The inspiring interviews with today is Top Landlords, This is the Rental Income Podcast and now, damnly David, what do you think the greatest part of owning rental properties is being able to have incremental increases in rent which add up to a lot over time. Can you give me an example of how you've been able to raise rent and it's really made a big difference for you. Sure, we had our first purchase of a twelve unit building where all the apartments
were going four one thousand dollars a month. We raised them each year, and now they're producing twenty five hundred dollars a month across the board, and that really adds up. That's a huge difference. That's a building that was producing twelve thousand dollars a month in rental income and after a number of years and after a number of rent increases, it's now producing thirty thousand dollars a month in rental income. Rental properties really are the ultimate get rich slow plan.
And on the show today, we're going to talk about how David has built a lot of wealth by just making sure he raises rent just a little bit every single year. On the podcast today, we're going to talk about how he does it, how he figures out how much he's going to increase rent. We'll talk about how he talks to his tenants about it, and how he avoids turnover. Turnover doesn't seem to be a big issue for David.
It's something that I think about a lot that I'm always maybe a little bit cautious with raising rent because I don't want to lose a tenant, because if a tenant leaves, it's going to cost me money to turn over the property and I'm probably going to have some vacancy. And I wouldn't say I'm afraid, but a lot of times I'm cautious about raising rent. But I might be leaving a lot of money on the table by thinking that way.
So on the show today, we're going to talk about how David is doing this and how he has increased his rental income by just raising rent every year. Joining us on the show today from Boston is David mar we'll take a break to thank our sponsors. We'll come right back and we'll talk to David.
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dot Com. Again, that's the Guarantors dot Com. It's a lot of work to find a really good rental property, and when you actually find that property, you want to make sure you're working with a lender that can get that loan closed. The lender that I recommend is jay Ley Ridge from Ridge Lending Group. She's a nationwide lender and her specialty is helping investors finance rental properties. She has a ton of loan programs and she can find something customized
to you for your situation. If you want to find out more or you're ready to get started today, just go to Ridge Lendinggroup dot com. That's our Idge Lendinggroup dot com. N MLS four two zero five six Rental Income Podcast, David, let's start off talking about your portfolio. What does your portfolio look like? So I have a joint portfolio with my brother and we have about two hundred and twenty residential units consisting of a lot of two families,
three families, and six families. And then of course some buildings in the Boston area and kind of the greater Boston area. What are the neighborhoods like? The neighborhoods are probably top notch. They're all located near public transportation in the Boston area and near some universities and hospitals and biotech firms as well. So a lot of like condos that are also located near these properties. But youthful twenty five to thirty five year old neighborhoods that you know people probably
an average income of one hundred thousand plus. So these sound like they're a class neighborhoods. They are definitely eight class neighborhoods I would consider. Yeah, and then for the inside are you going with like top end finishes, granted countertop, stainless steal appliances. We are we've back in the day we kind of we're just getting it rented and doing the basic thing is coming in and doing you know, the floors over putting new windows in and then painting the
place. Now our focus has kind of shifted over the last eight to ten years where we're putting the kind of condo quality finishes into apartments and we're seeing those returns of the demand for people wanting to rent them. And are you doing this full time? Doing it full time? Okay? Awesome? And your brother is too, he is, yep, we're both in an office together. How is that working out? Like that family dynamic where your family
and you're investing together. Is everything going? Okay, it's fantastic. My brother and I have a great relationship. We see eye to eye. We discuss certain properties and if we want to make a purchase on one, we run the numbers. So it's kind of like clockwork now, which is nice. That's great, awesome. Now, I always hear on the show that you know people say that you're going to get the highest return on like a C class property or maybe like a B minus type property where maybe the neighborhood
isn't quite as nice. But obviously you guys are doing really well with A class neighborhoods. Why do you think people think that you can't make money with an A class property? Maybe because they think you need to spend a lot of money to make that money, which it depends on everyone's situation in their real estate portfolio, how long they've been doing it. But what we've learned is that the higher quality apartments you tend to get, the higher quality tenants
who become less less of a problem that you know down the road. They're just it's they're focused on their careers, but they want a nice, comfortable place to live. And for us, it's turned into less maintenance, believe or not. Over the years, you know, some of these lower class apartments that we've had just constantly, you know, being called to go over there and fix stuff up. And we realize that once you kind of upgrade
plumbing and electrical that that things kind of run smoothly by themselves. So trying to get maybe a little bit higher return for maybe a cheaper property that's maybe gonna be a little bit more hassle, like that's something that doesn't interest you at all, correct, Yeah, And there's a market for that, and I get it, and I get where people own property in different states.
They don't really even drive by the property and everything. We're more focused on being able to get access to a property if we need to and kind of more of a hand on service. Yeah. Yeah. So and the other
thing too. I think, you know, if you're looking at a property they say in a class property versus a C class property, your cash flow on the C class property is probably going to go up a little bit over time, But I think you're going to get way bigger increases within a class property because you're your tenants are more affluent, they have more money, They're going to be able to pay those higher rents. That's just my impression.
Is that true? That is what we have seen. Yes, you know, we have a lot of twenty five to thirty five year olds who three roommates will live in an apartment together, but they'll pay fifteen hundred dollars a bedroom for that. Wow, they're able to you know, it checks their box because they're able to, you know, they don't have to pay twenty five to twenty eight hundred for maybe a one bed, But so they're able
to save some money with their great incomes. But yeah, and less maintenance, and it's just more of a focus for that particular type of tenant where they do want to hire end it yet and the increases tend to in rent tend to keep going up a little bit faster than those C class ones. Now, I want to figure out how you're pushing the rent and I think
that's made a huge impact on your your bottom line. So when you're looking at raising rent every year, is there a certain dollar amount that you're pushing for or do you just look at the market and see what you think you can get for a property. Yeah, so the rule of thumb would be around you know, five to six percent, okay, and based on the rent you can kind of do the numbers that way. You know, some of these places are trying to bring in potential rent control, which if they
do that, that number is still around five percent increase. That's kind of what you're the maximum what you're allowed to charge for us. It kind of depends on we have some so we don't we have probably you know, between two hundred and twenty units so you have a number of people that just move on every year. You know, we're we're kind of a stepping stone to
home ownership, and we get that. So that allows us in some of these properties where if a rent to a certain level, that we can contact our realtors who show up and say, this is what your comps are in the area. You could probably be charging this, And if people who are naturally moving out, we can just raise the rents to that that new market
level. If we at tenant is interested in staying, we tend to just raise them, you know, that five percent charge, and they're pretty comfortable with that, and that that allows us to you know, kind of keep a certain amount of tenants that we don't want to stay a couple of years, maybe longer than they than they planned. All right, So you'll get five percent if a person is going to stay, but you'll get an even
bigger increase if you're going to turn the property over. Yes, And and the nice thing is it's not even you might have to go in and you don't have to do a complete renovation of the product of the of the apartment, but you know, a clean up and everything like that will sometimes produce you know, the ten, ten to fifteen percent more in return a year, which is really nice. Yeah, not in every case. But the important thing is, and I hope you know everyone out there who's listening,
you know you do have to raise rents. I think a five percent is a good way to explain tottendance that this is. You know, spences are going up, we have to raise rents and in some cases, you know, you really should be bringing rents to market level, but you want to be fair to fair to tenants, and you know they're going through stuff as well, so it's kind of a give and take. Yeah, I mean,
you know, I'm just kind of thinking through my head here. You get a five percent increase on your rent, like that's significantly adding to your your cash flow. But then when you compound that over a five year period or a ten year period, I mean that that really become a significant amount
of money just getting those those increases every year. Oh absolutely. I mean, if you know you have an apartment that's one thousand dollars for a one bedroom, you know, you know raising it, you know, fifty bucks for five percent, then you know in ten years you're at fifteen hundred now, right, right, And so all of a sudden, and think about that, how compounding you could do that over all of your portfolio. And yeah, so yeah, I mean with two hundred and twenty rentals like that,
that's a lot of money. But even for someone that has one or two properties, I mean, that really is a significant difference in in your cash flow. There's no doubt about it. And you start to notice it. And and you know, don't be afraid if a tenant says they're going to leave, and you know, you know, you have your channels, have some good realtors that know the market that come in take a look. Maybe they can give suggestions, and you never know, sometimes it's a blessing
when somebody leaves because you're bringing stuff back up to market rent. And I
get it. We have relationships with tenants that over the years. And you know, so the key is to be fair and you want, you want to you know, cater to them, but you also have to you know, it's kind of you want to get as close to market rent as you can, right, right, So when someone first moves in, do you tell them, hey, that the rent is probably going to increase in year number two, or do you have that conversation as that the lease is coming
up. Yeah, so there's I've seen you know, landlords in the past kind of put it into the lease itself, saying we are going to raise this five percent a year just based on you know, expenses and market stuff. We kind of do it. As the lease is coming to expire. We kind of say, you know, what are your plans for housing next
year? Are you thinking of staying or going? And everybody is different by case by case, and you know, at that point, if they decide to stay, say well, we do have to raise the rent by about a hundred dollars a month or whatever it is. And that tends to you know, people seem to be satisfied with that. I like that. So that that's more of a conversation that you're having with them versus them just getting a letter in the mail saying, hey, your your rent is going up
by a hundred bucks. Yeah. It's it's less robotic, and it's it's kind of giving them the option because again, usually the question is, oh, how much is the rent going to go up? And you know, so we kind of give them there they're based on our numbers we're running it. But yeah, it's a case by case, and I think it's important to have that conversation with tenants because it's just less abrasive, but it gives you the option still to say, hey, you know, this is what
we're thinking. So you know, you put the ball back in their court. And when do you have that kind conversation. Is there a certain days before the lease expires that that you you have that conversation. Yeah, it's usually about ninety days. We kind of put that into the claw onto the lease, kind of say, you know, tenants should notify us ninety days if they want to stay or go. They rarely do because life happens.
We get it. But we have a system where, you know, each month, we'll have different leases expiring in different months, and you know, so my brother and I go down and kind of go through the list and say, okay, this is what this is, how long this person's been here, this is what they've been paying. You know, let's find out if we want to stay or go and then kind of adjust our numbers accordingly.
Now, one thing that I always look at when when I'm renewing a lease is I always want to keep that tenant because when I look at my expenses, the turnover costs are always it's really my biggest expense. When you look at you you're probably going to have some vacancy, you might have to do some touch up, paint, some cleaning. So I always tend to to not push the rent if I have a good tenant that's paying on time. Do you think I'm maybe leaving a lot of money on the table by
not going for those rent increases every year? I do think so. I think. I mean, if your place is in pretty good shape, you
are going to have to get like a cleaning service there during turnovers. And maybe you know, we kind of use it's funny, we kind of use the same paint color everywhere, and then we kind of have so we have a whole network of you know, cleaning cleaners and painters that we can kind of send in and we kind of know the cost going in and for us, you know, incurring you know, one hundred and fifty dollars cleaning charge
and maybe you know, not a whole paint job in our apartment. But depending on the situation, you know, for us to spend one thousand dollars, you know, if you're not doing any major renovations or anything like that. That's to us, it's well worth it because you're you're you're kind of freshening up the place. Someone now moves in and say you were getting one
thousand dollars, Now you can probably get twelve hundred for it. Right, You kind of go there and now they stay, and then you start increasing them slowly based on expenses and stuff. And I get I get good tenants. We've had tenants who are you know, fifteen to twenty years. But I'd say my biggest advice would be to get a decent realtor. And on Boston has a very strong rental market for brokers and realtors, and they kind of know the market very well, and they hungry because in Massachusetts, the
tenant pays the broker fee to the broker. Oh so it's not costing you anything. No, do that okay? Fact? Yeah, and so it's there, you know, they would they they obviously call us even six months out of I'm before leasa's end and say, you know, do you have
any idea what's happening? So they want their inventory and when we're kind of question and we say, oh, I don't know, what do you think, is this apartment we could get for this, and we bring them in and then they give us the comps and oftentimes the number is a little higher than we even expected. Right, Yeah, that makes a lot of sense.
And so so for the way that your management is set up, your realtor is leasing the property, doing the marketing for doing the showings, and then when they find someone that's qualified and able to or wants to rent the property, is that when you and your brother would step in to get the lead signed. Yeah, So they send over the paperwork and we look at the application, we look at the credit check, and then we kind of give the approval or not approval. Most of the times it's it's it's good
to go. I like using the realtor. And maybe every state is different in America, but I like using the realtors that it kind of takes you out of it and it's more business when they use people go through a realtor. And it also people feel comfortable going through a realtor because it kind of holds them accountable because say on moving day, the place is just a disaster,
and they say, what's going on here? I paid you that, right, you know, So it kind of forces us that we can concentrate on getting the apartment turned over, getting it ready satisfactory, and a lot of times when people come in, they you know, it's better than they looked because they kind of looked at an apartment that was maybe a little messy and stuff like that. But it kind of allows us to focus on what
we need to do. And then more the business side, the realtor takes care of and so it brings a third person in and people, actually, you're pretty comfortable with that. Yeah, I mean that that's a great way to do it, and especially you know, with the tenants paying for the realtor, I mean that that there's no reason not to do that. So let's take a look at one of your deals, and you know, maybe we could look at your very first deal. What was that? What what
kind of property got you started? Sure, it was a it was a three family and the purchase price was three hundred thousand. Worked all summer, fixed that up, rented it and the rents. I actually lived on the first floor, had a couple of roommates, so I got the first floor. I was I was collecting fifteen hundred dollars on the second floor. I was collecting fifteen hundred dollars, which was a two bedroom, and on the top floor was a three bedroom. I was collecting twenty four hundred dollars and
my mortgage was about twelve to fifty a month. Wow. Okay, And so you were living in one of the bedrooms in your unit and then renting out the other two bedrooms. Yeah, so exactly. So for me, I didn't want to live at home. I said, I'm gonna live one of the bedrooms and I'm going to rent out two of the bedrooms. And I think they were like grad students who went to Harvard University, which is down the road. So yeah, so that's kind of that was my route.
Wow. I mean so that that property was was very profitable right from the start. It was. Yeah, it was. It was you could get not a lot of people, I feel like, but there was a lot of course, you know, landlords, but to have like the suggestion of my father to you know, live in one of the better rooms, rent out the other two, and then rent the other Yeah, there was
just a demand there. And I don't know if it started turning you know, the late nineties into two thousand, but you know, that was certainly certainly a home run, and it was able to kind of springboard me and it's kind of teamed up with my brother. We had some other assets that my father had as well. He was he was with us as well, so you know, kind of an interesting journey. All right. So you're living in that property and you're you've got fifty four hundred dollars a month in
rent and how much was your mortgage payment? Sure it was twelve fifty, well fifty, okay, so you've got profit of like four thousand a month on that property. So what were you doing with that money? Saving a certain serve for more properties to buy that I would kind of go in jointly with my brother and my father who was around at the time. Yeah, I mean, what a what a great start. I mean, that's that's awesome. Now, Yeah, I'm sure you've been raising the rents on that
like we've been talking about here, how much are you getting? What's the total rent for that building today? So in hindsight to the building, the three family did go over a kind of a major renovation rather recently. It was kind of you're talking you know, plumbing and electrical that the house was probably built in nineteen fifty and so it was time to kind of renovate. So I did renovate it, and I did spend some money to redo that
house. But the current rents now is forty five hundred a floor, so around you know a little over thirteen thousand. Wow. So that that building went for making fifty four hundred a month to thirteen thousand a month in about twenty four years. Wow. Incredible. Now what about appreciation. I know there's been a lot of appreciation in the last twenty four years. How much has that that property appreciated? So it went from about three hundred thousand now
it's worth about one point eight wow. Wow. And the reason it's head high is that, you know, the rents are supporting that, the rent of right, and so someone who was interested wanted to buy that, they'd say, okay, what's the rent roll been, and yeah, that does support it? Well wow, And how much did you spend on the rehab?
About five hundred thousand? Okay, okay, so all right, so you you you're all in five hundred thousand for the rehab, three hundred thousand for the purchase, so about eight hundred thousand, and it's worth one point eight. So this property is appreciated a million dollars. Yeah, and then they're still spitting out you know, yeah, right, thirteen thousand a month. Incredible, Yeah, it's yeah, it's been a good, good formula.
Yeah, yeah. So do you see any endgame in this? I feel like you've got such a great system going on, Like do you see yourself buying more properties or are you you happy with your portfolio right now at the current moment, We're certainly happy where we are. We still have a number of properties that again now they're looking like since we've actually like done any type of upgrade, you're talking fifteen twenty years. So again, fully rented
people will take that. Those rents tend to be a little lower if we want to go in and sometimes we don't have to renovate the entire house and spend five hundred thousand. Sometimes we may just be putting in central air and heat, and then you know, putting in additional bathroom or something, and
you might spend eighty thousands and that can transform a property. So for us, I think we're comfortable now keeping where we are and redoing some of our older houses that we own, and we'll see down the road if we want to expand a little bit more. It really is mind boggling how much money you can make with rental properties. I mean to think that every single month for the last twenty four years, this property has produced cash flow, and
now it's appreciated a million dollars. I mean that is that is really incredible. It really makes me want to go out there and buy more rentals. If you're on the fence about buying your next property, hopefully this inspired you and if anybody wants to reach out to David, I've got his contact information on the website. You can find it at Rental Income Podcast dot com slash episode four fifty seven. I'd also like to thank our longtime sponsor Chayley Ridge
for sponsoring today's episode. If you're looking to buy a rental property, whether you're just getting started or you want to add to your portfolio, reach out to Chailey. She's a nationwide lender and I know she'll take great care of you. You can find out more at Ridge Lendinggroup dot com. That's our Idge Lendinggroup dot com. NMLS four two zero five six. Thank you so much for checking out the podcast today. Make sure you follow the show.
I put out a new interview every single Tuesday, and if you're following this show, you'll get notified every time an episode comes out. My name is Dan Lane and this has been the Rental Income podcast