Making $1,200/Month by Turning His Home Into a Cash-Flowing Rental

Ashley:This is one of the easiest ways to become a real estate investor using an asset you already have.

Tony:Today’s guest is Alex Boing. He just became a landlord. Everything is fresh in his mind to share all of his experiences with you rookie, so you guys can hopefully get your first or your next deal as well.

Ashley:This is the Real Estate Rookie podcast. I’m Ashley Kehr.

Tony:And I’m Tony j Robinson. And with that, let’s give it a big warm welcome to Alex. Alex, thanks so much for joining us in the show today.

Alex:Hey Ashley and Tony, thanks for having me on. It’s great to be here.

Ashley:So Alex, let’s start at the beginning. When you bought your first primary home, did you already have plans to turn it into a rental someday or did that kind of happen about later on?

Alex:Yeah, when we, obviously our first goal was just buying a house, but I think my dad was a landlord, my mom was a landlord. They both owned rental properties. So it was always in my mind that I would do that one day if the opportunity came up. And I think after we were able to buy our first home, that obviously became a reality that if we moved into another house we can rent this out. So the prospect of passive income was always in my mind and I was always interested in that being a part of my future.

Ashley:And how long did you live in this primary residence before you decided to rent it out?

Alex:So we moved in 2019. It was my wife and two kids and they were pretty young at the time and we lived there for about six years.

Tony:And Alex, as you came to the decision of moving from that residence, how did you decide between keeping it as a rental and selling it? Because sometimes you can sell that, maybe use those funds to get a nice, bigger, better primary for the next one. So what was your thought process on keeping it as a rental versus selling it?

Alex:Yeah, it’s always been in the back of my mind that we could make some passive income from our home. And I think that was always something we discussed and that was something that was at the forefront of our minds. Obviously the Denver market was pretty pricey, so we thought about selling as well. But I think the main thing that came up was that we had locked in that refinance post COVID and had a 2.6%

Ashley:Interest rate. Definitely a motivating factor to keep that.

Alex:Absolutely. And I think because you hear for a lot of people, they’re the golden handcuffs or it’s the golden goose depending on what you’re trying to do. And for us, we were like, okay, we’re not going to sell this when we’ve locked in historic late rates. Let’s figure out how we can rent this.

Ashley:So when was that decision made as to, okay, we’ve lived here for six years, we’re going to go and buy another property? What was involved in the timing of that decision that okay, it’s now is the time to turn it into a rental?

Alex:We had been casually looking at getting a new place and it just wasn’t the right time just for us to make a down payment. Just financially didn’t make sense yet. And I think really the biggest precipitator of us moving into our new place was we had our third child and our original starter home. We were just outgrowing it and we had lived there for a long time, so we wanted a little more space. And it was just a matter of what are we going to do with our starter? Are we going to sell it? Are we going to rent it? And like I said, I’ve always had it in the back of my mind. We’re always daydreaming about ways to make that extra cash, whether it’s through stocks or through rental investing. And obviously rental investing and renting out your property is a stable way to go about growing equity and making money passively. So that was always the reality that we would do. And I think we realized once we found the house that that was what the route we were going to take, especially because we locked in that post COVID interest rate.

Tony:We recently interviewed Matt Krueger on the Ricky Podcast and he followed a very similar process to what you just described where I believe Ash check if I’m wrong here, but it was like every year for a decade, his wife and their growing family would every 12 months go move into another primary residence and turn the previous property into a rental. And that he was able to reach financial independence by doing that. But part of the reason that he liked that strategy was because of the financing options that came along with living in that property as a primary residence. So when you guys bought that first starter home, what kind of financing did you guys use to take it down?

Alex:We just did a conventional down payment. We had saved up for a few years. We were very fortunate to just have stable jobs and to be making decent money. And like I said, that first hurdle is always the biggest of buying that first home. But we didn’t do any unorthodox financing. I mean for the second home we did kind of look into home equity loans and HELOCs, but once again, those are additional payments you got to make. And once again, I said we’re fortunate enough to have just been saving and to use that for conventional down payment.

Ashley:And Alex, you say fortunate enough, but also there’s discipline involved there because you have to give yourself some credit as to not just being lucky because there’s a lot of other people that aren’t taking the time to build that personal foundation first to actually take the leap into real estate investing by just going the boring simple path of saving up money and living below your means and budgeting and things like that so that you are able to afford that down payment. Now did you do 20% down or how much did you do down on that first one

Alex:For the property? We just bought our new primary. We did 15% about that.

Ashley:And then for your first primary,

Alex:I think that was less, that was probably five to seven, I want to say thereabouts,

Tony:But I think that’s an important point, right? A lot of people hear conventional and they automatically think 20% down, but you said 15% on this one and five to 7% on the first one. There are options out there at 5% down on a conventional. So Ricky’s need to understand that there’s more than this 20% when we say conventional.

Alex:Yeah, I think there’s a lot of options out there depending on your financial situation and even to just bring up the fortunate, but we’ve just had stable jobs and we’ve been able to have jobs that have given us the luxury to be able to save. But yeah, definitely taken and put in a little way each paycheck. It takes a little discipline not to spend that going out to eat that week, but it’s worth it because you want to live in a nice home, especially if you’re raising a family.

Ashley:Now, when you went to go get the second property, did you have any trouble with the financing as to keeping the first property, the loan in your name, or was there no problem at all with that?

Alex:No, there was no problem with that. Yeah, that was very straightforward.

Ashley:And I think a big thing too is that you went conventional for both loans where we often see it as someone gets an FHA loan, they’ve gotten the low interest rate, they don’t want to refinance out, but then they can’t use the FHA loan again to purchase the second property because they already have it in their name once. So their option would be to use conventional for the second, or they have to refinance out of the FHA loan and go ahead and go into the conventional. So just another reason, we like the conventional loan less hoops to jump through and you still can sometimes get down to 5% for your down payment where FHA is three and a half percent. Oh, we have to take a short break, but before we do, what are the things and the steps that you had to take to prepare your home for your tenants before you actually moved out of the property? Did you have any repairs or changes that you needed to make to the property to actually get it rent ready?

Alex:Absolutely, and like I said, I had three children at that point living in that home for six years. So it was lived in. And when you’re living somewhere when working hard and you’re busy and raising kids repairs and a lot of those things aren’t always at the forefront, oh, this light doesn’t work. I didn’t replace it right away. There’s just things, I have a pretty low tolerance for repairs and that kind

Ashley:You learn to live with things.

Alex:Yes, exactly. But when you’re about to prepare that home for someone to come live there and you want ’em to be happy, you start noticing how many things you might have left or swept under the rug, so to speak. So we had a fair share. We obviously had plenty of cleaning, lots of repairs, painted the walls. We had some plumbing things we needed to fix. Of course there was some last minute maintenance issues that cropped up just as bad luck I would have it, but we were able to get it ready. But yeah, no, there was lots of prep that we had to do to get ready for the tenant.

Ashley:Now did you do this before you moved out of the property or did you wait until after you moved out and would you do it differently if you did it again?

Alex:I think we would’ve just, you can always say this, we probably procrastinated a little longer than we should have. We did have a week gap where we were able to move into the new house and also before the tenant came, I think it was actually, it was more like two weeks the tenant came and the house was just empty and vacant and we were able to go back and just really walk through the house and make sure everything was up to par for her to live there. And yeah, no, it was like I said, I think if I could go back, just giving ourselves more time, it always just feels like a rush during move week because you’re not only preparing the house for the new tenant, but you’re trying to get your new house ready to go for you

Ashley:Coming up, we’ll go through the steps that Alex took to go from homeowner to landlord and the operations he put together from listing the unit to getting the first tenant moved in. We’ll be right back. Okay. Welcome back from our short break. So Alex, part of the listing process is actually listing the property for rent and how much is going to cost. How did you decide on a rental amount to charge for your property?

Alex:Yeah, it was a combination. Obviously we looked at what other properties were going for in the area and what they were renting for. Also, I used Turbo Tenant. I was fortunate enough to have been working for a property management software all in one landlord software for the past year and a half. And I had said that really contributed to me being motivated to do this in the first place. I think it just reinforced everything I had always wanted to do by renting out the property. But I’m just blessed to have had this. I think the biggest thing going into this and renting out your property is you want to have systems in place to be able to do that and processes. And I think Turbo Tenant for me kind of streamlined that and made it all there in one place and I didn’t have to think too much. It kind of holds my hand during the whole process. So in that initial step to list it, I was able to list it through Turbo Tenant. I was able to use a rent estimate calculator to kind of determine what we could rent that for. Also, in addition to just looking at what other properties were renting out for in the area,

Ashley:I actually just did this yesterday on Turbo Tenant. I listed a property for rent and it is so easy just following the process, going step by step. But yeah, and I also use the comparables and looked up the rent estimator. I’d never used it before on Turbo Tenant, but there’s a ton of other ones. BiggerPockets has a rent estimator, but you can do that to pull comms. And then also just looking on Facebook marketplace, I always look there to see what’s listed. I also look on Zillow apartments.com to see what’s listed. And even though those aren’t rented, you can usually tell if it was just listed, it could be a good comparable comp. But if it’s been sitting listed for 60 days and no one’s renting it, it’s probably not a good comp then because that rental price point is probably not accurate. Then another way you can get comparables is calling property management in the area and asking what does a two bedroom in this market go for? What do you have available? Are there even any units available? So you can get also what’s the vacancy rate in that area too, based off of calling the property managers and then posting in local groups, Facebook groups for real estate investors and asking what are other people charging for? Two bed, one bath, X amount of square footage, decent shape in this area, and you’ll get people that respond to. And even in the BiggerPockets forum also,

Tony:Alex, one of the decisions you made was to self-manage. And I think for a lot of folks, even when they’re following your process of buying a property, moving out into a new primary, turning the old one into a rental, they still don’t necessarily want to become landlords. So what was your thought process or how did you come to the decision to self-manage versus hiring a property manager?

Alex:We didn’t have the budget for a property manager. Also, we’re starting out with one property. We’re really attached to that property too. I can imagine hiring someone to watch it. Like I said, we raised our kids in this house, so it’s got that sentimental value that I’m willing to take the extra steps to go there and do upkeep and have a relationship with the tenant to see how they’re treating it. So yeah, I think that played a big part in it.

Tony:I got one follow up for you, so it makes sense why you chose to self-manage. What was your first step in educating yourself on how to do this correctly? Because every state, every city, every county has tenant landlord laws. There’s a certain way you’re supposed to do the listing and the tenant screening. What was your first step in educating yourself on how to be a good landlord?

Alex:It’s one thing to learn about something and read so many books about it, but then it’s a completely another thing to actually do it right. I think that goes for anything, and it was no different in this case.

Ashley:Now, Alex, you’ve had a good support system to help you get started on this track. What about the actual showings of the property? How was your turnout? Did you get a lot of interest? Did you get a lot of applications and were you the one that actually went and showed the property to people?

Alex:Yeah, no, that’s probably the most exciting part of the process for me is because you just get to meet people who might live in your home.

Ashley:This is the one process I avoid doing. I do everything on the computer, but I no to do the showing.

Alex:I’m a pretty social guy and just interested in what people are looking for. So for me, it was really exciting to just meet these people that are going to live in the house that we spend so much time in. But yeah, we had a pretty good turnout. I think we had a good turnout. However, we did have a pretty short turnaround time to avoid vacancies, so that was always the big concern for us. So we wanted to get in as many applicants to pick the perfect one as possible. So we went through, I think ended up 10 to 12 people ended up coming to look at the house.

Ashley:Did you do an open house where it was a window of time for people to, or did you set individual showings?

Alex:Individual showings. So yeah, they would come by and we’d show ’em the place and a lot of just different people in different stages of their life. We had a group of college girls fresh out of college that wanted to stay there. We had a couple families that wanted to stay there. We had people with extended family. It was all walks of life. So once again, which I found interesting, I got to meet these people and eventually we settled on someone who didn’t even come in person to do the walkthrough. I did a virtual walkthrough and that was enough for her to want to rent the place out and she ended up being the tenant that’s there. Now,

Tony:Alex, since you did all of these showings yourself, to me, that kind of sounds like a lot. You said 12, 15 different showings. Would you have done it the same way moving forward, or would you have done the open house that Ashley mentioned?

Alex:I didn’t even think about it. We’re just trying to accommodate people, get them in as quickly as possible. Yeah, I think that probably would’ve made more sense is to do something where they all come at once. However, the tenant who ended up staying there, for example, she didn’t even live in Colorado, so I had to do a virtual walkthrough with her. So that might not have been something that would’ve worked out for her, but I think there’s plenty of scenarios where that would’ve been something that would’ve been more pragmatic to do

Ashley:Wherever you moved to. Was it convenient for you to do the showings?

Alex:I should have said this, the house we moved into is two blocks away. We did not even leave the neighborhood. We’re really happy with the school there. It’s a great little neighborhood. We’ve got a big beautiful lake and we’re pretty much just settled there. And like I said, our kids are both well into elementary school. My son’s about to go into middle school next year, so we didn’t move far. This wasn’t really inconvenient for me. I had to drive less than a minute away to go show the house.

Tony:Ash, what about for you? What’s your preferred way of showing units today? Are you doing virtual remote showings where you’re not even meeting them, they’re doing it themselves? Are you doing open houses? What’s your preferred method?

Ashley:First of all, I’m doing none of them. That’s the preferred method that I don’t do. The last time, the last time I did a showing, we did an open house and Daryl and I did it together, but usually for properties that are 20 minutes or more away, I’ll set it for open houses and we’ll usually do one in the evening and then maybe one a Saturday morning or something. But for other, or we’ll do turbo tenant has the scheduling. And when we use AppFolio, they had that too, where you can set your availability. So we would just do 15 minute windows for an hour and then we would set it so multiple people could schedule the same 15 minute window. So I do think people like to schedule their own window, so I do think that is better for the tenant and you’re more likely to get people than just saying, oh, we’ll be here from five to six if you want to come.I’ve seen better results with more people attending from doing the actual window blocks and them setting their showings. But we only do that with having software that shows and not going back and forth like, oh, are you available at one? Oh no, one 30. Okay, let’s do that. They have to pick from a calendar, just like if you’re scheduling a meeting from someone and they have their availability, that’s the only way that we’ll do individuals showings is setting it that way. But we still kind of block that time where it’s not like you can pick any 15 minutes within an eight hour window. It’s like literally pick a 15 minute window from five to six 30 or something like that. So we know someone has to be at the property from five to six 30, and then nobody books at five, but somebody books at five 30, they don’t have to come until five 30 or whatever. So we’ve definitely done both. I prefer the open house model just to get it all done with, but I think for the tenant perspective, they seem to prefer and you get a better outcome with doing the individual ones for sure.

Tony:And there’s a lot of nuance that goes into that. Asher, I appreciate you walking through that. I think the other piece that I’m curious about Alex though is the actual screening of the tenants, right? Like you said, there is an emotional element to you in renting this house out. So what did your screening process look like to find the right tenant?

Alex:Once again, we used a turbo tenant to screen and it was really useful. We did have a lot of people that, I don’t want to say a lot of people, but several people that didn’t qualify after we screened them, and we did have to deny them. So it was good to be able to check for all that and have a tool where we could jump in and see those things and have it be accurate because obviously we wanted good tenants, we wanted people that would take care of the house and where there wasn’t a lot of risk involved, so that mitigated that.

Ashley:Yeah, and I think when going through the screening process, one thing that’s really valuable for rookie investor to know is what you state laws are, and just fair housing laws are in general as far as when you can deny someone and when you can approve them, there’s a lot of local housing authorities that will give you free classes, virtual or in-person, or they cost $10, or you can go to your city hall and they have pamphlets that’s like a landlord guide to the state laws and know what you can and cannot deny. And then I think setting some kind of metrics like Alex, you said some didn’t meet your metrics or your criteria and having that set and clear as, so mine is, depending on the area, it could be two and a half times the rent or three times the rent. They need to make an income to be able to be approved.Their credit score needs to be sometimes at 600 or above. Sometimes we do in some markets we had gone down to five 50 and above. But just setting those metrics for that area, for that property as to what is going to be approved and what’s going to be denied. And you can even put those right into the listing too, so it’s very clear. And that also can cut out the people who already know they don’t qualify, don’t waste your time for showing they don’t spend the money paying for the application to be completed for the screening. So before you’re even starting to list the property, you should know what your screening criteria is going to be and that it really fits the criteria, the requirements by state and local laws and fair housing laws too.

Alex:Yeah, I think ours were, luckily they weren’t super nuanced. It was like people with an extensive criminal history or even that kind of thing. So it wasn’t anything super nuanced in that way, but it was good to have that and for us to be able to see that this tenant is going to be someone who’s going to take care of the place.

Tony:Alright, up next we’re going to get into Alex’s decision on his next property, which is his new primary. And we’ll cover that right after. Quick word from today’s show sponsors. Alright, Alex, I’m curious, so the new property that you bought that’s two blocks down from your current rental, as you were shopping for that home, were you also thinking about the possibility of that becoming a rental in the future?

Alex:Oh, absolutely. I think, and especially when you’re renting out one and you moved the tenant in and it’s working out, you kind of get excited at the prospect, oh, I can do that with this one. And like I said, I’m excited at the prospect of being able to rent this one out potentially in the future. So it’s absolutely in the cards to do that.

Tony:Just one follow to that, Alex. I’m curious, since you had that in mind already, were there certain things that you had maybe learned from your first primary to rental experience that you’re like, okay, we need to make sure that we have this in the next property that we do this primary to rental in?

Alex:Yeah, in a general way. I will say luckily the house was just an overall upgrade as it should be if you’re moving into the next place. So it was a newer house and it was way better kept up. There was so many less repairs and maintenance that needed to be done on move-in or that we even had the inspection process was so much cleaner and just overall a better experience than our first house. I think our first house loved it at the time and we were super excited about it, but there were a lot more things that came up during inspection in the new house. It was the best inspection experience I’ve ever had. We hardly had to ask for anything, which was awesome to have happened for us.

Ashley:Do you have a plan in place for how long you want to stay there?

Alex:No, and I think that’s where kind of the personal aspect comes in, because I would love to be able to rent out this place when the time comes, but we’re even closer to my children’s school, so they’ve started walking to school. So that kind of comes into place and we’ll definitely be all the way, or at least in this location for the next several years till they’re through middle school because that’s where school goes all the way up through eighth grade. I think maybe once we’re choosing a high school forum, then the possibility of moving again and renting this one out would come up.

Ashley:Do you foresee yourself buying other rentals outside of them being your primary residence?

Alex:Yeah, that’s definitely something I want to look into more. Once again, I think you grow up and you think of ways to make money outside of your passion. My passion has always been producing videos or music and that kind of thing. I’m in that creative sphere, but in addition to your nine to five, you’re just thinking, oh, how can I make more money? And real estate is always doubted as the most stable way to do that. So I’ve always thought about it and I think just working here and hearing influencers such as yourself, talk about how they did it has piqued my interest in just buying a property as a rental.

Tony:So I think my last question for you, Alex, is do you have any maybe last minute advice for Rick’s who are thinking about turning their current primary into a rental from your experience going through this for the first time?

Alex:Yeah, I mean, I would say it’s funny because I think it brings me all the way back to my first jobs that I had in customer service. It feels like a very customer service oriented business when you rent it out. Specifically for me, like I said, everything from the showings to hearing your tenant ask for requests and accommodating that to make sure they’re happy. I’m still in customer service to a degree, or at least that’s how it felt to me during the process. So treating it that way and having respect for the tenant as a customer, I think that that would be the biggest advice I have for someone. It’s not something where we say you’re making passive income, which is true to a degree, but I still think you’re actively having to participate and make their experience better if you want to have a successful business.

Ashley:Now, Alex, the question that everybody’s wondering is what is the cashflow on this property?

Alex:Okay, yeah. So our mortgage for the original property was 1800 and we charged rent for 3000. So it’s at $1,200 cashflow.

Ashley:That’s great. That’s awesome. We shoulda have started the episode with that. And I’m assuming your mortgage payment, does that include escrow, your insurance, and your property taxes?

Alex:Yep. Yeah, yeah, yeah.

Ashley:Wow. That’s great. Congratulations. Well, Alex, thank you so much for joining us today to share your experience getting your first rental property. We really appreciate it. We love when rookie investors come on right after they got their first deal and it’s fresh in their memory. So if this is, please go to biggerpockets.com/guest and fill out a form to come on just like Alex did to share his journey. Alex, where can people reach out to you and find out more information?

Alex:If anybody has any questions or can take any value from my experience, you can shoot me an email at [email protected]. Would love to help anybody on their journey if I’ve got something, a value to offer.

Ashley:Well, Alex, thank you so much. We really appreciate it and you provided a ton of value today for our rookie investors. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode of Real Estate Rookie.