Ash, have you seen any hard money lenders do that before where they’re actually estimating your ARV for you?

Ashley:
No, I think they’re verifying what you’re giving them though. They’re definitely verifying that I have had a hard money lender when I needed an extension on a loan, come and send a broker to do a broker appraisal. So they actually didn’t hire an appraisal company. They sent out a broker who did an As is appraisal on the property, I guess not even appraisal, but put a market value on the property as is, and then also they redid what the A RV would be based on how far the project was at that point. To kind of sum up this question, the correct answer would be that you’re going to need to actually include both of those. So you’re going to need to include your payments every monthly bill you have while the project is going on. So that is before the after repair value. So while you’re doing the repairs on the property during that timeline, and then you’re also going to have to look at the after repair value and what your financing terms are, what your monthly payments are after that.
So you want to make sure the deal will work in both of those segments. So during that time the property is being rehabbed, can you pay out of pocket or do you have somebody that’s going to loan you the money to pay those monthly expenses? You want to make sure that, say you have $30,000 for the rehab and that’s where you’re paying the contractor, but you have 2000 a month in holding costs. Are you going to be able to pay that for six months while that project is being done? So make sure you’re accounting for that. Then after the project is done, you’re going to have a new mortgage payment. You’re going to have, your insurance will switch on the property too, because you’re no longer a vacant property that’s under rehab. You now have a tenant in place and have a landlord policy. So in most cases, your insurance will be cheaper and you’re going to still be paying your property taxes too. So you want to actually take into account both of those, and that’s what the BiggerPockets or calculator can help you do

Tony:
Too. Last thing, the other cool part about the calculator guys is that it saves pretty much every deal that you’ve done if you’re a pro member. And I just logged into my BiggerPockets Pro account and I can see the very first real estate deal I ever actually bought is still sitting in here as one of the deals that I ran through. So it’s also cool to be able to go back and see, hey, how did my initial analysis compare to what the deal actually did?

Ashley:
Does it have a date on it?

Tony:
When was that? When was that? It just says four years ago, so it doesn’t give me the exact date on when I ran it. It just says four years ago. And it was actually pretty spot on because I think on the cashflow here, it was saying that I was making about 1 67 a month and I was somewhere in that one 50 to 200 range on an average basis. It was pretty close.

Ashley:
You know what, that would be interesting to go back to some of my, the first one I did was seven years ago. I just pulled it up. I have 12 pages of BiggerPockets calculator reports I’ve done, and it would be interesting to go back to one of those that I did. Here’s my six unit that I did six years ago in here and yeah, yeah, that’s actually pretty spot on too. 21% cash on cash return. Our next question is going to be on a motel in a vacant market, and luckily we have an expert for that. So after we come back from the short break, I’m going to ask this question to Tony. Okay, guys, thank you so much for your patience. We are back to the episode and we have a question from Peter. Did anyone here buy a motel in a vacation market, like a regional vacation market?
What are some pros and cons? I know Tony Robinson is in the middle of doing this. What kind of financial analysis should one do before buying? Are there any books that you would recommend? Is it the same as buying a short-term rental? Does it make sense to convert this to a self check-in like an Airbnb cabin? I know these are a lot of questions, but I wanted to get some thoughts from people who have done this before. Well, Peter, you’ve come to the right place. We have Tony Robinson live right here with us to answer your question. So Tony, let’s take on the first one. What kind of financial analysis should one do before buying?

Tony:
Yeah, I think before we even touch on that piece, there was one little part at the top of the, to Peters, it was like buying a motel in a vacation market or like a regional vacation market. And I think that’s the first thing I want to comment on, guys, is that there’s, I believe a tremendous amount of opportunity in some of the kind of secondary or tertiary vacation markets. I’ll put this in context. We have two cabins in the Smoky Mountains right now. One’s a four bed, one’s a five bed, both are probably worth over a million bucks. Today we paid a million dollars for 13 units, one motel with 13 units. It’s the same price as four bedrooms or five bedrooms in the Smoky Mountains. So it goes to show when you come outside of these super popular vacation destinations, you have the ability to go out and buy something that’s going to do hopefully way more revenue.
And for context, our five bedroom cabin last year did about $130,000 in revenue. This same motel when we bought it from the kids, but when the dad, who was their true owner was running it, he capped out at just under half a million dollars in annual revenue. So we have a five bedroom cabin worth a million bucks at $130,000. We have a million dollar cab or million dollar motel in Utah that did almost half a million dollars and it was at its peak. So there’s a lot of opportunity here. I dunno, Ashley, I mean you were looking at some stuff as well. I’m just curious, big markets versus the kind of smaller vacation destinations, what’s been your take?

Ashley:
Yeah, so when I was looking at campgrounds, I was looking at 45 minutes outside of the city of Buffalo. So that would be that it was in driving distance for seasonal renters because I didn’t want it to be too far. I think about places that I would love to go to, but then I get exhausted thinking about how to get to them. Like Jackson Hole, Wyoming. I have heard from people, it’s not very convenient unless maybe you have a private plane and they have a private airfield there. I dunno. But that is the biggest thing for me as to how convenient is it to get to when looking at these campgrounds. And so I was very focused on finding seasonal renters where people would rent the whole season and it wasn’t daily RV renters coming in and they’d rent for the whole season and then they would come after work on Friday, spend the weekend there, drive back Sunday night or Monday morning to their house or their job, whatever that may be. But that’s where there wasn’t any glowing huge resort or anything like that. I was more focused on smaller markets, smaller areas where it was more of a convenient escape, I would say.

Tony:
And what schools like me being in California, I’ve never heard of the cities that you were looking at to buy the RV parks. You being in New York, you’ve never heard about the stuff that I was looking at here on the West coast. And I think that’s the beauty of it is that every part of the country has their own little pockets where people go to vacation that you probably only know if you’re in that neck of the woods. So I just wanted to highlight that first for you, Peter. But the financial analysis question, so we obviously kind of cut our teeth buying single family short-term rentals, and the analysis on that is different than buying a commercial motel or hotel. So we had a calculator we built out for the single family side of things, but the analysis on 13, 25, 50 units is a little bit different. So we actually hired someone and it was your recommendation ask actually the guy that you had found,

Ashley:
It’s so funny, I was on Upwork today and I saw that and I remembered you had said that. Yeah, he was

Tony:
Great. He was great. He actually built out a custom commercial hospitality analysis calculator for us, and we used that one. It worked out pretty well for us. Peter, there’s another website, it’s called Adventures in Commercial Real Estate, adventures in Commercial Real Estate. And they have a bunch of tools you can download from their website as well. Some are free, some are paid, and we bought there hotel calculator as well. So we’ve got a few different tools that we use, but the underlying process is still the same. You want to be able to project your income, project your expenses, understand your cashflow. It’s just the method of projecting those are a little bit different. So when it came to the expenses, we looked at their p and ls for the last couple of years to try and get a sense of what they were spending on all the different expenses that go along with 13 units.
For the income side, we use what their current and previous performance was, but we also did a lot of competitive research to see, okay, we know that we’re going to go in and renovate this thing and we’re ideally going to be in the top 10% in this market. So it’s like what are the other top performing properties charging on a nightly basis on average? And we use that to kind of pull into our analysis as well. So building the tool was a big part and then understanding how to really capture all the inputs was the second piece

Ashley:
For us. I think that’s one of the hardest part is making that transition from a strategy you’re already good at to a different strategy is figuring out what the expenses should be or are, because obviously with your motel, the expenses are different than what they would be for a short-term rental. For example, just the motel, it’s hospitality. What do you have a hotel tax when your short-term rental, you have a short-term rental license. Even just in that aspect of knowing what those costs are that are associated with that, what kind of expenses do you have for staff? You have two people I think on staff you had said for your motel. Yeah,

Tony:
Two

Ashley:
People. So just knowing and understanding those different costs is everything. It’s not separately metered anymore. If you’re used to doing multifamily, you actually have to cover the gas bill. How energy efficient is each of those units, things like that.

Tony:
Yeah, there’s definitely a lot that went into it and there were some assumptions on our part, but I think doing our best to try and leverage the data that we had at hand to make those or to identify what those inputs should be. So that’s the financial analysis piece.

Ashley:
Okay. So the next one is, are there any books that you would recommend?

Tony:
We didn’t read a single book about hotel investing. We just kind of took everything we learned about the short-term rental space and we applied it that way. So BiggerPockets publishing team, shout out to you guys. Maybe I’ll write the first hotel investing book for bp.

Ashley:
There we go. It’s your proposal. I just did a quick Google search for hotel investing book and the only thing that really came up was a hospitality financial management. Okay. The next question, is it the same as buying a short-term rental, which you kind of did touch on, but maybe elaborate an example of some of the differences?

Tony:
Yeah, I mean similarities in the sense of is it buying any other type of real estate? Yes, right? You want to get debt, you want to make sure that it cash flows. There are some fundamentals of real estate investing that still apply, but there are definitely differences that come along with it as well. So first for us was that we sell our finance this deal, we bought it 4 million bucks, we put down 20% and then the sellers carried that other 800 K on a 10 year note at 7% interest, which worked out pretty well for us. So that was I think a big difference for us. And then I think honestly the biggest challenge was just making sure that we had good data on the analysis side, we talked about the underwriting, but I feel like that was probably one of the biggest differences was trying to make sure that we understood how to project the average daily rate.
We understood how to really project the occupancy. So working through that was probably the bigger challenge. And then just the idea of we’ve done some rehabs on single family homes, but to rehab 13 units, that was a new thing for us as well. Coming up with a design for a motel was a little bit different and just, I’ve never had a rehab budget that big before either. I think our rehab budget was like $330,000, so it was three x what I’ve ever spent on a rehab before. So even just kind of going through that, there was a lot of learning curves as well, so some similarities, but there’s definitely some big things that I think were unique to the boutique side.

Ashley:
Okay, the next question is does it make sense to convert this to a self check in an Airbnb cabin?

Tony:
100%. That’s our goal and that’s why we’re so excited about this space is I heard someone else, another Airbnb guy refer to it as a limited service hotel, AKA self. So yeah, our goal is to, for every commercial property that we buy, allow for self check-in and I think just the demographic of travelers today, I prefer to not have to talk to someone if I can just walk inside the hotel and go straight up to my room without having to communicate with someone that is ideal for me. So we believe Airbnb has conditioned a lot of travelers to feel that way as well. So our goal for this property, for every future acquisition, at least on the short term, is going to be to focus on self check-in.

Ashley:
And actually a lot of hotels are adapting that I have Marriott and usually say at a Marriott and you get your mobile key and you can just skip the front desk. And that is so convenient, especially when there’s a line of people waiting to check in and I just stayed at a Hilton too and they did that too. The same, you just went right to your room and then if you want an actual physical key, you can go down to the desk at some point and get one. It

Tony:
Is a trend, it is a trend, and I think the self check-in probably isn’t as foreign for travelers. I think the biggest thing is going to be like what happens when they need something during their stay and just making sure that they still feel comfortable reaching out digitally via the platform that they booked through to contact and things like that. So there’s still some nuances that we have to try and work out because our goal isn’t just self, but it’s really, we’re not going to have a front desk at all, right? So the only way that people will communicate with our team is either phone, text or through the app that they book through.

Ashley:
And then the last question is, oh, that was it. That was the last one. The next thing was just, I know these are a lot of questions, but no, these are great questions Peter, that I’m sure a lot of other people had. If they’re curious about getting into this space. If you want to learn more about Tony’s motel experience, you can check out episode 367. Then we also had Adam Howard on episode 375. Today’s next question is from Amerin Regan, I need some advice. We bought a property to flip a year ago. Long story short, everything that Coke go wrong did and we put way more money into it than we originally intended. We tried to put the property on the market to simply pay off our loan debts and recoup our original investment. We had a hard money loan, a private loan, and numerous credit cards, personal loans, no bites at all.
Our hard money is extended for three months and I’m getting worried thinking about renting, but worried about refinancing because one, our credit is shot. Two, not sure a long-term rental will be able to cover the refinance costs. We live in a vacation area, so Airbnb is an option, but we have no money to furnish the property. I am overwhelmed with the stress of this and hoping maybe someone has a creative idea I am overlooking this is definitely a tough situation to be in. And where do you want to start, Tony? As far as options, why don’t you talk a little bit about some kind of options if they were to put this as a short-term rental, maybe some creative ways to furnish the property.

Tony:
Yeah, I think first Amerin, I just want to give you kudos for having the courage to be vulnerable and share your experience because a lot of people make it seem like it’s all sunshine and rainbows being a real estate investors, but that is not the truth. There are some times when, like you said, everything that could go wrong does go wrong. So just know that you’re not isolated in this happening to you. I had a flip that went bad last year. Ashes had deals that haven’t gone well. If you talk to James Sanders who’s flipped more houses than anyone that I know, he always talks about how he’s gotten beat up doing this as well. So just first know that it’s part of the journey. So in terms of options here, if we talk about the short-term rental side of things, you said you live in a vacation area, the first thing I would do is try and understand how much revenue and profits that property could produce as a short-term rental.
So run through the analysis. I like to use both air DNA and price labs to analyze deals. I don’t use the revenue estimator tool where you just plug in the address and it spits out a number, but really do the research to look at the underlying average daily rates and see where you think your property might fall. Are you in the top 10%, the top 25%, middle 25, the bottom 25? And just get a gauge of where you think that property might perform and then compare that to your holding costs on these expenses to see if you can at least break even while you try and figure out another option. Now in terms of the furnishing piece, I think you’ve got a couple options here. You can get really scrappy. I met someone who took furniture out of their primary residence and put that into their short-term rental.
Like, hey, that’s what we got to do to get this thing furnished. You can go the economic route of looking for Craigslist, Facebook marketplace type furniture to really design on a budget. The other option is it sounds like you’ve maybe pulled out a few credit cards already, but that’s another option as well. The other piece too here, Ammar, is that you could find a partner if you find someone where you say, Hey, if you bring in the furniture costs, we will split whatever the profits are, 50 50 above the cost of actually holding the property. That way you’re not on the hook for coming up with another 10 to $15,000 to furnish it. So I think first start with the analysis, make sure that it even makes sense, see if you’re even profitable doing that. And if you are, then try and get creative on the furnishing side.

Ashley:
Yeah, so I think another idea to get creative is to looking at different ways. Is there any other way you can generate income off of this property? So is there a garage where can, if you do turn it into a long-term rental, can you increase the rent by letting them use the garage as storage or to put their car in? Is there a large lot where you can charge for people to park their RVs, things like that to definitely get creative in. And then I would also start looking at the worst case scenario. The worst case scenario, you do need to refinance and because your hard money loan is coming due, what I would do is I would refinance even if you’re not able to cover and then pick up a second job or start some side hustles to cover it in the meantime until the property does sell. Or you are able to turn a profit doing an Airbnb. But I think if you wait and that hard money loan comes due and they start to the process to foreclose you, you’re going to be in a worse situation. And I think refinancing the property will give you more time renting it out and figuring out what that deficit is in cashflow and how you can do a side hustle to cover that payment until the property does sell. That would be the process that I would take in this scenario.

Tony:
Yeah, I think the other question too, and you didn’t mention this Samir, but how short are you on this deal? You said that you tried to list it just to try and pay everything off, but you weren’t able to. How short are you and do you have the ability maybe to just write the check? That’s where we had to flip the one back for us last year, is that we unfortunately had to write a significant check to make sure that everything got paid off. But if it’s not too big, could you potentially do that? The other option is could you find another lender to replace this hard money debt? Right? So it could be, I don’t know what the amount is, if it’s a significant chunk, maybe it gets a little bit too expensive, but say that you’re talking about a couple hundred thousand dollars here, could you potentially find a private money lender in your network who can carry that note for another 12 months to give you some flexibility on the backend there, where they’re going to pay off at least the hard money and the looks like you got a mix of hard money and private money, could you find another private money to pay that person off?
So now you just have the credit cards and personal loan story about, but there’s always different ways to shuffle this debt around to extend the timeline a little bit. So I think that could be an option for you as well. And then the other piece is you said you got no bites, but could you just drop the price maybe a little bit more, right? Could you drop the price a little bit more and see if there’s an option there or last thing, and this is what James Danner talks about quite a bit, is there something you could add to the property to make it sell faster, right? I don’t know. Could you add a second bedroom or a third bedroom or add an additional bathroom or something that would, again, a little bit more investment, but is there a small amount that you can invest to help you increase the A DR, I’m sorry, the A RV, so there are more people looking to actually purchase it?

Ashley:
Yeah, so a great example of that would be adding a closet into a room. James Zaner from on the market podcast for BiggerPockets. He says adding the bedroom, like adding an additional room in. One of the cheap ways to do that is to just add a closet into a room that is an office or to maybe a lot of older homes. They have a sitting room, a living room, and a dining room and a kitchen. Maybe you can take, you have an eat in kitchen and turn the dining room into a bedroom or take the formal family room and turn that into a bedroom too. So that’s kind of one way to get more cost effective is just having to add that closet in and of course, making sure it’s big enough size too. Okay, we’re going to take a short break right now, but when we come back we have a question about rent increases and fixing appliances.
Okay. Welcome back. Our last question is from Jason. I, Hey Ashley and Tony, we increased our rent for our tenant by $100. Now the tenant of course brings up everything that’s wrong in the property. She’s saying the freezer doesn’t work all of a sudden and the drawers are broken in the refrigerator. She’s like, can you just buy me a new refrigerator? What she wants us to put in a new microwave because the old one does not work anymore. We have responded quickly with previous problems and would fix them in a timely fashion. I feel like if you break the drawers in the refrigerator, it’s on you to get new ones. How would you go about answering her about the refrigerator and the microwave? I appreciate the response.

Tony:
So Ash, let me ask you, because you’re more long-term rental expert here than I am. My initial thought is I 100% agree with you Jason. If someone’s breaking the fridge inside of my property, you’re paying to get it fixed. But that’s me coming from a slightly different perspective. So Ashley, I think the bigger question before we even get into your specifics, and this is what I’m curious on for you is what have you found as maybe the best practice when you’re increasing rents on a tenant to make sure that the tide doesn’t change and they become a little bit more aggressive with your negative in general?

Ashley:
So especially when I’m taking over property, I just purchased it and I’m inheriting tenants, I give them, especially if it’s a large increase, if it is a small increase, there’s been times we did a $5 increase across a 40 unit permit building and we wrote this little letter just saying for the rising utility cost of, because we included water and property taxes have increased. No one complained it was $5, we just fight it. But I like giving a reason as to why. There’s no reason you have to, but I tried to find ways to justify it. So there is least resistance. I also, especially with the inherited tenants, like to show what the comparables are. So if they moved out of my property, what would they have to pay to live in a comparable property? So I’ve gone as far as, there was somebody that was paying $400 a month in rent and the market rent was $700 and I think I increased it to 600, but that was still a $200 increase per month, which is a lot of money for a person to have their rent increase that much over time.
So that’s a 50% increase. But I wrote a letter and I said, here are the addresses of the comparable units that you could move to, and this is what their monthly rent was. Each one of those was right within walking distance of his property and each one was more expensive than what I was going to end up charging him. So if you’re able to show that or you’re able to show that it’s really close to what other people are charging, if somewhere else is charging $50 or less than maybe what you are, put it on there because it is a headache to move. It’s a pain. There’s costs associated with moving and most likely someone is not going to move because somewhere else is $50 cheaper per month. They may. But finding those comparables and kind of showing the resident as to you know what, you’re increasing the rent and it’s justifiable.
Then we also had Dion McNeely on recently who talked about the binder strategy as to how he gives his tenants to increase. You guys can go back and look at that episode all up. Tony pulled it up right here while I go on and answer the freezer question here. So he says that this is their first increase and she’s bringing up things that don’t work. So this can often happen with a resident where they bring up problems when you confront them about not paying rent or different scenarios like this, or in this case, the increase. So as far as the freezer and the microwave, I would first go back to the lease agreement. Okay. Does your lease agreement specifically call out anything about the appliances? So for my properties, they’re different. Some, I don’t even include appliances anymore because they’re such a hassle to get somebody in to fix them.
If the fridge isn’t working, then somebody’s trying to get me to pay for all their groceries, things like that so that I no longer include in a lot of my duplexes. And in some markets you can get away with that. Some markets you have to have appliances or else you’re not going to get renters at all. So look at your comparables and what you can get away with. Also, if I have purchased a property that already has the appliances in it, I write into the lease agreement that these appliances are a courtesy and that as the landlord, we are not responsible for any repairs on the property. If the appliance needs to be removed, here’s the number you call to have it disposed of. If it’s not working, if you would like us to remove it, please put in a maintenance request and we’ll have it hauled out.
We have done that in some situations. So look in the lease agreement, see if it says anything about who’s responsibility it is. As far as a microwave, I’ve never ever supplied a microwave and I understand there’s built-in microwaves and some properties try to stay away from that. So that’s one less appliance. And have your resident just bring their own microwave, put a nice hood vent or something above the stove instead of a microwave. So in this scenario, say the lease says that you’re responsible for both in your move-in with this resident. Does it show that the drawers were in working condition, that there was nothing wrong with them? Can you prove that when they moved into that property that the drawers were great? If they were, then yes, let them know the price of what that’s going to cost and say, you can Amazon ship it to their house and you’ll add the cost onto their next rent payment. Or you can ask them that, just tell them it’s their responsibility and they can go ahead and purchase a new one in something like this. I would be more eager to assist in the process to make sure that this is going to be the correct way of doing that.

Tony:
Ash one follow-up question on that. Do you use any software when you’re doing that pre-move in walkthrough to document everything or how do you have evidence of what it looked like before they took possession of the unit?

Ashley:
I have an inspection list and it’s an AppFolio is a software that we use. And so it’s each time the maintenance person is going through the same checklist of here’s what we’re looking at taking pictures, and then the resident also has like 48 hours to report anything to us that maybe was missed in the inspection. So usually when you’re going through the inspection, it’s your first time getting the keys into the property. You maybe saw it at your showing, but you’re usually not flushing the toilet or we’ll do those things on inspection. But there might be little things like, oh, when you sit down on the toilet, the toilet seat slides or something like that. So we always give them some time to notify us of other issues that come up and we add them to the inspection. Or in the case of the toilet seat, we would make a maintenance request and add that. Or maybe they noticed in the one closet there’s a rip in the carpet or there’s paint missing on one side or something like that, that we always give them that time to or add it onto their inspection.

Tony:
Yeah, I love the idea of having some kind of documented evidence of the condition of the property. We do that after pretty much every time we clean a property for one of our short-term rentals, our cleaners are taking photos of the condition of the property to show what it looks like. So I’ve given this example before, but it’s like we had a guest who stayed at one of our properties with the hot tub and complained that they got some kind of skin rash or something from the hot tub because the water wasn’t clean and we were able to pull up our photos before that guest checked in and we had a photo of the water showing it was clean and clear and we had a photo of the test strips of the water to show that the water was correctly chemically balanced. So we were able to go back to that person and say, the water got dirty is probably because something that you did and not because we gave it to you that way. So I always liked the idea of having that as a CYA in case the tenant, the guest tries to claim that something was broken when in reality it was in good working condition when you gave it to ’em.

Ashley:
And what software are you using for

Tony:
That? We use Breezeway Breezeway for that, and it’s a pretty cool tool that allows you to build up these different checklists. And we do it during the term, we do it during the cleans as well. So yeah, breezeway is a tool that we use. And guys, just like as a side note, a lot of the tools that I use, I know I drop a lot of ’em. If you go to the realestate robinsons.com/free tools, it just lists out everything we use for checklists, for pricing, for our guidebooks, for all that stuff. So check it out.

Ashley:
Thank you guys so much for joining us for this week’s rookie reply. If you want to follow Tony or I on social media, you can find the links in the show notes. Thank you guys so much for listening or watching. If you’re onto YouTube, make sure you hit that like button and subscribe so you can get updates on the newest videos. Don’t forget to join our real estate rookie Facebook group. I’m Ashley. And he’s Tony, and we’ll see you guys next time.

 

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