Scott Hoefler of Side by Side Realty joins the Maximizing Your Property Value podcast to discuss the best strategies for living next to your tenants. Scott, along with his twin brother Drew, interest in real estate started as young boys in Chicago. They remember taking walks through their southside neighborhood with their Dad as he pointed out various building styles and architectural details. They purchased our first duplex and house hack in 2013. At that point they were hooked. Since then, they've built a small portfolio of rental properties, and that passive income has led them to financial freedom. They've experienced the power of real estate investing first hand, and their purpose is to help other people experience lifestyle and financial freedom with real estate investing.
John Stiles: When she called me, at that moment I didn't ask her how did it happen? What clogged the toilet. In reality, it didn't matter at that moment. What mattered is that she felt taken care of in that time of stress and because of that we had her for another year and a half and then she actually filled our unit with one of her friends. So that's another thing that you got to think about as you're taking care of these renters is vacancy is real. Vacancy happens all the time, but if somebody loves living in their space, their friends and family love being there too and so they're probably going to fill that unit for you and you don't lose a whole month's worth of rent by doing it.
It is a common saying amongst real estate investors that you make money when you buy, not when you sell. While this catchy phrase has value, it fails to convey how easy it is to lose money through poor property management. Whether you self-manage or hire a professional, it is important to understand how to navigate the common pitfalls and challenges with rental properties without losing your shirt or your mind. That's why you have tuned in to Maximizing Your Property Value: The Apartment Owners Guide To Operating And Rental Properties As A Successful Business. I'm your host, John Stiles, Real Estate Agent and Team Leader of the VIP Real Estate Group at Bridge Realty.
As a current multifamily investor and former property manager myself, I understand the headaches and difficulties of keeping an investment property from becoming a money pit and time sucker. It takes a solid business plan, it takes tested systems and it takes key team members to actually find success. So let's take a deep dive and maximize your property value.
Welcome back everybody to another edition of Maximizing Your Property Value. This is the show where we dive into best practices for managing your rental properties so you can be successful. Today I am pleased to have with me, Scott Hoefler, who is with Side-by-Side Realty. He is actually the owner and realtor there. Also, Scott's a real estate investor, so Scott thanks so much for coming and taking time out of your day to be in studio with us today.
Scott Hoefler: Yes, John. Thanks for having me here.
John Stiles: Wonderful Scott. So why don't you give us a little bit of your back story of how you got into real estate investing.
Scott Hoefler: Great I love this story. Real estate investing has always been something that I think, Drew and I- Drew, my twin brother and partner, has thought about since we were younger. I remember my dad walking us around our neighborhood blocks when we were in Chicago, showing us homes and he was used to studying the architects. So we just liked houses; we liked properties in general. Graduated from college with a ton of student debt. Decided, "Hey, this rental thing- paying rent, paying for our living expense. This is expensive, so let's buy a single-family home in South Minneapolis. They were like, "Cool. We'll rent out some rooms to our buddies, we'll pay for our mortgage, we'll get to live together and it'll be great." As we were looking for a property in South Minneapolis, my dad goes, "Hey, you guys should buy a two-flat." We're like, "Dad what's a two-flat." That's what they call duplexes in Chicago. We're like, "No, no, no, no, dad. We're not landlords." But then the more we looked at it, we realized, "Hey this could be a real thing." So we looked at a duplex in an up-and-coming area called Northeast Minneapolis and bought that one and rented out one side and lived in the other and had our rent and mortgage covered. So it worked out really well.
John Stiles: All right wonderful. So tell us now about the transition from your first purchase to where you are today and what that looks like?
Scott Hoefler: Okay, so that first purchase went so well. We were living mortgage free; living in one side, renting out the other and we're like, "Okay, this is working really well. Let's buy one property a year from here on out." Why? We didn't know. We just thought it was a pretty cool idea and so we got to that following year and actually life kind of took off and real estate seemed to be hard. I was climbing the ladder in my corporate job, I was doing really well, I had met my wife now, Jenny. We were dating, we were- our life was taking off and I turned it to Drew and I'm like, I think I'm done with this real estate thing. My twin brother, partner, goes, "No, that wasn't the agreement. You were going to buy-- I was going to buy one, you were going to buy one and we're going grow this thing and I was like, "Sorry Drew, I don't have time.”
Then that day I went for a walk with my dog and there is an episode on Bigger Pockets that I listened to and it was a gal named Bree from Chicago and She had left her corporate job, really stressful sales job because she had passive income coming from rentals and after that 45-minute talk, a podcast much similar to this, I was all in. I said, "Drew, let's go." The next year we bought a duplex in Northeast Minneapolis. There was a hundred and forty thousand dollars and we rented both units out for 850 so those numbers worked for us.
So today, let's fast-forward a little bit, and I think this is kind of the main point of the conversation is that at that time we didn't really know why we were buying real estate. We didn't have a plan of action. We were just going to buy one a year and see how it goes. I actually remember somebody I really, really respect, hearing that plan and he goes, "You're going to buy one a year from here on out. That's the stupidest idea I ever heard." Whoa! This is a guy I really respect, he has a great family, he's doing really well in life and he thinks my idea is super stupid. I think that's what goes to show you that not everybody's going to believe in your plans and your dreams.
At that point even though I was taken aback, Drew and I looked at each other with like, "How do we grow this thing? Something's working here, we're getting passive income, we're living for free." A mentor of ours, Kim Burke, that we both know challenged us. She's like, "You need to think bigger." That's where our brain started to spin. It is like, "How do we take this hobby, this idea that we have right now and turn it into a business?" That's the year that we decided that we're going to go from real estate being a hobby to real estate being a business and in that year we bought five properties. Plenty of people buy more properties in a year than five, but for us, that was a fundamental pivotal change for us.
John Stiles: Well, let's talk briefly about how did you make that work for- just the down payment alone and getting qualified for those five different mortgages or whatnot, how did that work for you?
Scott Hoefler: Yes, so when we first started purchasing properties, we leveraged the power of owner-occupied financing. So cash is king, so limited cash out of pocket. Our first duplex was 5% down, our second duplex was a great program, 3% down, again, limiting the cash out of pocket. As you're starting to make connections in the real estate world, you're starting to talk to different lenders, different investors, you kind of build and they talk about bigger pockets, that tool belt and you start dropping new tools in your tool belt and those new tools were different financing options.
So in that following year, we still had some more owner-occupied financing, so my wife before we got married, bought a duplex because she could before we moved in together. So she was able to buy another owner-occupied property, but we did a contract for deed. We used the BRRR method, which a lot of people talk about in the investor world, which is buy, renovate, refinance, repeat. That was a great way to get into a property. So you start building your investor IQ and you start gaining knowledge about financial programs and products and start leveraging them so you can buy more real estate.
John Stiles: Yes, so what does your rental portfolio look like today?
Scott Hoefler: My rental portfolio looks like-- So when we made that shift from a hobby to an actual business, we've sat down, "Okay, what does it mean to live financially free in lifestyle- in freedom to have a choice over your lifestyle?" So we just said, "If we had 22 properties, we'd be financially free. So at that point, we decided, "We're going to buy 22 properties by the time we're thirty-two." And we were 28 at the time, so we had a lot of work to do ahead of ourselves. So right now we're sitting at 15 properties, not quite the 22 and we have 28 units. Even though that was a really big goal at first, 22 by the time we're 32, but now that we're falling a little bit short, it's still much better than where we would have been if we didn't set that goal to begin with.
John Stiles: Yes, wonderful. It's good to have goals.
Scott Hoefler: Yes, it is.
John Stiles: It gives you something to shoot for.
Scott Hoefler: For sure.
John Stiles: So let's talk about this business planning. What does business planning look like for you when it comes to your rental properties?
Scott Hoefler: So business planning for rental properties, we read a great book called traction and that helped us think, "Okay, get our mindset around real estate as a business. So let's start looking like it, looking at it like a business." I think it's like any business that you start or any goal that you have, is you have to create a 'why' around why you do what you do every single day. So why are we investing in real estate? What do we want it to help us achieve? For me, my time is my most valuable asset and for me, real estate equals time and I think if I can create that time margin in my life, that's where I'm starting to achieve the things I've always wanted to achieve.
So for building a business plan is how do we get there? Who are partners? And that's not even partners within our own company, but referral partners and industry partners. People that you can leverage that are experts in your field, that are beyond where you can be in that area of focus and ask them questions and build a relationship with them and become their confidant in some ways and they become you're confident in other ways. So, understand who's around you and who's in your network that can help you push your business model forward.
Another thing that we really focus on that I think the landlords of our past lost track of, is your renters. Your renters are your most important piece to your puzzle. If you build a great relationship with your renters; if you instill some ownership into your renters who are living in your properties, who are making memories in your properties, who are bringing their baby home for the first time in that property, who are having small group with their girlfriends over some wine and creating memories, and I think if those people start believing the place that they rent is also their home and they want to take care of it, you're going to have a great relationship.
I think oftentimes people who are landlords think, "Okay, it's a privilege for my renter to live in my property", which is totally untrue. It's actually a privilege for you to have that right to choose your space to live in because they're the ones paying your mortgage. They're the ones that are keeping that property in your portfolio because without them, you're going to lose it to the bank. So I think when you're creating a business plan around real estate, your renters and tenants have to be a part of that business plan because they're your customer.
John Stiles: Yes, that's huge- that is a huge difference from the way some people think; just what you said that all these tenants should be grateful that I give them a place to live, that attitude is not going to get you very far with that relationship.
Scott Hoefler: For sure. Landlords have a bad rap for a good reasoning because there's a lot of bad landlords out there who think that- who have that mentality and it's incredibly wrong.
John Stiles: So you've talked about having team members. What are some of the team members that you have put into place?
Scott Hoefler: The first one would be my twin brother and business partner and I think together we help each other think bigger; think bigger about his capabilities and my capabilities, so that partnership has been wonderful. My wife, Jenny, and her support and love, I feel like I can walk on water when I'm around her, so it's been an amazing person to have in my life. But outside of that is who are your industry partners. So I mentioned before, Kim Burke is crucial and helping me understand the financial world.
About three years ago, I was looking for a career change because going from real estate as a hobby to real estate full-time, one way to do that is shift your career focus. So my career focus became on real estate and I joined Kim Burke and her team at Leader One because their main goal was to help people buy multi-family property. I buy multi-family property. It was a great fit, but she's definitely one of my industry partners that I think because of her encouragement, her support, her leadership, and then on top of that is just her knowledge about the business, I've been able to absorb and learning it from the financial side.
There's other--That's where people just- you start to see is like just because they're not part of your company doesn't mean they're not a partner of yours. You, John Stiles, it's like there's people around you that you come in contact year over year that are doing business the right way for the right reasons absorb a lot of what they're doing; absorb the way they talk to their clients, absorb the way they talk to you and then eventually it'll start overflowing into your relationships and your contacts. Commercial lenders, insurance agents, property managers- one of my favorite partners is Garrett Gordon of Renter's Warehouse and his knowledge of leasing and his ‘go-get-'em’ attitude has been a really cool benefit to have on our team.
John Stiles: Yes, okay. Let's talk a little bit about that property management relationship. Do you guys do a lot of management in-house or do you hire that out to the third party, like Renters Warehouse like you mentioned?
Scott Hoefler: Yes, we manage all of our properties ourselves. It's been our main goal since the beginning to do that and I would argue that most early investors should start managing properties themselves, at least for the first couple years, so that they start getting a feel what it's like to manage properties, how to screen tenants, how to do basic maintenance. Then once you do that if you go to hire a Property Manager, you know what makes a good Property Manager because you've done it; you've done it yourself and so you can start shooting holes into somebody who's not really taking care of your renters the way they should.
The reason why we take care of our property still is because we still have that mindset around taking care of our renters and for me, I haven't met a Property Manager, somebody who has that same type of care for our renters. It may be because I'm the one that owns the building and so I'm very protective over my renters and to make sure they're living a great life in the property that I own. I do have relationships with Property Managers and I think they're in super invaluable, especially if you're trying to scale business and I believe that once you get to about ten units managing themselves, managing those units yourself becomes very difficult; almost impossible. So you have to make a choice. Do I go into real estate full-time and manage them myself or do I start hiring out? And I think that the ten property or ten units are your cap.
John Stiles: Sure. So then when it comes to leasing, do you also do that or do you hire that out?
Scott Hoefler: Leasing as well; management, leasing, all the works we do manage ourselves.
John Stiles: Okay.
Scott Hoefler: We have been blessed with having Garrett on our team and he does-- He's part-owner of a lot of properties that we own, so he does a lot of the leasing and placement of tenants and because of his experience with Renters Warehouse he has a really great background to be able to do that.
John Stiles: Nice. It's great to pull on people's strengths and expertise there.
Scott Hoefler: For sure. Garrett calls me the paper guy, so I manage all of our finances and all of our bookkeeping and stuff, so he's got the cooler job than I do.
John Stiles: Okay. So as you have developed this management process internally what have been some systems or workflows or processes that you've set up to really help you be efficient and effective?
Scott Hoefler: So if there's one piece of growth area that I could have, it would be processes. When you're just out of the gates, you're kind of a gunslinger, as you're trying to get stuff done as fast and the way you know how. But as you start building properties and support into build out processes and if you don't, if you're moving too fast, those processes don't get built and then you basically have some false footing. Eventually, as you add properties add renters there will be mistakes made because you don't have the processes put in place. I would say one of the best processes we have is a software called cozy.com or cozy.co. It's a basic free app that you can manage all your properties.
There's another local company called Zen Lord that does similar work too; actually, they're probably better than Cozy, but I got started with Cozy, so it's hard to switch now. But it allows you to put all of your properties under one software and rent collection, work order requests, capturing leases and keeping them over time. So if you can have a process where you get most of your paperwork, your communication, your activity or renter properties into one space, that would be the best suggestion.
John Stiles: Yes, that makes a lot of sense. I mean there are other ways you can do things by paper. Back in the day before computers, there were paper leases and whatnot, but you can be so much more efficient if it's all in one place and you have different reminders within the software. What has been some of the key features that you've liked about Cozy?
Scott Hoefler: Electronic payment. So when you're acquiring a property you're probably acquiring renters who pay by check. Landlords walk-around knock on doors and collect rent checks and that's just how they used to do it back in the day. But if you can get your renters to a point where they're paying you through an electronic payment system, through Cozy or Zen Lord or any other property management software that you use, even if you don't use a property management software, Venmo, PayPal, there are so many electronic payment options out there that keep the paper check exchange to a minimum and that's where you get hung up. A lot of renters want to send their check by mail, and who knows if you ever get them.
Another thing about processes and the biggest thing is your time. We're not investing in real estate to be able to have it take up more of our time, so finding ways to cut that out and to do the things that you're trying to achieve with the least amount of time. So when you're screening tenants and you're holding showings, is be in control of those showing times. Don't allow tenants and renters and potential renters to control when you're going to show that property. Blackout time, Saturday from 2 to 5 we're going to do an open house kind of thing and we're going to run as many renters through as possible to see the property. That again saves you time going back and forth to the property when people want to see it.
John Stiles: Yes, well that right there is a good example of a process to control the time and control how the experience is there.
Scott Hoefler: For sure.
John Stiles: You've already talked about this a little bit, but when it comes to tenants, how do you make sure that they're having a great customer experience at your properties?
Scott Hoefler: For sure. Tenant customer experiences not oftentimes is an important piece to somebody's business plan when they're managing rental properties. When your tenant's happy, they're there for a long time. You're having a lower vacancy, so it's very profitable to make sure your tenants are feeling great. One of the things is that we allow are dogs, so when you're marketing your property and you are pet-friendly, there's a lot of good pet owners out there who can't find good rentals. If you allow for pets- cats, dogs, majority of the time you're going to have access to a bigger audience of possible renters that you wouldn't have otherwise. So making sure-- And to do that is a lot of people- and it feels weird talking about pets as much as we do, but I think it's just important because people, oftentimes they see their pet as an extension to their family.
So one of the number-one renter demographics today is the Millennial and there's a lot of Millennials who are getting pets and waiting to settle down in their relationships and waiting to have kids. They see their pets as a part of their family and for us, we don't charge a pet deposit. We market at a really nice rent and so we build that into the rent, but in general, if you're charging for a pet deposit, you're basically saying your extended member of your family, you need to pay for them to be in that house. It creates a different connotation around allowing their pet to live there is they have to basically pay for their pet or their family member to live.
John Stiles: Before you go on, let's just talk briefly. I think a lot of landlords are concerned about letting pets into the property because of damage that has been done or stories they've heard. How do you balance allowing that and yet making sure your property's taken care of?
Scott Hoefler: One of them is a breed of dog, so a lot of times there's the bully breed. So make sure you're talking with your insurance coverage and seeing what type of pets they allow or don't allow under your insurance coverage. So if that pet does bite somebody, you're liable for it and so ensuring that you have the property insured properly. But sometimes they don't allow Pit bulls within their coverage, so know your coverage and know what your insurance company will allow.
You screen the pets like you do the tenant. So if you do know dogs, on that first meeting have the tenant bring their dog along, meet the dog, play with it, get a feel for if it's well-trained or if it's not well-trained, talk with the owner to see about what their they're doing to train the dog. So build that relationship around the tenant and their pet as well and so you have a pretty good idea if it's a good pet or not.
On top of that, in the five years that we've owned- six years now- that we've owned rental properties and have allowed dogs, I think in total we might have had eleven hundred dollars’ worth of damage for twenty-eight units. So dogs don't cause as much damage as you really think that is and then people are very good about owning-- If they're a good dog owner or pet owner, they will own up to the fact that their dog might have destroyed something and they will reach out and ask to pay for it and I've had that happen multiple times.
John Stiles: Okay, very good.
John Stiles: Hey everybody. I'm interrupting the show quickly because I wanted to invite you to a special event that I'm hosting at the end of 2019. The end of the year during the holidays is a great time to be getting together, with friends and family, making new memories and even new traditions. One new tradition that my family started a few years ago is volunteering at Feed My Starving Children. If you haven't heard of this organization, you should definitely check out their website. It's fmsc.org. Basically they utilize volunteers to pack nutritious meals and then they send those meals overseas to different areas of the world that have a significant need for food.
These meals have made a huge impact on thousands of people's lives. I really like volunteering with Feed My Starving Children for two main reasons. Number one, it gives you a tangible way to give back. It's not just giving money, which of course is important, but it allows you to use your time and your energy alongside of other people in a common cause. And number two, it fosters discussion of how we can live our lives serving others and not just be focused on ourselves and since this is a family-friendly event, it allows us to live out this mindset right along with our children. So would you consider joining me?
I've reserved 50 spots and this is room for you, a friend, a loved one to join with us and help out the cause. It would be really amazing to see you there. The date time and location is in the show notes. There's also a link that allows you to sign up and let us know that you're going to be there and you can share that link with other people that you think might be interested. So thanks so much for considering it. Now, let's get back to the show.
John Stiles: Well, let's get back to that conversation about customer experience. Is there anything else that you do to maybe create kind of a community at the property or just really make it have an environment where they like to come home to?
Scott Hoefler: I love that question. Community is-- Let's backtrack a little bit. If you're going to owner-occupy a property, live in one unit, rent out the other, there's a really unique experience that you can create by creating community in that duplex itself. So you're lit-- Our first duplex that we moved into, the upstairs units' tenants became some of our best friends. You're sharing the yard together, you're sharing experiences. If you're sitting on your front porch drinking coffee and they're heading out to work, you're having conversations with them. So if you're somebody who craves community, buying a duplex is a pretty nice way to have it. On top of that is when my renters move in, I give them a little note and a six-pack of beer in their fridge so that they feel welcomed to that property. So immediately they know, "Okay, I'm around. I'm taking care of them."
On top of that, when I do meet them at the property we do a video walkthrough to make sure the property is in good condition and we're on the same page of what needs to be fixed or replaced. On top of that, I'm asking questions about their life and I have a large network in Minneapolis and often times I've had a chance of helping that person find a new job or one gal was looking for a dog. I was able to connect them with a pet that I knew of somebody that was giving away a dog. So as you're building relationships with those tenants, you start seeing them as different as than just somebody who's paying your rent check. They're actually real people that you can help.
John Stiles: Yes, those are some great examples. What would you say to people that kind of approach the rentals as I don't want anything to do with my tenants. I don't want them to know who I am. You seem to have kind of the opposite approach to that.
Scott Hoefler: I would say that's a mistake. I think as you're getting larger, it's harder and harder to build a relationship with every tenant, but you're in- it's a people business and you're not having rental property unless people were renting from that property. So I think building relationship with them is really your competitive advantage as a good landlord and eventually a profitable landlord.
John Stiles: Nice. Very good. Let's talk about maintenance and capital improvements. First of all, how have you gone about finding good repair people? Do you have any people that you've brought onto your team as employees or you just hired third party maintenance people?
Scott Hoefler: We hired out third party maintenance people and Garrett Gordon has a really cool trick about this. If you're 10 feet away from somebody, talk with them, ask them questions. So he is often standing at Home Depot and he sees a contractor and he'll just walk up and start having a conversation with them. So we find a lot of handymen and contractors just by reaching out and in talking with them when we do see them. I think it's been the biggest challenge for us. I think that's going to be the challenge going forward for real estate really is the trades and people who know how to swing a hammer and know how to do simple plumbing tasks and remodeling work.
I think the more that our next generations are pushed to go to this foreign university and get a degree, the more people are going to be shying away from the trade work. I think there's a huge opportunity for people to go into the trades. There's a lot of work to be had. It's very difficult to find good subs and good contractors today just because there's such a finite amount of them and they're strapped in. There's so much work out there for them. So I think if there's a problem and or concern that I have about real estate ownership in the future, it would be about the demand for trades.
John Stiles: Okay. So that's a great technique about meeting contractors. What about vetting them to make sure that they're qualified to do the work and that also they're going to give you good pricing.
Scott Hoefler: So that's a challenge. I think really the only way to vet them is to have them work on a job and you can call and get referrals from people you know, but that person might have a great experience with the contractor and then you go to hire them and you just found the week that they were strapped and they working an 80-hour week. They're having issues at home and then you don't get that grade of experience. So really the one way to do it is to have them do a job. Start with a smaller job if you're looking to hire somebody for bigger stuff and if they can handle that smaller job, then you can probably guarantee that they'll do a good job for you in the future.
Then when you do have a good contractor, a lot of people think shopping around finding the best price is the best way to go. We experienced that in a negative way in the fact that we were trying to hit a budget and we kept shopping around looking for a cheaper price. But the reality of good contractors are a little more expensive for good reason is you get what you pay for. So I wouldn't as much think about how do I shop to find the cheapest contractors. It's how do I shop around to find the best contractor and what I mean about that is somebody who you can tell is going to treat you well; good communication. That's a big one too if you text them and they respond to you in a ready manner. That's important too to know that they're doing their job and they're doing a good job.
John Stiles: Wonderful. Now, are there any ways that you have found to keep track of what type of materials, whether it be the appliances or the flooring or the paint colors, so that in the future when you need to make repairs or do a turnover, then it's kind of a more efficient process? Have you found any things that are useful for that?
Scott Hoefler: So that's an area of improvement. Like I said when you're running a million miles an hour and trying to get your goals and buy properties, there are some processes that you give up. Knowing what paint color you use that is at a certain property or what kind of appliances you put in there, whether you bought new for that unit or you used one used appliances, you kind of lose track of that. So that's where I say find a property software, management software that you can keep track of that stuff in and be diligent upfront because if you try to do it later on, it gets harder and harder like anything. So if you're diligent about the way you keep track of what's in your units and who's there and right away out of the gates, then you're going to continue to do it and make good habits doing it. But I would say there's a lot of property software that allow you to keep track of that stuff and I would use them.
John Stiles: Yes, for sure. I just know for myself when I'm doing turnovers at my units, it's always like "Well, what paint did I use here? What sheen was it?" I'm looking back at some of the paint cans that are half-full down in the basement like, "Why did I pick that paint?"
Scott Hoefler: Yes, I would say don't get too cute. Find a color that you think majority of renters are going to like and reuse it and reuse it and reuse it. Drew and I argue about it all the time. He hates grey, I love grey. I think most people love grey and so we use a paint and you can steal this too. It's called sculptured clay by Bayer. It's a Home Depot product and we love the color and we've had a lot of success with it. So yes, pick something that works and reuse it. If you're doing remodels and you like a certain countertop from Ikea, you know how they cut, you know how to install them, pick a certain product and keep re-using it.
John Stiles: Yes, and as you guys have done either turnovers or major renovations, what things have you selected to- just keeping in mind, is this going to be attractive to a tenant?
Scott Hoefler: Great question. I think a lot of people get hung up with over-renovating and I think as you're looking at a property from a homeowner, it's different than what a renter might look at a property. There are details about the property and the unit that a renter's going to care about and there are other details that they just don't care about, so spending the money on them it's not going to get you a return on your money. There are tips and tricks; the more you do rentals, the more you learn what those are and I think to renovate and update a space to attract to a renter, making sure it's clean, and a lot of times people are like. "Okay, I got to rush this; the old renter out and the new renter in" and they fail to really deep clean the property and smells are a big one too. So every time I do a turnover, if I feel like there might be a need for a paint job, do a paint job because it cuts down on this smells immensely and it cleans up the place fantastic.
So paint, flooring, they don't much care about what kind of flooring as long as it's laid nicely; if the kitchen has separation and some of the floorboards and you think you needed to put new LVL in, do it. It's a really easy fix and upgrade. So flooring, paint and then cabinets is- cabinets get a lot of wear and tear and use over time, so making sure those are clean and updated and if you have to paint cabinets, paint cabinets because it's what renters care about as well.
John Stiles: Yes, keeping them clean is really important and that's a low-cost way to attract good tenants.
Scott Hoefler: Super. It's small things that you can do to make a unit look homey and ready to go in and keeping it deep clean. Don't bank on the renters' past security deposit to do that cleaning. Do that cleaning either way. I think oftentimes we get hung up as, "Somebody needs to pay for this if I'm going to do it for the unit." That's not true. It is your responsibility as a landlord to present a great unit, whether you're going to be able to pull from somebody's security deposit to do it or not, it's still your responsibility to create that space.
John Stiles: Yes, that's huge. Just preparing it for that next tenant so that they can have a good experience regardless of what happened at the last one.
Scott Hoefler: Regardless. Don't use your past experience with the old renter as what you think the new renter is going to give you.
John Stiles: Yes, wonderful and I'm not sure what your philosophy is with how long you plan to hold these properties, but do you keep in mind that you might sell these properties one day and as you're doing these different maintenance things, capital improvements? How does one day it being for sale affect how you maintain it?
Scott Hoefler: That's a great question. We don't have the future sale in mind. All of our mortgages, most of them are on 30-year fixed, so we intend of holding them long-term because we do want to create that kind of passive income for us and we did find a nice little niche in the marketplace that we really enjoy and these are small approachable investment properties that we can use conventional financing to purchase. A big thing for me is appreciation and so we do leverage the equity in our properties.
One way of leveraging that equity is to maintain that property so that when an appraiser does walk in, the condition of the property reflects what other market properties are looking at so that you can get the value back so that you can pull a HELOC or a line of credit or do a cash-out refine. So for us, I think it is mostly maintaining the equity in our property so that we can leverage that into further properties.
John Stiles: Yes, that's huge. Like you said, even if you're not going to sell it, if you're going to have an appraiser to come through, the condition of the property will reflect on the value, so it's really important to keep that in mind.
Scott Hoefler: The condition of the property reflects on the condition of the renter and so if you have good properties that are in good condition, you're going to have great renters that love it for the long term.
John Stiles: Yes. Well, I think that you've been in the business long enough where you probably have experienced some difficulty with being a landlord? Yes or no.
Scott Hoefler: For sure.
John Stiles: So maybe tell us one of the challenges you've experienced and maybe something that makes you pull your hair out about what am I doing in this business.
Scott Hoefler: I think one of the challenges is that the more I'm using rental property to give back time to myself and my family, the more rental properties require you just to be on. So I have a love-hate relationship with my phone and I would love to just turn it off, disconnect and leave it to the side, but in reality because I'm responsible for homes that people live in, I have to keep it nearby. So that is a challenge, is the more I try to get disconnected I have to stay connected in that way.
Then on top of that is maintenance calls are real, plumbing issues are real, but you go through seasons. So it almost feels like when it rains it pours. This property will have a plumbing issue, this property will be doing a turnover and I'll be marketing for new renters and then all of a sudden for two months I won't hear about anything with any of our units. I think it's like understanding that when you're in those seasons, there's a calm after that storm and you're not always going to be in that season. It's just a part of the game that you're playing; being a real estate investor and on top of that is discerning who's responsible for issues when they arise.
So we had one instance where I had a renter give me a call and she sounded frantic and she says and I'm going to swear, but she says, "I'm standing in a pile of shit and it's not mine." Immediately I said, "Okay, hold on one second." I hung up the phone, call the local hotel, got her a confirmation number for her roommates and her dog to go spend the evening in while I took care of the problem. When she called me at that moment, I didn't ask her how did it happen? What clogged the toilet? In reality, it didn't matter at that moment.
What mattered is that she felt taken care of in that time of stress and because of that we had her for another year and a half and then she actually filled our unit with one of her friends. So that's another thing that you got to think about as you're taking care of these renters is vacancy is real. Vacancy happens all the time, but if somebody loves living in their space, their friends and family love being there too and so they're probably going to fill that unit for you and you don't lose a whole month's worth of rent by doing it.
John Stiles: Yes, well that's a huge loss to your income if you do have a vacancy, so any way you can cut down that's great.
Scott Hoefler: Giving her a bad taste in her mouth from that experience would have probably caused her to not want to rent with me for another year and have somebody move in. So by me having her pay for that problem that might have happened because of her, I would have lost out on so much other money.
John Stiles: Yes, good point. So, flipping that coin on the other side, what has been the best benefit of being a landlord.
Scott Hoefler: There's a really cool level of pride that you get when you do own properties and you're providing the home to somebody else. I think that that's just a ton of feel-goods that happen that go along with that, especially somebody who wants to re-sign and love to re-sign with you for another year. So I've really enjoyed that.
I've also really enjoyed the connections that you make in real estate; people like you John, that are in it for the right reasons, that are taking care of people and I think there's a level of-- I met somebody a couple weeks ago that his number one goal is to humanize real estate. So, when you're talking with the city a lot of times they want to put properties and rental properties into this box like it has to have certain things to it. But people occupy spaces for multiple different reasons and I think it's remembering that real estate has that people approach that humanized approach and so being able to build relationships, with not only your renters but other industry professionals, have been probably one of my favorite things of being in this business, if I said that properly.
John Stiles: Yes, that's good. Yes, it is people business, especially now as it's going more and more to technology and there are different businesses that are trying to displace real estate agents, property managers, different things in the space. So to have an approach that's recognizing the humanity in the people that we're dealing with is really important.
Scott Hoefler: It's an emotional business and to forget about that as we're trying to scale business and improve on our technologies, it would be a mistake.
John Stiles: Yes, nice. Well, I want to ask you about where you think the rental market is going. Now, I'm not expecting you to be an economist, but just based on your experience with how long it takes to lease up a property lately, do you feel that the trajectory we've been going in which is just rents going way up is going to continue? Or are we're going to see that drop off here soon because we're all worried about when is the shoe going to drop and we're all going to be worried?
Scott Hoefler: I think everybody is looking for a crystal ball and try to speculate what the market will be and get rich off of speculation and I don't think that's where we need to go. We need to understand that there are market dynamics that is happening and if you're going to think about Twin Cities from a local market, is the Twin City is strong and I think the rental market is still very strong. People are moving to town. We don't have a population flight going on; we have a population increase. So every year or two we're getting- there's arguably, I don't even know if the numbers are right, about 80,000 people that move into town. That's a new Maple Grove every one to two years.
So if you're looking at it from a trajectory of how well is our local market going to do? It's going to continue to do well. People need to live places and so if you're a landlord who are providing those places for people to live in, you're probably in a good place. In return is we're not building new homes and new properties fast enough to accommodate the population growth. So if you're somebody who does hold a rental property and the growth is happening and we're not providing any new places for them, for those people who to live in, you're in a good spot.
John Stiles: Yes, well we are building some, but not nearly enough.
Scott Hoefler: We are building and everybody-- You look around and you think, "Okay, there are so many cranes going on and there's a lot of these mixed-use lower-level retail, five floors up of rental property happening and you think they're happening everywhere, but it's still not fast enough and on top of that, those are more of your high-end rentals that are happening. So there's a missing middle. There's affordable housing crisis happening and I think if you're a smaller investor is you can fill that niche pretty nicely.
John Stiles: Yes, very good. If you recognize that where your property fits in, is it A class, is it B class, is it C class, because most of what's being built is your high end A class because that's what's affordable to build in that space. So that's great that those new units are coming on, but they may or may not affect your particular property. So wonderful.
Let's just go back to that topic of business planning. Anything else about business planning for rental properties that you would just kind of highlight based on your experience?
Scott Hoefler: Business planning for rental property, like I said, is having your 'why' locked in and in place so that you can overcome a lot of the obstacles because real estate comes with challenges. It comes with a lot of challenges and if you don't have some other bigger reason for why you're actually investing in real estate, it's going to burn you out. We call it investor amnesia, so when something happens and it sucks and ruined your week because you spent so much time fixing it and then that following week you no longer have the issue because you fixed it and you barely remember it because you're now pursuing more rental property, we call that 'investor amnesia'.
So having that built-in your business plan is pretty nice. But I think oftentimes we have to look at our short term to see how we get to our long term goals. We're always looking at, "Okay, that person has it better. That person has more things going for him. He's got more experience; she's got more money." We always point to other people who are doing things that we want to do, but I think we all have our unique skillsets and challenges and advantages in this marketplace and I think we need to do a good 180 and look at ourselves and figure out, "Okay, what is our skillset? What are we good at? Is it networking? Is it building relationships? Are we analytical? Are we really good at net running numbers and cash flowing spreadsheets? Are we great at podcasts and if we want to get more exposure to the business, let's run a podcast that allows us to get more exposure to the business?"
So there are things that we're good at and if we're looking at other people and saying they have things that we don't have, and that's the reason why they're successful, we're going to lose that way. It took me many, many years to figure that out; probably until I joined Kim's team and she reminded me of the skills that I was good at and to leverage those. So in your business plan, I think you need to understand what are you good at, focus on those to play the rest of it to other people.
John Stiles: Yes. Well, that- I think that's huge. I think that's a great way to be wrapping things up here. We all as humans tend to try- tend to compare ourselves to other people and feel that we're less than because "so-and-so is doing so much better". But yes, it's a good reminder. What are we good at and how can we excel at those things. That's really important. Wonderful. Scott, well I appreciate all the insights you've added here today. Before I let you go, I want to just ask some more questions about yourself give the audience kind of an insight to who is Scott. So Scott tell me, why do you get up in the morning?
Scott Hoefler: Oh yes. Well right now, my morning looks like 2 a.m. in the evening because I have a newborn. He's a month old and he doesn't really know what morning or night time is which has been fun. It means I get a lot of baby snuggles in the middle of the evening. So I say that's the reason why I get up today. Outside of that is we talk a lot about why you do what you do every single day and I have a burning desire to help other people. I think my time is my most valuable asset and I wanted to use it to give it back to the world. So if I'm not waking up in the morning with that fire in me, there's a lot of people that are probably going un-helped because of it.
So I think there is- that feels high level, that feels floofy, but when that bleeds into everything you do, whether it be business, whether it be personal growth, my faith is a huge piece of who I am and I think that if that starts bleeding into other areas of your life, getting out of bed is just going to be exciting every day, even if you have a newborn.
John Stiles: Nice and congratulations on that.
Scott Hoefler: Thanks a lot.
John Stiles: So tell me briefly about who is a person or what was an event in your history that was significant to changing who you are today?
Scott Hoefler: That was a- that's a big question. Immediately off the top of my head because it's helped me solidify who I am, so my twin brother is very important to me and he did a- he did my best man speech at our wedding and up until then, I was like I do things intentionally, consistently for a reason but I didn't really ever know why and I'm going to get to that in a second but he gave this speech that was super incredibly funny. Then halfway through it, he starts degrading himself and saying, "Scott's smarter than me, Scott's always pushing me to be better." And he turns to me and he goes, but the thing about Scott is he never thinks he's better than you. He's never in front of you. He never is trying to lift you up because he's already there. He's always beside you with his hand on your lower back pushing you along."
I think for me, that was a crucial time in turning my mindset to know like, "God put me on this world to help people become the best version of themselves." With my twin brother who's been alongside me for 28 years up to that point, letting me know that's what I'm good at, now I'm trying to have that be and everything that I do is that I want to help other people become the best version of themselves. I think that for me was crucial, to watch somebody I respect so much standing from 300 of our family and friends and say that's the best thing about me.
John Stiles: Nice. Well, that's great. You have such a close family member as a twin, so very good. Thanks for sharing that. Well, if anybody wants to learn more about your philosophy on rental properties or just you're a real estate agent here in the Twin Cities, get a hold of you for that purpose, now what's the best way that they can reach out to you?
Scott Hoefler: We have a website called sidebysidere.com, side by side R-E as in real estate.com. You can also find me at email Scott@sidebysidere.com or I'm really good with text. So if you want to text me, it's my Chicago number at 7733182989 and you'll find that on our website as well.
John Stiles: Very good. Well before you go, I want to give you the official Maximizing Your Property Value mug and I want to ask you quick. You more likely put coffee or hot chocolate in there?
Scott Hoefler: Coffee, for sure coffee and then at four o'clock maybe beer.
John Stiles: Okay, very good. All right Scott. Thank you so much for your time here today.
Scott Hoefler: Yes, John, you've been great. Thank you.
The opinions shared on the show are for informational purposes only and should not be taken as a solicitation for representation or investments in any specific offering. Please consult with your financial legal tax and real estate advisor before making any investment decisions. John Stiles is a licensed Minnesota real estate agent with Bridge Realty.
Thanks for tuning in to Maximizing Your Property Value; The Apartment Owners Guide to Operating Rental Properties As A Successful Business. If you're considering scaling up, downsizing or right-sizing your real estate investment portfolio, it's important to know how to determine your property's value in today's market. That's why I've put together a free e-book for you called How to Calculate Your Investment Properties Value. To get your copy, go to www.realestatestiles.com/value.
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