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Excerpt
Sean: How many more did you buy before you finally exploded and had 3,500 rental properties?
Lane: Can I get one thing check, like I’m not like a wholesaler or a flipper. I buy and hold properties. I put down the 20% down payment and I could do that because I had a good paying day job where I was able to be frugal with my money and save it to put on down payment. I mean, I was lucky enough to be able to say that at least 50 grand a year to buy investments. So, but even at that pace, it took me about seven years to get up to 11 rental properties. You know, cause the first three years, you know, I bought one and then I had to wait a couple of years to buy the next one. It’s not a get rich quick thing that’s for sure.
Sean: I’m sure and you do a lot of homework before you buy a certain property. What are some of the key things that you look at in order for you to decide once you put in the down payment? That’s pretty much it, right? Cause that’s, you know, the deal’s done, your money’s there and you have to pay a mortgage. So what are some of the key things that you look at before you finally decide, “aha, this property is going to be good passive income for me” ?
Lane: I didn’t know a lot of that stuff when I first began, but the kind of the biggest one is the rent to value ratio. We don’t buy anything today that’s not, that’s under a 1%rent to value ratio. So you figured this out by you taking the monthly rent price, dividing by the purchase price. So for example, a hundred thousand dollar property that rents for a thousand dollars a month. That’s a thousand divided by a hundred grand is 1%. So a lot of places like California, you might find a $400,000 property that rents for 2000 and 2000 divided by 400,000 that’s half a percent. That ain’t going to work for cashflow. You know, we got to kind of find properties that would make the numbers work out that way. And of course we try not to go into bad areas. We try to stay with good stable tenants, good areas, but we get the numbers where it works.
Sean: So I’m wondering now how you manage 3,500 plus properties because you need to collect from your tenants. You need to make sure that you’re able to address some of their concerns. That’s a lot of tenants that you need to handle.
How do you do it?
Lane: Well, I don’t do anything, man. I mean, I just have property managers to do it just like from the beginning for property managers, somebody who, you know, you pay. Usually about 10% of the rents and the property manage, they manage the tenants they manage the day to day. You know, the issues that happen at night, I don’t really deal with any tenant tenants, termites or toilets, as they say. Today, we’re kind of running more of a sophisticated model where we bought in large apartments, we have more sophisticated commercial property managers, and we have another layer of staff in between there to direct the property managers around. You gotta be an investor, not a landlord, right? You gotta pay people good money to do this work for you. In that way you’re able to scale. Most investors only have one or two properties. To me, that’s not the way to do this business.