Interview with Russ Haims and Mike O’Rourke
The combined 60 years of experience of Russ Haims of Hampton Properties LLC and Mike O’Rourke of Worcester County Management, Inc. and O’Rourke Construction Services, Inc. was on display, as each have each separately mastered their businesses. Rich Merlino was ecstatic to interview the pair. Under their tutelage, the audience eagerly listened and noted the invaluable advice that these two had to offer.
60 Years of Experience: Interview with Russ Haims and Mike O’Rourke
Rich: Okay, so the guys we have here talking tonight we have Mike O’Rourke, who is on the board of this organization, so let’s give Mike a hand [applause] and Russ Haims, also an investor super experienced, very lucky to have him. He’s a busy guy. Let’s give him a round of applause [applause]. I’m not going to give you their whole story because they’re going to give us their story. We’re going to start off by talking about a group that I think it’s safe to say is on everyone’s list of favorite people, that’s teenagers. Anybody I’ve talked to who’s had the privilege of having one or two or God willing three of these mysterious wonderful creatures say it’s such a good time that the only thing they wish was they could have was 497 more of them simultaneously, of course I’m talking about student housing. Russ Haims, why would you do that yourself?
Russ: You know I’d like to say that I did a long time ago switched to student housing because I realized I started in the ‘80s and took a big hit with the economy. People lost their job and I suffered a big vacancy but friends of mine that had student housing were unscathed by the economics and so it stays kind of recession proof. If they can’t find jobs, they stay in schools. They can’t pay tuition, they get loans, and so it’s kind of a constant demand, so I put up with some with the immaturities and so forth, but I get their parents to co-sign and all that other stuff, so we got third parties sort of influence. That’s why I put up with it.
Rich: Got you. Okay, well –
Russ: But I don’t rent. We have an addendum that says no open parties and if they don’t want that, they should go apply somewhere else, so we’re very strict. We just don’t take the rent and look the other way.
Rich: Got you. Well, we’ll definitely get into more detail about that stuff.
Rich: Another topic that we have to discuss and it goes something like this: imagine you’re sitting in a nice lounge chair on your front lawn. It’s a nice summer day. You’re enjoying the breeze. You’ve got a cold beer in your hand. You see a dump truck at the stop sign in the corner, and it’s a manure truck. You wave the guy down and you say, “Don’t drive off with that. Bring that over here. Back that up.” And the guy dumps it all over your front lawn and it gets all over you and gets in your beer. If anybody is familiar with it knows what I’m talking about: receivership. Mike O’Rourke, why would you do that yourself [laughter]?
Mike: Well, our neighborhoods are rundown, some of them and one of the things that the city is trying to do and really the town at, too, they’re trying to fix up these areas and these houses. A lot of these houses have tenants in there. The banks say I’m not doing nothing. I’m in the process right now of doing a duplex and there’s an owner on one side and the other side, the owner walked away from it, so the owner that’s living there has called the bank for the last 3 or 4 years that there’s leaks in the roof and the house is being flooded. But there is a guy living in there – no bathroom, just coffee cups and beer cans, so basically the courts appointed me, I went in. I got the gentleman out. I had to [unintelligible 0:03:40] the house, and this is one way of getting this back on the tax roll. The bank is taking any, paying the taxes. They’re not paying the water bill. They’re not in Worcester. Their bank is out of Boston, and they really don’t care about the property. Now they’ll tell you well we can’t do nothing because someone still owns the property. The guy that owns it right beside it, he’s had leaks for 5 years going into the house. There were big holes. If the fire department ever went there, they would have gone in right through the roof. I think the bedroom floor is up because you couldn’t walk in the bedroom floors. The water for the last few years rotted everything away, so this was a danger.
Then I talked to the fire department. They can’t put an X on the building because there’s somebody living next door, so they had to warn their employees, the firemen and then we went in and we straightened out massive mold and everything. The only good thing the mold didn’t go into the other person’s side. It stayed to this side, but we had to do the roof. We had to gut the whole house. We had to do mold remediation and the bank still gave me a hard time before I took it over. They wanted to get it back and do the work themselves, but they didn’t come forward for 5 years, and now 4 or 5 years, they didn’t come forward, so why do you want to come forward today? Because the city stepped up to the plate and gave it to somebody.
Rich: Well, that sets the tone. Oh, my lord. Okay, so long have you been in real estate and how did you get started, Mike?
Mike: I’ve been in real estate since 1975. I bought my first house in Vernon Hill in 1975. I bought it at June 3rd. It was 2:00 in the morning. I left for Ireland that afternoon and I went away from the house, didn’t think about the house or nothing until by June 28th. Then I came back and met my tenants and got my rent, so that’s really how I got started. My father had a close eye for me, and he had no problem with that. I bought my second one, then I bought my third one, but the bank said you can’t have it. So, I just said why can’t I have it? I’m doing all right. Well they thought I had too many properties and I was too young, so…
Rich: How old were you?
Mike: Eighteen, but I had paper routes. I worked for [unintelligible 0:06:03].
Rich: You put your paper routes on the mortgage application?
Mike: Yeah [laughter]. But I had good jobs as a young kid. I had worked. I shoveled snow. We snow balled. We did everything, so I had money in my pocket. So anyway, we had this bank [unintelligible 0:06:20] a local bank and I had two of my mortgages, so one of the guys said to me, “The reason we’re saying no is we think you’re too young.” So I called up the realtor. I told the realtor that they’re not giving me. She’s okay, so she called the owner of the property and said he can’t buy it they’re giving him a hard time.
So the owner of the building called the president of the bank and said, “Could you have a check for all my money in the morning? I’ll pick it up.”
And he says, “Can I ask you why?”
“Well, I have a person who wants to buy my building and your bank doesn’t want to sell it to him and he’s got great credit.”
So the next thing you know the next morning, I get a call. “Come on down and sign the papers.”
Mike: So it just means that if you got the money, it speaks.
Rich: Can everybody hear Mike okay in the back? Yeah. All right, good. Russ, how long have you been doing this and how did you get started?
Russ: I bought my first property in May of 1985. I was 24, and I just realized I wanted to do something that was going to be my own business. I’ve never had a real job, never had a paycheck. That’s all I’ve ever done. I grew up in an entrepreneurial family, and my father kind of encouraged me. “Look, –” this is before the Internet and so forth, “this is the way it sort of guaranteed wealth and security.” He didn’t say of the headaches that came with it, but he said, “Look, right now, like any other business,” I was a kid, “basically you’re not married,” and I just went on unbridled, but I started off in Fitchburg and Leominster, thus all my gray hair [laughter]. That’s where I started carrying a gun on a regular basis. I don’t do that anymore, but I bought in some of the toughest areas and learned quickly how difficult it can be if you don’t have the right restrictions and the right methods. It became stressful.
Rich: I know a property manager who collects rent in Fitchburg now and he says he straps one on every time he goes out, so I can understand that. So that’s how you guys started. Roughly how many units do you have now? How many do you manage? Do you manage them for other people? Do you manage them for other people? How many have you sold? That was like seven questions. Go.
Russ: All right, I’ll start. Currently I have 114 units that I own. I manage another 23 or so, and I have another 30 in the pipeline I’m due to close on in the next month. But since just 2000 in Worcester, I purchased and renovated 325 units in the city just since 2000. Many have resold owner-occupants, first-time homebuyers things like that. They love that with singles and triple-deckers. I like to renovate. I’ve never built a thing but I’ve renovated a tremendous amount of them, yeah.
Rich: Got you. What kinds of properties do you find that you renovate the most?
Russ: The multi-families. I’ve done some single families, some that stand out like on Salisbury Street, that mansion 251 Salisbury. I’ve gone to the high-rent districts, but it’s mostly the inner cities or the triple-deckers, and I used to sell those to a lot of first-time homebuyers since that was the most affordable option.
Rich: Sure. That’s awesome. That’s how I got started.
Russ: That’s how I started. Yeah.
Rich: I thought I was a genius. I was like I could live on the first floor, rent out the other two floors. My mortgage would get paid. I better hurry up and get one before somebody else figures this out. Apparently like 4,000 other people had already figured that out. How about you, Mike? Same set of questions for you.
Mike: I have 200 units, 60 buildings. I have right now five receiverships. I’m one of the largest receivers in Worcester and Worcester County. Some of the towns call me and do it direct. Some of the banks even call me before it goes to court now because they try to avoid the court. Even if they call me direct and we go into court, and they ask the judge. The judge usually appoints me. I did the Albion there when they were having trouble. I did it for I think 3 months; they had no license or anything. I did it. I met with the city, and I was advised right that day if you do it and it works out good, you’ll look like a hero. But if you do it and it comes bad, you’re going to be in trouble. It worked out good.
They were good guys to work for. We straightened it out. We had to bring in the police and have our paid details and cleaning companies and stuff, but we did it and it worked out good. I thought the cleaning company was a local. I try to use all local people if I can to Worcester. I told the cleaning company all I want to smell is bleach. When they started the top floor, come down to the first, I want them to come back again and start over and they did that for a week. I said I don’t want no one complaining. It’s bleach and that’s what we’re going to smell, and that’s where we left it. But they got their license and they’re up and running.
Rich: All right. So you mentioned hiring a lot of people, local people. Do you have employees of your own? How many do you have?
Mike: I have four employees of my own
Mike: And I have three general contractors as subcontractors, then I have a plumber and I have two electricians and they are subcontractors. It’s just if I don’t have work, I don’t have to say, “I’m going to lay you off. Stay home today.” These guys go and get their own jobs. If I call, if it’s an emergency, they’ll come to me within that day even if they do it in the evening. But some day it can wait until tomorrow, they might blow it off until tomorrow, but you know, okay.
Rich: Okay, all right. You have a relationship with these guys. How long have you been with some of these contractors?
Mike: The longest one probably about 15 years.
Rich: Fifteen years?
Mike: Yeah, but I’m always on the lookout to get somebody else get another person on board just in case something was to happen.
Rich: Sure, and they get back to you the same day.
Rich: Because like I’ve struggled with some of them.
Mike: I got their direct phone numbers.
Rich: To hear back like the same quarter?
Mike: [crosstalk 0:12:10] Sometimes they answer right away.
Rich: That’s awesome.
Rich: Because you give them a lot of business and you developed a relationship with them?
Rich: Nice. Okay. You pay the bills, you write the checks?
Mike: [laughter] Yeah, that’s the main thing.
Rich: Okay. How about you, Russ? How many employees do you have? What do they do?
Russ: Sure. I have a fulltime property manager, who happens to be here right now. Taylor Bearden, raise your hand. Right there. Young and intelligent and he gets it, tech-savvy and simplifying my life. We have some other part-time employees that sort of help in the office and help with the tenant relations, so to speak with communications and so forth. We hired a fulltime maintenance person. I was tired of the subs being tied up on other jobs. I said, “Look, even if don’t need someone fulltime, I need someone dedicated to being responsive immediately.” That’s a very important part of our service agreement with our tenants, sort of it’s part of what we’ll talk about later I guess as part of the question.
Rich: Yeah, absolutely.
Russ: And I have a full crew that technically are subs but I keep them busy year-round so that’s a company that has at any given time 8 to 12 people on-site working on different projects constantly.
Rich: Okay. So you both have a sizable group of people–
Rich: That you can call on even if they’re not employees?
Russ: But you always need choice A, B, and C because you don’t always get that phone call back right away because there’s personal issues or they’re stuck in other jobs. You can’t expect them to just drop what they’re doing.
Rich: For probation officers.
Russ: Right, ex-wives, things like that, child support issues, yeah any of that.
Rich: Got you. Of all these people that you work with who are your employees, who is the dumbest one [laughter] or at least what’s the dumbest thing they’ve done? At least tell us that. I know it’s hard to choose [laughter].
Russ: That’s a deep topic, but I will say this: I’ve learned without giving specifics in this last year having the right people is key to the success of this business. Keeping someone on and tolerating but someone who keeps making the same stupid mistakes is a foolish game which I am guilty of, and I just have relationships with people. I trusted them and yet they kept screwing up and/or harming my relationship with my residents, and I just kept on after the fact I said that was foolish.
Rich: I’ve done that.
Russ: So don’t tolerate repetitive stuff.
Rich: Yeah. How about you, Mike? Do you agree with that?
Mike: Yes. One of my big pet peeves is I was out the other night in the snow, and I go out. I don’t stay home and worry. I go out, be the one to know what’s going on and what they’re doing. But they shoveled the sidewalk this wide.
Rich: So anybody coming by on their pogo stick will have plenty of clearance.
Mike: That’s right. I can’t walk down that sidewalk or I can’t walk over that snow bank, and they don’t know about it. So I’m out in the road with them and I have another guy. Sometimes there’s three of us out there. They work for me regular and we just go out and we take care of it, but I want a good 3-foot sidewalk and I want it all the way up to the front door and the back door.
Rich: Sure, and you communicate to the people what your standards are and so that —
Mike: They don’t want me —
Rich: Actually you put your own eyes on it.
Mike: They don’t want to get out of the truck in the morning in there, but I [unintelligible 0:15:28] them the snow. I’ll talk to them.
Rich: Okay. All right, so as long as they can make it look good from the truck.
Mike: That’s it [laughter].
Rich: Got you.
Mike: They’ll be going home with that.
Rich: So we’re going to talk a little bit more about some of the maintenance because Russ brought that up and that’s obviously a huge part of all of our business is taking care of the properties, right? So we’re going to go through this a little bit and then we’ll break it up for some questions. If you have a short-term memory like I have and you want to write down a question, we’ll have plenty of time for all of them, so just make sure you write them down and we’ll definitely get to you, okay? Okay, in general what kind of condition do you look for in a property or what – I think we know what kind of condition you look for. You like bad-condition places, right, for the most part? So tell us about that and in other than that, what else do you look for in a property?
Russ: I usually look for something which I can add value, but not just anywhere. I look at my demographics primarily around the colleges. So I stick within certain radius of the schools. I’ve owned on Vernon Hill, up in Burncoat. I’ve been all over the place, but I’ve kind of found my niche that I feel comfortable with. But as I was driving here, I got kind of distracted and I went up through a neighborhood above Belmont. There’s no parking on some of these houses, so what I look for is I try to look through the eyes of who the end user is if it’s going to be a student, if it’s going to be family. Is there parking? Are the neighboring properties horrible that I may not have any control over? Is the hill too steep to where their cars are going to be spending [unintelligible 0:17:02] up there, so I look for properties as sort of have it all. If it doesn’t have parking, can I put it in? Anything can be fixed as far as the condition of the properties, so it’s a question of does it have the basic things.
I no longer purchase in certain neighborhoods that are riddled with just a mass of difficulties whether it be crime and sort of statistics that we all know about. I used to do that but it’s hard to attract the right tenants in those neighborhoods no matter how pretty you make the place, so I stay away from that.
Rich: Got you. So what are some ways that you – maybe this seems like an obvious question but if you run across a place that didn’t have parking and these places have been here for 100 years without parking.
Rich: How do you solve that one?
Russ: Well, I measure off to the side of the house to the lot line. If there is at least 9 feet, I can put in a legal driveway and if it’s tandem, I don’t like to take up all the green space if there’s any whatsoever. I like to leave a little bit, but you got to get at least a couple of cars off the street. I think you have a better shot at attracting a better-quality tenant. If you don’t, who are you going to get? Not somebody necessarily the good card with a job that cares, so I sort of found that to be a problem. The only time I’ve had that as an exception I have a six-unit with no parking but it’s within two blocks of Clark University and there are foreign students that don’t typically have cars. They don’t care.
Rich: Got you. But for your families that you’re talking about —
Russ: Correct, correct.
Rich: You know the people who have jobs tend to have cars?
Russ: Yes, and you better attend to the snow quickly because they got to get to work, etc. It’s a whole you got to provide the service for that as well, so.
Rich: Got you. So how about you, Mike? What sorts of places – it sounds like properties find you.
Mike: I had to go all around Worcester. I try to stay to Worcester. I do ever wound up in Fitchburg that I have, but I really like to walk away from it.
Rich: Or run away from it?
Mike: If I don’t have a driveway or the house is rundown or it has lead, you could be telling me it’s worth $150,000. Well, I’m not going to pay it. I’m well down under the $100,000 mark. I’ll give you the cheapest price that I’m going to give you and then you take or leave it. But if there’s no parking, it’s no good to me, you know – rental, summertime is the best time to rent. If you rent now in these city streets with the snow, there’s no parking like today, the city was plowing snow today in the city and they were doing tag and tow. Nothing aggravates the tenants more than their car being towed away, so who pays for that? Even the tenants got to pay to get their car back, it’s going to affect your rent some place along the line.
Rich: Absolutely. I mean if and nothing else, it’s going to be in the back of their mind they might want to go live somewhere else.
Mike: Right. If I have a good tenant, I try to move them to other units. Some tenants, we build up good rapports and if they’re nice and they’re taking care of the properties, they might want to go to a newer place after 7 or 8 years, and I take them. I move them to another one of my buildings if I have something they like and I do that. But if I’ve had headaches with you, see you later.
Rich: Sorry. I don’t have any other places for you. I wish I did. Something like that?
Mike: That’s it.
Rich: In terms of once you get your hands on an apartment – let’ start with Russ – what kinds of, you mentioned parking, you mentioned some of the exterior things, what sort of things inside the apartment are you looking to do work? What kind of finishes do you use? What do you aim at? I’m sure you have a formula at this point.
Russ: I do and it keeps evolving. I’ll give a specific example of one I’m deep in the middle of right now. Right on Elm Street, right behind the Greek Church, is two 4-story buildings at 113 Elm and 115 Elm, very generic boxes. Funny enough though, they’re historic so I had to go in front of the Historic Board to ask to rip off the aluminum. Of course, they granted that. We are basically pulling out all the kitchens and baths. It was just years and years of bad handyman work at best for all the plumbing, so in order to give new kitchens and bathrooms, we just all the stacks, all the lines, every inch of wiring. There might have been circuit breakers in the basement, but it’s all knob-and-tubes in the walls, so we’ve just learned from the roof down to the foundation structural work, new rubber, new windows.
We put in all new maple kitchens with granite and I’ve tried now for the first time we’re putting in Mitsubishi mini-splits into each unit, so they pay their heat and they get central AC and it’s supposed to be highly efficient. So we’re catering to a higher level of people. It has nice frontage. It’s right next to Elm Park. There is parking for 16 with 12 garages. We’re ripping up the driveways and we’re even entertaining putting on a solar project on the flat roofs as well. We make it pretty progressive, so.
Rich: But aside from that, that’s all you did to it?
Russ: Yeah [laughter]. And flooring, we do a lot of hardwood flooring. We refinish. If we can’t, I don’t like using linoleum in kitchens. It rips. It gets terrible. I don’t like ceramic. It cracks in all of these old houses, so if I can’t refinish the existing hardwood floors after the three layers of linoleum and VCT tiles, I’ll put down a new wood product, seal it. It’s moisture tight. It’s fine by code. We put in bamboo.
Rich: You started with bamboo?
Russ: Yeah, sure. We like to have more modern sleek. I put in video intercom systems to the buildings so people don’t have to prop the doors open, things like that.
Rich: People would never prop the doors open. I’ve never even heard of that.
Russ: [laughter] Yeah. We try to go higher-end and my places aren’t cheap, but I consider them to be good value. We put in a lot of finishes that you don’t find in a lot of apartments.
Rich: Sure. I mean can I live there? I don’t have air conditioning.
Russ: If you have good credit and a good job, sure.
Rich: All right [laughter]. That sounds pretty good. How about you, Mike? What do you start with and what does the end look like for you?
Mike: Basically it’s the same way as Russ just described – the plumbing, the electrical, lead paint if I have a certificate and it’s a new one, if not a lady comes in. She does the lead test and then if I have to do lead paint, we do it at the time before anybody moves in. We have certificates for all our properties that we have that we’ve had for a while. I’m learning the process of doing a few of them now, but we’d need lead certs.
Rich: Is there an external force that’s requiring you do that or is that your own personal standard to have lead certs?
Mike: I do that myself.
Rich: You do that yourself?
Mike: Right, and it’s just because I don’t want down the road if you want to rent an apartment from me and you say, “Well, I got a kid under 6,” I don’t want to be making excuses. I just don’t say, “Yeah, if you pass the credit report, I get the lead paint certificate.”
Rich: Got you. Okay, it sounds like you guys are both getting rid of the knob-and-tube wiring in the buildings. Is that right?
Russ: Yes, that’s right.
Rich: That can be a big undertaking. What’s involved in something like that? Where do you start?
Russ: That’s just a lot of ripping out and a large proposal from a general electrician. It’s expensive, but I found and I found over the years – look, I haven’t always done stuff this way. I’ve learned that if you’re going to manage stuff, you’re going to have constant nuisance issues, constant headaches, and it always comes back to trying to piece new stuff to old, new drains to lead stuff and lead traps, or in the electric, breakers keep popping. Someone tries to plug in an air conditioner, it keeps propping the circuits around the whole building. It always comes back to the old stuff, and I sort of adopted a philosophy that I kind of want as few headaches as possible, so anything I can do to preemptively change it for the better for long-term, that’s kind of how I look at it.
Rich: Got you. Did you want to comment about the lead paint at all?
Rich: All right [laughter].
Mike: What’s that?
Russ: No. I used to do that. When I had Fitchburg, Leominster, I had a lot of families but now because I have mostly students, it’s just the pricing is so much higher than families can afford. That tends not to be required but I have no problem doing it if I want. Somebody says I’m happy to live here, they want to pay it because I’ve done them in the past. I’ve taken over properties that needed it, so I’ve done it.
Rich: Got you and all of the properties that you didn’t keep that you did sell to families and stuff like that, I’m sure that was part of your business model then?
Russ: Yes, it was.
Rich: Okay. As things change, you mentioned putting maple cabinets and granite countertops, so quality versus price, how do you balance that because I think we’re all terrified of paying for things. Am I only the one or do other people feel me on this? A couple of folks? Okay, all right. Writing checks is not my favorite part of the business. I more enjoy receiving them, but it sounds like if you guys write the checks on the frontend, you receive more checks later on and with fewer headaches. Is that the idea?
Russ: A little bit because my market is not always so budget-conscious or restricted. On Elm Street, I’ve got people who are waiting to see those two-bedrooms for $1,200, no utilities included. That’s not a typical market rent.
Russ: The point is I’m not going to for everyone and competing on the same level at $800, $900 for a two-bedroom or whatever the market rent is. For those people who want higher quality, that’s what I’m appealing to and when it comes to students, a lot of people have dumb big properties and because they’re close proximity, they take it. But I want the parent to say, “No, no. I want my child to live in this property.”
Rich: Right, I have definitely experienced that myself.
Rich: When parents come and look at the place, they see a building, it’s 110 years old, and it looks like it. It’s in good shape, but it’s typical apartment and a lot of parents, they’re moving their kid here from out of state and they live in a nice suburban house and that’s their frame of mind when they’re looking at their child’s apartment.
Russ: Right, right. But how many times has anyone in here put a brand-new countertop from Home Depot? It looks beautiful. Within 2 months, you got a nice burn ring right on it because somebody just put a hotpot right on it. It’s trashed.
Russ: So it’s a cheaper way initially but you can’t rent it like that again. You got to replace it again, so ultimately it’s over time, I find it those things get them rented quicker, get a little more rent, and actually save money in repairs long-term because they’re more durable.
Rich: Got you. Mike?
Mike: I’m still with the countertops and I still get the burned rings on them [laughter]. I am not going to carpet, but you know I don’t put an expensive carpet down. I buy it at Home Depot as the tenant lives there. When the tenant moves out, the carpet goes so, and I just put down a new one. I try to have – when I do over the building and I have a knob-and-tube wire, I put the circuit breakers in the apartments, so that they’re not going to be going down, so I try to lock all my cellars. Sometimes it’s an inconvenience because if you do blow a breaker, some one of us have to go out to throw that breaker, but my cellars don’t fill up with junk. They still get down. They find ways to get in, but I’ve had pretty good luck of locking the cellars. I mean people do complain but I’m not renting you the cellar. I’m renting you this apartment. That’s the way it goes [laughter].
Rich: So that way you can’t prop the cellar door open and a family of raccoons moves in.
Mike: Right, right.
Rich: At the end of winter, the pipes freeze and that sort of thing. Actually, Russ, can you tell us a little bit about your video entry system real quick because that’s not something I’ve heard of or seen in apartments?
Russ: I don’t have it in all of them, but in a lot of student properties, you’ve got friends, that means students that have a lot of friends that want to come in and out and it’s a safety and security issue in my opinion. It’s really nothing more than an EntryCom system, in which there is a like a monitor in the unit that you can press to see who’s out there, but when someone presses the button, the resident can see who it is. They can speak to them from their apartment and buzz them in if they’re authorized. That’s it. It’s about $1,200 to $1,500 for a three-decker. It not only saves a lot of issues, but it’s also a selling feature to a parent or to whomever, and say –
Russ: Look, this is something if you’re afraid about being in Main South because you go to Clark University, here’s who you can see who’s knocking on your door, ringing your doorbell at 2:00 in the morning, and sometimes I’ve had to do that. It’s actually been a real wonderful feature for a lot of people.
Rich: Sure. That’s awesome. So how do you choose who do you do business with? You mentioned you have contractors and subs that you keep busy. I’m sure you didn’t install this video thing all by yourself, so do you have some people that you would like to speak highly of or in general how do you find them?
Russ: That’s a slippery slope referring any contractor. I just did that recently and we were just talking about because we know the same individual and he’s not shown up for two weeks on a job, so I would not give out one name. It’s still to this day after 30 years is trying to maintain a relationship with someone who consistently provides what they say they’re going to provide still remains a challenge in this business. I don’t know what it is about those trades and so forth, but you just can’t always find consistency and dependability. It’s just as awful.
Rich: How about you, Mike?
Mike: Everybody is a carpenter. Everybody is a plumber. They can fix everything. Let me tell you, they can’t fix nothing. They don’t have their tools and first thing, can I borrow some money? I’ll go get coffee. Can I go get a pack of cigarettes?
Rich: That’s not a good sign.
Mike: Can you buy my lunch? Can you give me the money at the end of the day? I tried to avoid those. I don’t give anybody money until Friday, and we do everything above the book, so everyone is on payroll, but that’s one of the things is I try not to start loaning any money because right off the bat, I don’t go to lunch or can I go to lunch on my own? I go have my coffee. I sat there at Kelley Square Gulf Gas Station 6:30 in the morning, anybody can meet me there. I was sitting in the trunk drinking my coffee before I go to the garage at 7:00.
Rich: All right, so in that case, it doesn’t sound like you have any suppliers or contractors that you have a good reason to recommend because they’re sort of a flighty bunch. Are there any suppliers or suppliers that you’d like to not recommend? Anybody that you wish to have the Ebola virus on for example?
Mike: I would not want to answer that.
Russ: No, I can’t really think of anybody but to the contrary of what you were saying earlier, though, but I do try and spend all my investment dollars on rehab with local suppliers. I like going to Barrows Hardware. I like going to Plywood Plus. I like going to Sclamos. I like supporting the local businesses instead of going to the Big Box stores I think because when you need a favor, when you need a little extra help on delivery, or something, smaller businesses appreciate it. It feels good to keep some of that money circulating within the local economy just a bit of community consciousness there that I like to foster.
Rich: That’s a great idea. Speaking of Sclamos, do you have any gas-on-gas heaters in any of your apartments because that’s like the only place you can get them, right?
Russ: No, no, no. No, gas-and-gas and parlor heaters, and keep the kitchen at 90 degrees and all the bedroom doors open, no. Those Fitchburg days and all that are over.
Rich: Okay. There are plenty of Worcester days that do still, so how about you, Mike?
Mike: I have a lot of gas-and-gas, but they’re against the law to use them.
Rich: They’re against the law to use or against the law —
Mike: Right. You can use them but you can’t replace them.
Rich: You can’t replace them, but you can get a refurbished one from Sclamos.
Mike: [crosstalk 0:33:00]. If you take it up and put a floor under it, if you pull a permit, which you’re supposed to, that’s kind of like [unintelligible 0:33:08]. But if you have to replace it with another gas-and-gas stove, you can’t do it.
Mike: You got to put a gas cooking stove with a parlor heater right beside it, and the parlor heater got to be on a pan. It does no more. You can’t set the parlor heater on the floor or on the carpet in the living room. They all have to have a pan. Better Electric is where I buy my stoves and they stock the pans and all the stoves now have their angled brackets on the back, so if anybody leans up against them, they don’t tip them over.
Rich: Okay. I guess I’m not going to ask why someone would lean against the heater, but never mind.
Mike: Yeah [laughter].
Rich: We’re sorry to ask you why would a tenant do this, then we’re going to be here all night.
Russ: We’re all taking our shoes off at the airport for one person that did it, so it’s the same idea.
Russ: So, it’s the same idea: one idiot.
Rich: Absolutely [laughter]. You had mentioned pulling permits like you’re supposed to and doing things like this. A lot of contractors take the mentality of completing jobs like I did when I was cleaning my room as a kid like I would take all the stuff I’m supposed to do and like hide it under my bed and not frame it behind my toy box or something. I’m sure you guys have experienced some of these things. What are some good maintenance practices that you have developed over the years to sidestep a lot of that stuff?
Russ: Well, I don’t know about sidestepping, but sort of being preemptive. Some of the nuisance complaints, if you see a pattern of the same kind of things taking up your maintenance time like for example the smoke detectors getting ripped out of the wall because of the reminder beeps the batteries are low. I now put in 10-year batteries, lithium batteries that are more expensive, but they last and we don’t have all these nuisance calls, it’s been beeping all day, but they call at 10 o’clock at night. When we have lights out, I don’t necessarily want my tenants because I put ceiling fans, remote ceiling fans in every one of my apartments and in ever bedroom, I don’t want them up changing it, so we’ll do it but now I put LED bulbs in everything. They last forever, so a little more money upfront but I don’t get all the nuisance calls like we used to, so it’s sort of investing in long-term products.
Rich: Now have you been able to get Mass Save to do any of the stuff for you? I take that as a no.
Russ: We’ve gone down that slope and it’s a lot of paperwork, it’s a lot of appointments, it’s a lot of phone calls. It’s very disappointing. What comes out of it in the end that’s another topic, but I’d rather just get to the solution quickly without all the fanfare and paperwork.
Rich: Got you.
Russ: That’s just my personal experience.
Russ: We got too much to do. We can’t spend volumes of paper on one building.
Rich: So I’ve never bought 10-year batteries before. I think I might start. Where do you get them? Home Depot? Amazon?
Russ: Home Depot. You’ll choke at the price but when you think about what you pay for one maintenance visit —
Rich: Well, I was going to do that anyway.
Russ: One maintenance man visit once or twice where ripped down $30 plugged-in wired smoke detector because some tenant got pissed because the thing chirped every 20 seconds from a low battery is worth paying for an expensive, $6, for a 9-volt battery. You’ve got two or three pack or something, but…
Rich: And it’s 9 volts, so they’re not going to take it out and use in their other devices?
Russ: No, a lot of them are double A’s, too. You can buy all of them, but anyway, it’s just one of my preventative things I’ve done.
Rich: Got you.
Rich: Okay. How about you, Mike? I bet you’ve come up with all kinds of things like this?
Mike: Well, we do shop around for a lot of items like I try not to fill out [unintelligible 0:36:41] paperwork for National Grid, any of them for the city, for the lead paint. I paid for all on my own. I’ve done the paperwork and I’ve got nothing from it. I don’t even get a call back, so we just go and do our job. If it’s deleading, we delead it. If it’s changing the lights and go to LED, I found a place just going around, checking prices Rexall up in East Mountain Street. They sell a 7-inch LED light and I was able to buy them for $5 a light.
Rich: Five dollars?
Mike: They’re good for 5 years. I put them in the hallways. I put them in the apartment. They look great. They get plenty of light and I buy 300 at a time. I don’t know when this program is going to run out, but today, I got a call.
Rich: It’s going to run out because of you [laughter].
Mike: Somebody called today from Mass Save. They wanted to come out and see where I installed them. I just gave them a list. I said just go look at the hallways and corridors and I don’t have time to walk around and take you to every apartment. I [unintelligible 0:37:44] if you want to go look in the hallways, go ahead and they said you’re all right. Then but this is second batch of 300 I bought. We keep in the truck. If a regular light bulb burns out, you have those old regular plug-ins that you used to buy from National Grid that weigh 100 pounds that pull down the suspended ceilings. I take all of those down. I’m not paying $15 for a light bulb. I’m putting these $5 ones up.
Russ: I was going to say if you don’t want to change the fixture, just get a bunch of bulbs. If you go to local vendors and make them an offer say, “Look. I’ll buy you 100, 200 bulbs, what kind of deal you’re giving me?” I’ve gotten half off of a bulk purchase, so buy hundreds at a time, but it’s worth doing because in the long run, it’s all worth it. It will save a lot of money.
Rich: I hear a lot about planning ahead and buying in bulk.
Rich: And systematizing and —
Mike: But sometimes I can like buy big amount of stuff over $1,000 at Home Depot. I might throw in 10 cases ceiling tiles or doorknobs. They’re selling them for $9.99, but when I’m over $1,000, I’m getting the doorknob for $5 or I’m getting the deadbolt for $6.99.
Rich: Got you.
Mike: I started recently as putting master keys to all my deadbolts. I don’t put any [unintelligible 0:39:01] set locks doorknob locks. Everything is a deadbolt because when you leave, you got to have your key to lock the door.
Rich: So nobody can lock themselves out of the apartment?
Mike: Right. And I found that it has helped. It has cut down a lot of lockouts but the problem is I left it in a taxicab, I left it on the bar, and I say, “Well, you’re going to have to pay to have us to come out or get a locksmith.” They usually do.
Russ: I’ve got a solution beyond that. What we’ve done a long time ago is we put a lockbox on the front in everyone of our buildings that contains the entry key with a code. If someone were to call at 2:00 in the morning, we’ll give them the code to get back into the apartment. We’ll change the code the next day so they can’t keep using it as a crutch or if we have an emergency plumber or electrician that’s going to go on site. We have a master key for everything. If he doesn’t have to have a master key because he’s not a regular vendor of ours, we’ll give him a lockbox code, so we don’t have to meet him there so my property manager, myself don’t have to go out at either some crazy time or busy. We found it’s saved us a lot of trips by putting them in every single building.
Rich: That’s awesome, so you mentioned you have a master key system, so you have one key that opens everything?
Rich: And, Mike, you…
Mike: I thought of the master system but I like to go out to all the calls. The other night I got a call at 11 o’clock at night from the fire department as there was water coming up out of the toilet, so I said all right.
Rich: The fire department?
Mike: The fire department. They called the fire department [laughter]. But in all fairness for the lady, the lady called —
Rich: When I guess Papa Gino was busy. I mean like why would they call anybody but you?
Rich: I’m sorry. That’s another one of those questions why would somebody be doing that.
Mike: They called [crosstalk 0:40:48] away, and they called that group at 10 o’clock in the morning. That group didn’t pass on the call to the supervisor and then by the time we got to 11 o’clock at night, nobody showed up. The lady says, “Hey, I can’t live like this.” So then, the fire department called me. I said, “Okay, I’ll shut the water off in the building.” And then we’ll be out and they waited. I was out there in about 45 minutes and I called Rotex. It’s a company I use local and they came about in the middle of the night. They took care of my problem, and the water backed up by midnight.
Russ: You know this brings up a good point though of some of you have some properties and even one property is still a business. For us, it’s obviously our fulltime vocation, but how many people – just by show of hands – still get calls directly from their tenants? How many people would like not to be getting calls directly from their tenants, right? It can be at the worst time. I’m married. I have children. I have a life, and I don’t want to be always be called at an inopportune time. One of the great things I did many years ago was I started with an answering service that takes the call. They determine if it’s an emergency, they call the maintenance person. I get an email so does my property manager for every call that comes in, emergency or otherwise. We deal with it the next morning or it goes to the appropriate person that night. At some point, you got to kind of separate it. It’s also better service for your tenants as well. For $100 or $120 a month, it gets rid of that stress.
Rich: It doesn’t even have to be that much if you’re smalltime and you just have one phone number. Their service will like do it for $20 a month.
Russ: Exactly. It’s often by the number of calls for you.
Rich: But they won’t answer the phone for you. No, there are some things that you can get there that are completely automated, which is transcribing your message and it will come to your email box if you want to go the cheaper route.
Russ: Right, right.
Rich: But if you want a live person actually route the call, then that’s a great idea.
Russ: Yeah, because a lot of people that don’t do this fulltime, they have fulltime jobs. They’re not good at it. They want to handle it because they don’t want to spend money and have someone else do it, but they pay for it emotionally. They pay for it mentally. They pay for it in fatigue and stress and oftentimes at inopportune times when their families or whatever else, they got to do deal with something.
Russ: You got to kind of make that decision and I did a long time ago. I just said I had to separate myself a little bit.
Rich: Okay, so that leaves you to focus on the bigger projects and you don’t have to focus on a lot of the smaller things?
Russ: I still keep track of everything though, so they say they tell me what I need to know, but I kind of keep my hands on the lid anyway.
Rich: Okay, I know what you mean.
Mike: I just thought with the answering service, this would really be the first year. I used to take the calls to my cellphone, so now–
Rich: Tell us about that, Mike?
Mike: [laughter] It never stopped ringing, but in all fairness to the tenants, I don’t really get any calls at night.
Rich: Why else don’t you get any calls at night now? What did you do with your cellphone?
Mike: No, I leave my phone on. The answering service will answer the phone, take the message, and then they’ll text it to me and they’ll text it to one of my maintenance guys.
Rich: Here’s what I’m going with this. Mike did not call me back when I called him like a year ago because it wasn’t his phone number anymore. You got a new phone number, didn’t you?
Mike: I got a personal phone for me now.
Mike: Things like contract, business stuff have that.
Mike: But the tenants don’t have that?
Mike: The tenants have a phone number. It goes to the answering service, and they call it and the answering service texts me, and if there’s a fire or something God forbid, they call me at home direct and then I go out. If there’s a sewer leak, they call me at home. But sometimes I go out with the kids and something goes up for me personally, I might shut the phone off and leave it in the truck for an hour or so or two hours.
Rich: Good for you.
Mike: And then I come back out and I look at it and get the press button [laughter]. Anything I do though, I like to know about it. If I [unintelligible 0:44:50] a fire alarm is serving, I want to know why, even if it’s in the middle of the night.
Rich: I have a couple of questions about that myself, yeah.
Mike: I’d like to know why. The reason why I went for that, I didn’t think anybody could have made the decisions I would have made and as quick as I made them, so I went out within 15 to 20 minutes after showing up, I knew to call Rotex. I got to call them. I got to chat with them, direct line to the boss’ house. They call me right back. They say we’ll be out to you in 15 minutes. Now that doesn’t happen all the time. If he’s on another job, I could be sitting there for 2 hours, but he came right out, snowy night. There was a really tight side street that we had to park a block up, but we got away with it and we took care of our problem. Everybody was happy when we left.
Rich: You got the job done?
Rich: Awesome. All right, so we’re going to open up to questions here in a second because I can sense a lot of them are stewing. But I think we can all use like a Ford pickup full of illegals from time to time for certain projects. Where do you get yours [laughter]? I’m just kidding. Doug is going to go around with the actual questions before I get fired. Please, by all means, Mike.
Mike: I go to Job Finders on Main Street, and they give me my [unintelligible 0:46:16] list or whatever. I know I pay more money than I could get people at the gas station or whatever, but I pay $70 per man. But it’s coming with workers comp and liability, so if they get hurt on my property or on my job, it’s not coming out of my pocket. They’re insured and these guys are only getting $10 but they think they’re making $20 and they work hard and then you don’t like them, you send them back. They’re not doing what you want, send them back. You don’t have to tolerate them. You don’t have to answer to nobody.
Rich: They have a good return policy. Just bring back the person and their receipt [laughter].
Mike: You send one back and they pick them up, take them back. They might bring you back another guy.
Rich: That’s actually a great tip.
Mike: But they have the insurance. Everybody I have has insurance – workman’s comp and liability. I don’t want anybody without it and I have taken chances, but you know something it’s not worth it. If they get hurt on your job, they’re going to own you and they know what you own and how much money you got there. They’re always counting your money for you [laughter].
Russ: I have found and I’d had that route before with casual labor in the past but I found out having consistent crews and having recognizable faces and consistency of expectations and things carried out in a certain way makes my tenants feel more comfortable. They have a certain expectation. If they are paying a little more and typically students, a lot of them from privileged backgrounds, some of them might have overbearing parents that get in their business about what’s going on, so I got a high standard to sort of keep up on a regular basis. So when it comes to snow clearing and everything else, I need to make sure that who’s going in there can pass a query check and all that stuff because I got a lot of young students male and female so it’s obviously a sensitive bunch if I’m sending the wrong people. I got to be careful, and my tenants in the units are a little too chatty, they might even complain so we got to be ultra conservative with who we have going in and out. I can’t do that, so I carry myself workers comp for my company, so if I happen to hire some independent because a lot of electricians and plumbers, they don’t have it because they’re just a one-man show, so that’s why I have still as well to cover myself, a lot of overhead but it’s worth it.
Rich: Got you. I do the same thing but to what Mike is talking about, I would have rather hire people who have their own, so if there was a crew like that —
Mike: When I go out like the other night, I was out there all night. We worked all day. I took the plow truck and went out with the snow blowers, and I worked with them on it. I didn’t work personally, but I went through with those three guys and I told them what I needed. I helped them take the snow blower off so nobody can get hurt taking it off the truck and they do what they have to do. Now if they weren’t working out for me, I would get rid of them. I’d rather do it with two but if I can get three or four guys, we’re going to be done a lot sooner.
Mike: And one of my other guys goes with the other group, so basically there’s always one of our faces you always know. People do get nervous.
Rich: I agree.
Mike: And sometimes the biggest complaint I get, “You were out doing snow blowing on the sidewalk at 2:00 in the morning.” Well, I can’t wait until 8:00 because I can’t get them done. The minute the snow stops, we go out. We do our contract jobs while the snow is falling and we clean them up right after the snow stops and then we can go right onto our houses and properties and we take care of those.
Rich: You don’t mess around. For those of you who weren’t here last month, if you have any excess snow you’re not sure what to do with it, see Doug. He has a neighbor that loves it [laughter]. You just want to jump in, Russ?
Russ: You know just real quick. Obviously you’re hearing some differences of style and operations between Mike and myself and neither are right or wrong. It really is a personal choice of how involved you want to be in your business. Now both of us, as I said, are fulltime occupations, but for you, it may not be, so it’s a question of how much you really want to be involved and what you want to give up as far as cash flow if you have to pay some other people or control. Mike has done a certain way very successfully.
I know a long time ago my wife said to me, she said, “I’d rather have less money and you more.” So she said don’t feel like you got to go out because in this business, you can work as much as you want. There’s always another deal. There’s always something to be done, but at some point, I made the decision luckily that that’s not. I waited a long time for a family and I said this is going to be my priority. I can’t just get out there and spend it on my business, so you have to decide. If you’re a handyman, look I may sound like a prima donna up here, hiring all this people, but I started off —
Rich: Well, I didn’t say anything.
Russ: No, but I can swipe a pipe. I can change a toilet. I put my hand in toilets. I’ve gotten in the mud. I’ve done it all. I know how to do it all because I never wanted to be beholden to anybody. If I needed to jump in, I can do it, but I choose not to anymore.
Rich: Put it.
Russ: You know, that’s —
Peter: What do you recommend for the most legal protection of your property?
Russ: Who are you asking?
Rich: Given the context that neither of you is an attorney, Peter is asking what kind of entities or structures do you use to set up your properties. Is that right?
Peter: Yeah, the best, LLC, or what structure or whatever?
Mike: I use LLCs, but no matter what, you got to worry. Someone is always out there to sue you. I mean I go away every summer for 2 or 3 weeks to Ireland, and I leave this whole operation here to my guys. Let me tell you, I’m miscalled 10 times a day but I want to know, I want to know why that alarm went off in Ireland. I don’t want to be coming back and say why did the house burn down. If you go out and fix that alarm, you better have an alarm in the truck to replace it.
Peter: Yeah. Say you have amassed a lot of property, which you both have done, and then one of you decide you want a divorce, not you two, one of here with spouses or whatever —
Rich: You’re not married to each other?
Peter: No [laughter]. Not yet.
Russ: You’re not my type [laughter].
Peter: What do you recommend – I know a person. Let me put it another way. I was naïve. I was very naïve but I know a person who did divorced and they didn’t lose anything because they had prepared for that possibility.
Russ: You know I can answer that. When I was single and afraid to get married because I was afraid of just this very outcome and I watched that happen. No, this is a personal decision. It’s not even a legal question really, but I remember reading a very profound article. It said, “Divorce, not preparing for it can ruin your business; preparing for it can ruin your marriage.” Prenup, you start off with a basis of mistrust if you have a lot of assets. I said to myself I had plenty of assets before I met my wife. I said if I’m going to give myself to this person finally the right one, like I’ll do it fully. I’m taking my chances, so far so good. But that’s a personal decision [applause].
Rich: Just in time for Valentine’s Day [laughter].
Russ: Isn’t that cute [laughter]?
Rich: It’s you, Russ Haims.
Male Audience 1: This is in reference to solar systems. I don’t know if any of you people have solar systems on your house but if anybody in here does have a solar system on your roof, be aware that a lot of fire departments won’t enter that building if there’s a solar system. They’ll watch it burn from the outside because you can’t turn them off. There’s a battery backup on them and just because you go cut the wires from the street, the solar system is still working, so just be aware of that little incident that is occurring throughout the state and no one is talking about it and this comes from the fire department.
Russ: Thank you because I’m considering a large one now.
Mike: You should check with your insurance company, too, to see if they’ll allow you to have them.
Doug: Did you have a comment about this, Brian?
Brian: [unintelligible 0:54:32].
Brian: Michael, Russell, thank you so much for this presentation. A lot of good information. Thanks for sharing your years of experience. I got a couple of questions on your operations, the technology end of it. I’ve heard maybe some answering calls stuff like that. Is there software or systems, Google Docs, Dropbox? Is there technical component to what you’re doing that has really streamlined your process and made things easier? If you can both comment on that.
Russ: You know I had a lot of technology in my office prior to Taylor coming on, but now he’s taking us to a whole another level. I just bought a couple of Apple iPads for the people who are out in the field, renting apartments so that we have DocuSign. We have online payments on our website, so one of the things that saves us a lot of time is years ago I developed my own website, and now on that we have a portal for tenants to pay online. They can do it on a recurring thing. Google Docs, we use between ourselves and Dropbox. Yes because we have galleries of pictures of all of our apartments that we use in our advertising, on our website, and our website is useful because how many times do you get a call, “Do you have an apartment?” Yes. Where is it, what does it look like.
Well, we look on the website with them and walk them through. We even have floor plans for all of our apartments so that so that they can see conceptually how they’re laid out and take as much as a just short of seeing it. We answer as many questions as possible through that. It’s arduous. It takes a lot of upkeep. We’re about to revamp the whole thing at a high cost, but we find it’s a useful tool especially with tech-savvy demographics we’re after. We’re after the college students. They do everything on their mobile phones, so our website is also mobile friendly because we find from Google Analytics that 65 percent of people that look at our site is on their iPhone. Then there’s the other phone, the Androids, and so forth, so we’re very much in tune. So yes, we have to stay on the cutting edge because the people we’re after are. Yeah, so a lot of the communications is via email and all that sort stuff, too.
Brian: Do you use app called Buildium, anything like that to manage that number of property?
Russ: Well, we use a particular software called Yardi, which is specific to management and accounting software that’s integrated. It’s a little more cumbersome I think than Buildium but that’s what I’ve used and I just upgraded recently. Information is important, so.
Rich: I have a feeling we’re going to get two different answers to that question. Mike?
Mike: Well, what I do with some of my buildings, I have apartments for rent signs on them, so with my phone number.
Rich: That is the exact opposite answer [laughter]. Right on cue, thank you. This is why – by the way, I’m going to interrupt you because I have no answers – having both of these guys up here at the same time was actually Mike’s idea. I actually thought it was brilliant because they have their own niches in what they do and a lot of them overlap and there’s a lot of things they do differently, so I’m really getting a kick out of this. Thank you.
Mike: When people call and we talk with them. We tell them where the apartment is, whatever we tell them the ride by if they wanted to call us back, go show it. That’s one of our ways and really I don’t advertise at all. I get phone calls. A lot of buy-ins word of mouth, and I’ll ask who told you and they’ll say one of the things if they’re a good tenant, it means I might take a chance at meeting with you. But the advertising just bring it on the building.
Another big thing I’m doing right now is I’m putting on the building, no trespassing signs, but I had it made Worcester County Management Michael O’Rourke, and my post office box and I get a lot of calls from that and people say, “You’re a management company and they say you have apartments for rent.” I say I probably get 50 calls a week of people looking for apartments. I do a lot with CMCA. I do a little bit with SMOC, a lot with Worcester Housing Authority, and I do send in emails to Worcester Housing Authority and tell them I got this property. If I have to pick from a group, I kind of like the Worcester Housing Authority.
Brian: Is there software that you use in your daily operations?
Mike: Just basic really. We just do basic. We started probably about 4 years ago with the computer, and I need to do a major upgrade to get up to today’s. But I’m the process of looking for someone to help me out and do management, so that I can spread my wings a little bit more and do a little bit of extra because there’s a few things that I’d like to try that will help out the housing and I’d like to try it basically if I could get somebody. But I’d still want to be hands-on. I still enjoy going out to the properties and knowing what’s going on or if you’re working for me, I like to just stop by and see what’s going on.
Russ: Let me just say one other thing we do for technology that we’re just starting to adopt, getting our tenants to continue to stay on and renew their lease. Sometimes we don’t get people to give us answers and we used to pass around these triplicate forms that all the roommates had to sign but now Taylor has set us up where we just send them a DocuSign document. They just email it around and it’s a legal thing. What we’re trying to do is diminish the amount of paper and paperwork. It’s not because we’re saving the environment. It’s just it’s a more efficient way of doing things, less records to keep, keep it all on file in a computer, and do it a little bit. It’s actually proving to be faster results than people passing around stuff because if you think about it, too, a lot of our roommates go back home to get signatures from their parents that they happen to be all in different states, so passing around the same documents for the roommates is tedious, so we’ll just send them all out.
Rich: Yeah, it’s efficient. When TransUnion or Experian came to inspect my office, they asked to see my file cabinet, but I told them it was in California at Google headquarters because I don’t have one.
Rich: I have eliminated it.
Rich: So I was actually this is great. I was terrified that we weren’t going to be able to go to 8:30. We’ve gone 2 pages out of 5 questions. We still have some out in the group.
Sandra: Russ, could you share with the group what you did on Claremont Street because that was such a unique property and how you transformed it from this building into these individual rooms, in how you attracted the population because that was a very special property?
Russ: Okay, real quick; 5 Claremont Street is a 20-room Victorian that now houses our offices on the first floor and it’s a licensed lodging house on the second and third. We’ve got 12 rooms. I basically looked at a need that the graduate students, primarily foreign graduate students were the ones left with the leftovers of rooms and units because they couldn’t come out and shop around since they were typically overseas before they came to Clark. I said they need something nice. They need something that’s plug and play, that’s all inclusive, and that’s what we have. We have it for like 8 years where it was always full. We have a bunch of international flags off the front that change as they represent the residents of the building, so it’s kind of affectionately called the Little UN at Clark.
I still get postcards from a Turkish kid who sends up picture of him wearing a Hamptons Property t-shirt in front of the Eiffel Tower with his girlfriend. We met 8 years ago wearing that shirt, so it’s a special place, but the stained-glass, the fireplace, it was a true working mansion. It was also designed originally and built by Stephen Earle, who did the Chestnut Street church and some other variable known prominent buildings in the area. I was lucky enough to get it, but it was a nonprofit. It was mental health adults living there. It was very depressing. Prior to that, it was homeless moms at the turn of the century, which was not commonplace then as it is today. So it’s kind of have a sad history but now it’s all bright, young, hopeful, people from all over the world, and it’s just a wonderful energy and that’s where I’m lucky enough to be based every day.
Rich: That’s awesome. Not everybody can say that about their building on Main South.
Russ: Well, we have a large fence 30,000 square feet and security cameras at all times all around the perimeter, so occasionally a very vicious puppy comes every Tuesday [laughter].
Rich: What kind of vicious puppy is this?
Russ: A mini Labradoodle, but besides that –
Rich: A mini Labradoodle. Anything adding an – an oodle is —
Russ: Doodle, yeah doodle, not [crosstalk 1:03:20]
Rich: Yeah, I’m sure we’re going to get some questions about pit bulls smoking marijuana any moment now [laughter]. It’s just a matter of time [unintelligible 1:03:29] infested with bed bugs, but there’s still another one.
Jim: Water heaters, tank-less or tanks, and with the new regulations, what are you doing? Are you stocking up on old units? What’s going on there?
Russ: What in the regulations?
Rich: Combustion air, is that what you’re talking about, Jim?
Jim: There’s a whole new series of regulations for the tanked water heaters energy efficient mainly.
Mike: Most of the water heaters that were before, they’re also out now. If you can find a couple of and you can still use them, but you better go to the new ones now. They’re a little bit more expensive. There is more insulation in them. Anything you put in your solar now, you need to bring in combustible air, and that’s just two 6-inch pipes, one goes down to the ground, a foot off the ground and one comes straight in. It has to be a foot below the floor joist. If not, you’ve got to put an elbow on the end of it. But don’t put it near where the hot water heaters are because the cold air that’s coming in there sometimes will give you a problem with blowing out your [unintelligible 1:04:44] and your hot water heaters. So as long as it’s in the cellar, you can put it anyway. You might get away with one pipe, but if you got three hot water heaters or four hot water heaters and the boiler in too, you got to plan on two pipes. No good bringing out the inspector to check that because the next thing is he’s going to say is you got to put in the combustible air, then he’s going to put in the seal alarm. The only thing now is the seal alarm needs to be hotwired. Now you can put in a battery-operated seal.
Rich: In the basement?
Mike: In the basement. You got to have a seal in every basement. You can put a combo on the one that you have at the bottom of the cellar stairs if you want, but I just basically put in just a battery seal all over by my hot water heaters and that covers me.
Rich: That’s in an open cellar? If you have multiple water heaters, you can’t room them off somewhere because of the combustible air.
Rich: Thank you.
Mike: Basically all the hot water is around the chimney. They don’t have them all around the cellar. If you have electric, you don’t need the seals. You don’t even need the combustible air but I mean gas is what you need, oil is and hot water heaters.
Rich: So if you have existing gas-water heaters, you replace them with gas-water heaters?
Russ: I changed over the systems on that Elm Street project where we had eight units per building and the plumber said look to separately plumb eight separate tanks with all of the gas, all of the pipes going all the runs. We decided to use four continuous wall-mounted hot-water boilers for the common hot water, a little more expensive upfront, rebates that apply, but over time, very low cost.
Rich: And these are easy rebates?
Russ: Yes, yes.
Rich: These are like when you buy the thing, you just fill out the coupons?
Russ: Yes, yes. Correct. Correct.
Rich: Doug has a microphone.
Doug: Do you want to take more questions from the audience, too, or do you have one that you want to cover?
Male Audience 2: It’s a quick question.
Doug: [unintelligible 1:06:38]
Rich: I’ve been told not to get out of the chair.
Doug: Let’s just do the water heater.
Rich: I told him I’m not allowed to move.
Male Audience 2: Those wall mounts that you have with the multiple units like about 8, 9, or 10-unit building, is that circulating around so you turn the hot water on, the hot water is there. Does it have to run?
Russ: You can put in a recirculating valve, but typically it’s an on-demand item and if it’s big enough, you have a few so if one goes, there’s still three for example that run.
Mike: I’d put them in by unit.
Male Audience 2: Yeah.
Mike: And it doesn’t, and one of the things is too you got to use a boiler or whatever, or hot water even, you may have to line the chimney, so by the time the plumbing inspector comes out, if the chimney doesn’t look good, he may make you line it.
Rich: You mean like with one of those aluminum things?
Mike: Yes, so what I do you drill a hole through the side of the building, plastic pipe. You vent it outside of the building. It has an intake and an outtake and it takes care of the problem. Probably about $7,000 to hook it all up, you get a $1,600 rebate, and you got to do within three months when you have the gas turned on to that unit.
Female Audience 1: I have a lot of college kids in my house, and I was just wondering do you guys recommend taking security deposits?
Russ: Absolutely [laughter]. Absolutely. That’s the only way I rent to anyone, college student or otherwise just make sure you’re set up to handle all the aspects of the law and I have found that as much as you’re required to do for security deposits and we still do, most students don’t challenge you on whether you follow the law. They challenge you on whether your deductions were appropriate because of course some of them don’t take responsibility for their actions, therefore they won’t take responsibility for the damage. You have to document communication. You have to document any repairs. You have to bill them if they were responsible. For a window smashed and the glass is outside, it wasn’t a vandal. It came from within the apartment and they’re responsible for the gas. But having a tight rental contract with an addendum that might specific things about students that they’re responsible for the gas, some of this maybe intuitive or built into your agreements, but you got to sometimes spell it out and definitely make sure you do the pre-move in condition statement. That’s very important that they acknowledge that; that’s obviously part of the statute.
Mike: I do take security. I take last month’s rent. Sometimes I swing that I take the last month. I don’t do security but basically I’m back now doing securities again. You got to put them into special accounts. If you do go to court and you stood by the cracks that you didn’t take the security and put it in a special account, basically you got to return it to the person before you go into mediation. They got to get that check back and then release. That’s one thing they can’t get you for triple damages.
Rich: Okay, so that’s a good tip. So if you didn’t exactly follow all of the law, really I mean mistakes happen, right?
Mike: If they take you to court, that’s one of the questions the mediator says to them is there a security deposit involved?
Rich: Not anymore.
Mike: When you say yes, well do you have an account for it? If you say no, you could be hit for triple damages if they’re anyway alert.
Rich: We’re going to have the housing court judge and the clerk here next month and we’re going to be talking –
Rich: More about that stuff as well.
Doug: We’ll have them in April.
Rich: April, right?
Doug: A question back here?
Male Audience 3: A question for Russ. What have you found works for flooring for the college students, in bedrooms, living rooms, kitchens, baths? What works? What’s a mistake?
Rich: Do you use bubble wrap?
Russ: I like hardwood floors everywhere – bedrooms, kitchens, just not the bathrooms. One thing that I have changed and if the hardwoods and I refinish all of them. A lot of people say they look good enough. You know what refinish it for $1 a foot, but sometimes you come across some floors that when they were put in, they weren’t the thick enough type. They were kind of the cheaper version. You can’t really sand them out. I’ll go over them with new floors and that can be new oak. That can be bamboo, but either way, it it’s a sleek modern look. I don’t like carpets, the smells, the stains, the cleaning, and I find just long term, it’s a little bit of a bite upfront but it looks better.
It shows better. My demographics I’m going after likes it more and ultimately in the bathrooms, the thing that I found is I used to like these white mosaic kind of looking tiles that came on sheathed at Home Depot with black dots. I bought them by the pallet. They look great. They’re kind of old-fashioned, but they’re clean looking for a bathroom. What I don’t like about them is there’s ton of grout lines and if you have sloppy tenants, and that grout gets dirty, it is almost impossible without a lot of expensive material and elbow grease to get them clean which they never get right. So I’ve started reverting to a more of a 12-inch porcelain tile that looks like marble but it actually is porcelain and they’re about $2.50 a square. Again, it just looks nicer and it’s easier to maintain and clean. That’s one of the things I’ve changed.
Male Audience 3: Hardwood [unintelligible 1:12:08].
Russ: But hardwood in the kitchens, absolutely but not the junk that’s got the gaps and the holes and just because you drop [unintelligible 1:12:16] if it’s not in good shape. It’s new. I put in new.
Rich: If you go over the old floor, you just take care of the thresholds going into the next room?
Russ: Exactly, transitional thresholds, exactly.
Rich: Okay, where’s Doug?
Doug: Over here.
Male Audience 4: Thank you for the wonderful sharing. A question for Russ. When you buy the student housing, what kind of criteria do you use in terms of return, how far away from the college, any other criteria do you use?
Male Audience 4: Thank you.
Russ: I’m not going to give you all my secrets because I don’t want everybody jumping in. There’s enough competition as it is, but something I find very important is location for student housing. People especially those who are from out of Worcester and I was from out of Worcester, but I spend enough time here. I now know it like the back of my hand. But an out-of-town investor pushed out of Boston wants to buy college properties comes to Clark and says, “Wow! I’m looking at a map and wow! Lower Hancock Street, it looks like it’s really close to Clark University. I’ think I’ll buy something there because my broken says it’s a good idea.” You can’t pay students enough to live down there. It is night and day from one block to the next, so you have to not just look at distance and blocks. You have to understand the neighborhoods and realize when to do that, go on a night afternoon on a week to see who’s loitering around the neighborhood because that’s where you want it to be to your property past there.
Rich: How much they charge?
Russ: Right [laughter].
Rich: Those of you who know Main South, you know what I’m talking about.
Russ: Well, that is why I have a metal fence, a nice ornamental fence on every property I own down there. They can’t sit on my wall.
Rich: I lived there for 3 years.
Rich: It really wasn’t so bad.
Russ: It’s [crosstalk 1:13:55] of mine. But yeah location is huge because students want security. They want to be conformable and if they’re not driving, they’re walking. What are they going to walk through to get to campus? So many people make that mistake. They can’t attract the students because they go a little too far out of range, so be cognizant of that, and the return is difficult. For me, I look at it. I won’t get into percentages or numbers but I have to be able to buy it cheaply enough to allow enough of a budget for substantial renovation, not just some lipstick and cross my fingers.
Rich: Mike, same thing as you. Who’s your target tenant, meaning like what market are you generally going after not who’s the tenant you would like most to shoot right now?
Mike: Well, I go after just regular tenants, elderly, regular tenants. I do Worcester Housing. Like I said I got a couple of SMOC. I do CMHA. I do Friendly House…
Rich: For those of us who don’t know what all of those things are, could you just tell us briefly what each one is like what’s SMOC, what’s CMHA?
Mike: They’re all like Worcester Housing Authority. They all have tenants and they have a list of them. Some are better than the others. I really don’t want to single out any group that’s bad, but I do a lot of dealing with these groups. CMHA is probably the biggest one I use. They’re over in Institute Road next to the auditorium, and I admit I do work in some of their apartments, too. They call us for service, but they have a lot of clients that they call us to see if we have apartments. They also do all the check writing over there and they do a lot of check writing for Friendly House, so that’s where the checks come out of. So between Friendly House and CMHA, and Worcester Housing are my three biggest that I try to get after and get those tenants.
Doug: Subsidized tenants just to be clear, so folks on Section 8 especially. Yeah, a question here?
Male Audience 5: For a young person like myself with access to capital 401(k) account, do you have any thoughts on using self-directed IRAs to invest in real estate?
Russ Have you done it yet?
Male Audience 5: No.
Russ: Okay, I have. It’s a great vehicle except the only difficulty is it all rents come in and go directly to that company but most importantly you cannot write checks to any vendors that need to get paid this week. Everything has to through your third-party IRA to dole out checks, so any of your vendors – it’s easier if you have a management company that you cannot be a part of but if you hire a management company and they pay all the individual expenses, you just have the IRA cut a check to the management company. I know it’s such a difficult task. I’ve taken on a few properties, so I’ve used it for properties that I purchased, renovated, and flipped basically, so it wouldn’t have been a capital gain. It wouldn’t have been an ordinary income because it was short-term but there was no taxable consequences. It grows tax-free and you don’t even have to report any of that stuff as far as paperwork because it’s in a tax-free vehicle so it works well. It’s nice.
Male Audience 5: [unintelligible 1:17:18] fees cut into your return on investment that given?
Rich: The question is do I need the fees from that cut into your investment? Well, it sounds like you guys do anyway.
Russ: No, no, no because you pay a yearly maintenance fee for the size of your account based on the cash balance and the asset balance, so that’s it. It’s a flat number and transaction. So per check or per transaction, they got a 20 or 25 depending on whether you want an expedited service, so it’s not an ala carte menu, but it’s well worth considering the tax consequences are significantly higher than your transaction fees.
Rich: Russ, of course you’ve consulted a qualified financial advisor, accountant and/or attorney–
Rich: When doing all of it?
Russ: So something I’ve utilized but I don’t use that often. Yeah, exactly.
Doug: We have a follow-up.
Male Audience 6: Actually, there is one you can do to make things very easy for you. You can associate the IRA with LLC. LLC can have checkbooks, so they can write the checks to the vendors, so you don’t have to go through the IRA, so you can look through those website. You can find out.
Doug: Thank you. Question back here?
Scott: Yeah, two questions. One is what’s your philosophy on pets? The second is utilities like do you submeter? How do you deal with water usage issues?
Mike: I pay lights and gas for one unit and the only reason I’m paying for that unit is I’m rehabbing the building and the gentleman wants to live there, so he pays me a rent and I pay for his gas and lights; other than that out of all my units, they pay for their own. On your pets, I don’t allow, but I’m a little bit – I have leeway. I’ve had 10 cats. I’ve had 80 cats in an apartment, so I have to get rid of them.
Rich: That’s a lot of leeway, Mike [laughter].
Mike: Yeah, but when you find out, you got to do something about it, so I had to get a company out of Boston. They come in. They take all the cats out, and they do it free. I just had a lady with 10 cats a few weeks ago. I found out I —
Rich: I’m not going to make a joke of any local restaurants doing this [laughter].
Mike: [unintelligible 1:19:42] sends out somebody, and they took all the cats and you just make a donation. Dogs, Rottweilers, pit bulls, I try to avoid them. I mean I know they stink. when I find out, I try to go after them to get rid of them because I don’t want those dogs.
Rich: So like less than 80 pit bulls per apartment.
Mike: [crosstalk 1:20:01] if you have those dogs. They’re on top of the list. Even the German Shepherd is on top of the list.
Mike: I don’t trust the dogs when I go in. I make the people lock them in the room or my guys go in and make them lock them in the room. I don’t want them out where I was in a house there for receivership, and the lady was locking them in the room. But in the meantime, I was [unintelligible 1:20:24] late to get her out of the receivership because she was most of the problem there, and the house is in bad shape. So when we got her out, no word of a lie, there was feces that high in the corner in her bedroom.
Russ: Thank you for that visual, Mike [laughter].
Mike: And all she did was shovel it into the corner [laughter].
Russ: I can’t get that out of my head now. Thank you.
Rich: I can’t get it out of my nose.
Scott: For your demographics, the people that you rent out with, how do you deal with them?
Russ: Thank you. I do pay for utilities for a number of mine. When I first started, I said, “No way, no way. I don’t want the windows open in February and all the wasted utilities.” But I have found a grouping of properties that it just made sense with the amount of improvements we would need to change it up. From a common boiler, I just changed it to a better oiler. Instead of oil steam, it was just gas with baseboard. What it does especially for the foreign students, they like to have ability to have a budget because if they had it per rate between three roommates, heating and electricity, but I find that I build that into the rent and that they will pay for that convenience. When I compare what the premium I get for the all inclusive unit compared to my cost, its’ a money maker. I usually want it netting more overall because of the extra I charge that what it actually costs me as long as you properly monitor it. Look, I have a property on Main Street. I love it, it’s beautiful, but I sometimes see a window open and the student will say I like fresh fair, but yeah you got it up to 90 degrees in here. You don’t need the window all the way up to this happy medium. So there’s an education process for some of them.
As far as pets, we have a pretty strict no-pet policy except for a few pet-friendly buildings. How do we decide what those are? They got to have a yard. They’ve got to have parking. They’ve got to be smaller units. I often find it’s not the pet is the problem. It’s the owner that doesn’t take care of that pet is the issue. We do not allow big dogs. Look, I’m a dog lover. I don’t particularly care for cats, but if I were to pick between the two, one or two cats is definitely better than a noisy dog that may chew things up and start barking in the hallway.
The reason we have a strict policy though is if we let one person in the building do it, others will just get them without asking assuming it’s okay, and then you have all hell breaks loose and you have dogs competing for whatever, so we’re pretty strict about that except I just have a few. But I have found and another friend of mine who also did this said that if selectively allowing them in and having regular inspections on the condition of an apartment, those people stay longer because they have a harder time finding pet-friendly buildings.
Russ: So to be selective but offer the off street like the yard and everything else but make sure they pick up and they’re responsible owners but you have a pet addendum that talks about what is required, that they can lose the right to have that dog or cat. One last thing about it, if you find out about it and it’s not agreeable to you, nip it quickly because if you go in months later, “Well, we’re attached. What do you want us to do? I know we didn’t ask but now we love it.” You don’t want to get that whole thing, so address it immediately.
Rich: Right, and Scott had mentioned splitting up utilities, water submetering. Yes or no, Russ?
Russ: I’ve never done it.
Rich: What about Mike?
Doug: Question here.
Female Audience 2: Yeah. So you guys are just awesome [unintelligible 1:23:50] let me say that first.
Russ: Thank you.
Female Audience 2: But going back to water heaters, I want to interject then but I didn’t have the mike, so have you ever considered leasing water heaters to some of those companies that lease? At least instead of having to buy them, then you just pay like a monthly fee.
Female Audience 2: We had to do it upfront because then we didn’t have enough money for a bunch that we had to replace at one time. So I looked at it and I said, “Well, if you look at it how many years because now water heaters are like a 6-year warranty I think, it’s pretty low, and we have a bunch for old ones, electric ones or whatever so that’s kind of how we did it at one time. So I just didn’t know if you would ever consider that either of you instead of buying them, especially with you renovating.
Russ: I inherited them. When I bought buildings, there were existing leases and I’ve had to take those over. That’s my only experience with that. I have always chosen to buy what I want and deal with what I want and I’ve never entered into a new lease. I haven’t considered it.
Mike: It’s cheaper to replace the hot water heating yourself with a plumber than to rent it. I think quite I’m too like Russ did and I buy them out. You can make a deal with the company. Even now if you’re renting them, you call up the company and make a deal. They don’t want to rent to you. They’ll make a deal with you and they’ll sell them. A hot-water heater could last 8, 9, 12 years even though it’s a 6-year warranty. You are paying all that time and —
Female Audience 2: They’re basically free, so if you do —
Mike: Right, but the money you’ve saved, you get it for $1,000, you can have one put in.
Rich: But for somebody who ends up with a situation where they have to replace three of them, they don’t have $3,000, then leasing them could be an option.
Mike: All three go at them at the same time, though unless you have a problem.
Female Audience 2: Right. When you construct, when you’re doing like we do what Russ does?
Female Audience 2: We just got out the building, so then we have to put a bunch in at one time, so that’s kind of what our situation was at that time. Now we just buy replacements.
Mike: Go to the wall-hung units if you’re strict [unintelligible 1:25:45] to build it?
Female Audience 2: The what?
Mike: Go to wall-hung, your heat and hot water combined. You don’t need the hot water heaters and they’re good for 20 years.
Female Audience 2: Enough water though because —
Mike: Plenty of hot water. I get big families in there. They give up plenty of hot water and it’s constant.
Rich: And a lot of cat bulls that you needed to keep soaked with water, 80 of them.
Doug: There is a recommendation for AWHR.
Mike: AWHR, $20 a month.
Mike: And no —
Doug: Yeah, yeah but I personally inherited an AWHR rental and I had a bad experience when the water heater went. They’re like we’ll go out there next month like no.
Mike: [unintelligible 1:26:26].
Doug: Yeah, all right.
Mike: If there is hot water, you’ll really require to get it done by the next day, so you call your plumber and do it because if not the next step is the city and then when the city comes out, they’ll have do it and if you don’t do it, then the city is calling me to come do it for you.
Rich: So I guess Doug might be —
Mike: [crosstalk 1:26:42] lean.
Rich: I guess my concern about not being able to get to 8:30 was unfounded.
Doug: I think I have a question here and a question there.
Male Audience 7: I think this is a big quick. I know you probably don’t want to reveal too many secrets, but do you have any tips that you can give how to find a good property?
Rich: You can plead the Fifth.
Russ: On the advice of my counsel, I plead the Fifth – no. It’s what I do fulltime for starters, so I know people who have been looking for property rely on what’s publicly available. Most of what I own has not been publicly for sale. People always ask me how did you get that, how did you get that. It’s just years of never stopping, always putting my name out there, marketing material, calling. I drive around. I see just properties that are seriously in distress, it’s indicative of a problem and I seek out the owner. Like the 12-unit church that I have, it wasn’t for sale. The guy just was mismanaging it and letting it go down and I eventually badgered him until he agreed to sell it, but it’s a persistent thing. Sometimes they fall into your lap because you’re a known entity but you just got to keep trying it.
For people who pick away at a part-time you have less opportunity because the fulltime investors are snapping up the stuff the moment they come up. But the important thing is being prepared when the right deal comes along because you are competing with someone like me who can make a cash offer, no contingencies, close in 3 days or whatever it is and you’re competing with that. So you have to be ready to pull the trigger, make sure your finances are in order, that you don’t need a home inspector because when that opportunity comes, most sellers aren’t always going to go always for the top dollar but for the person who’s going to cross the finish line first and with certainty. That’s even just as important as finding it as being prepared to grab it.
Mike: I agree with Doug —
Mike: Russ about that. I have a realtor and he does a very good for me. He finds them. He’s even looked at property or I’ve looked at it when I’ve been in Ireland, I’d call him up. He’d go and look at it and he’d buy it for me. But the cash speaks. Cash, I can close in a couple of weeks; all I’m looking for is a clean title. I don’t do a fire inspection because using it needs to be all done over. We go in, we do the fire alarms, then we get our inspection. But the cash speaks, and you got to be set up for the bank that if you’re not going to pay the cash, then you have it, well and good but if you don’t have it, you’ve got to go to the bank to be able to give it to you right away or whoever is going to back you.
Doug: I think we’ll have a few more questions. I have one here.
Male Audience 8: Can you tell us [unintelligible 1:29:44] just your whole philosophy about dealing with nonpayment eviction? To what degree are you talking to tenants and how do you balance moving expeditiously through legal procedure and also trying to give tenants a chance to meet their agreements?
Russ: We have very different experiences. The new courthouse – I call it the new courthouse – how long has that been operational? Ten years, 12 years?
Rich: It hasn’t really because they just took off the new courthouse.
Russ: Okay. How many times, Sandra, have you seen me in there? Three times in 10 years. My demographics do not pay. That’s not a really a proper sense, but they don’t stiff me because I also got their parent guarantor signatures. It’s one of the aspects about them that are great. They maybe slow pay because they maybe out traveling Europe, then they come back and pay for the semester in advance. It’s a different animal but I don’t often have it but what I do know is when I’ve advised other landlords who have one or two pieces that are getting screwed, it usually starts with a mistake that they made. They started too late. They waited too long and the bigger mistake I find most landlords they get emotionally wrapped up in the decisions they’re making. They get pissed.
You just got to get this people out if they’re not going to pay, I kiss the money goodbye. Pay them to leave. Cash for keys is magic. That’s half the reason. The only time I’ve been in court is because of tenants I’ve inherited, and they didn’t take my cash for key offer and they felt they could drag it out long. That’s been a handful of times in 10 years and that’s not someone I rent to but someone I’ve inherited. So I know the legal process, but I know the biggest mistake in how you get in there is hire the right attorney, don’t try and do it yourself, and act quickly so that you don’t get taken advantage of because the longer it goes, the harder it’s going to get and you’ll never see that money again, so.
Mike: Sometimes I kind of slow out myself, but if someone is not paying your rent after the 5th of the month, get your 14-day notice out. Now you cannot hand the 14-day notice or give the 14-day notice to the tenant anymore. You got to have it served because if they go to mediation and they’re shown the 14-day notice, she says she never received it. You go on hold and you got to start all over again.
Sandra: You have got it witnessed.
Mike: Right, but that means you got to bring two people with you.
Rich: Sandra commented that if you have a witness, you can do it. Also if they sign it, they might sign it, they might not, but if they do, it will be difficult.
Mike: They’re not going to sign it. They’re going to fight you, and they don’t want that notice. They know what’s coming after that and you don’t want to get into that problem.
Russ: But a lot of my philosophy is prevention — have the right property, have it in the right condition, you attract the right tenant, you maintain things properly. You have the right rapport, relationship, you won’t find yourself as often. It’s not guaranteed but it will prevent a lot of the headaches that I know landlords who whine and moan to me about their properties. No one in here in particular, just others I know just constantly are tortured. They’re the problem, not the tenant. They don’t have a good product. They’re not good with responses to their tenants, and they always wind up in court and they get screwed every time but that’s their opinion. They have it coming to themselves. There’s a lot of things you can do to preemptively avoid all those problems.
Mike: You have to respond to the call and if you got a call, you got to go. If you stiffen them, they have no hot water and it’s a week before you get there, the city is going to be called. If there’s a broken window, the city is going to be called. The heater don’t work, they’re going to call the city. The minute the city comes in, they’re going to call you anyway and you’re going to do it right away, so you might as well do it right away before they call the city. That’s the first. Once the city comes in, they think, “I got him. I don’t have to pay the rent for the month.” They say the city tell me don’t pay the rent. The city don’t tell them not to pay the rent. The city says you’ll be out here fixing or whatever and you got to fix it and then they come back and inspect it. But when they tell you that city told them not to pay the rent, the city don’t tell them that.
Rich: By the way, there are yellow comment cards around. If everybody could fill those out, those are always very useful. They help us figure out what we’re doing right and what we’re doing wrong. Don’t comment on if we end the meeting on time, that’s not a criterion. Do we have some more —
Doug: Was there a question here on this side? No? A question up front. All right, last question.
Rich: Also, if you guys think that this stuff is valuable, we might even do something like this again. Like I said, there’s a lot of opportunity in the group with the knowledge that’s just in this room, so your comments are important. Also bring a friend.
Dennis: My name is Dennis from Molinari Insurance. I was wondering if you could just touch base on how you guys handle your insurances with all your properties and do you require tenants to carry content coverage and things like that?
Rich: Great question.
Russ: I have offered the contents insurance option to people who are concerned and no one seems to take it until they need it. That really seems to be the philosophy. I put a lot of insurance on my properties. I have extra liability policies. Again as sort of insulation in case of problems, so that’s sort of the business side. If you’re from the insurance business, that’s obviously where your focus is. I have it and I cover all of that but what I try and do is prevent all the liability issues that create lawsuits, slip and falls, damages, and so forth. I’m in the prevention business in a lot of ways, so I’m not always putting out figuratively and literally little fires out everywhere so that it’s less of an issue, and I don’t have contentious relationships with tenants. I’ve never really heard of a tenant that has a great rapport with their landlord that sues them. It’s usually when there’s a pissing contest – excuse the expression — that tends to get yeah, we’ll get you and then they get a lawsuit going. So it’s all of it. It’s the management, it’s the rapport and everything. It’s the risk management as all are in the business, this is all risk management. It ultimately comes down particularly how to cover your butt with insurance. I mean I don’t know if you want limits and all that sort of stuff, pay a $1 million liability per property and all that sort of thing, yes.
Dennis: Is that all your concerns with one company [unintelligible 1:36:36].
Russ: They’re with one agent, but different companies because not all of my properties fit into the criteria that every company wants. I have lodging houses. I have student housing. I have nonstudent housing, so they all have their sweet spots of they prefer more than their prices are better, so.
Rich: Awesome question. Mike?
Mike: I’m kind of self-insured. Basically when I started, I was insured. My insurance bills are going high, and I’ve been in there for a long time since 1975, so I’m probably about 10 years into it. I started self-insured. If I were to buy a three-decker today in a total loss, I’m going to go get $140,000. I just cover my note and that’s it. If I don’t have loss or rent like a $5,000 deductible, if there’s a water leak, I don’t go call in the insurance guy. I want the insurance company trip and falls or anything anybody is going to sue me, I want them to cover that. The fire? I get $140,000 to $160,000. That’s it. I don’t get the $400,000 and $500,000 people tell you they’re getting for fire, and basically —
Rich: So what you do with the burned-down lot?
Mike: Fix it.
Mike: But over the years, I’ve made money on it because I haven’t had to pay. I’ve had like over the years I had three fires and hoping [unintelligible 1:38:02] have another one, but basically I have a contractor, so we go in. We do whatever we had to do and we fix it up.
Rich: You’re doing a great job not screaming right now, Mr. Insurance, Mr. Molinari [laughter].
Dennis: That’s established enough [unintelligible 1:38:22].
Russ: Yeah. Let me say something though about prevention because it came to my mind just a little while ago just before I came here tonight about prevention – preventing mishaps, preventing somebody getting hurt, you’re getting sued, but just starting a bad relationship with the tenant that gets hurt. Once it gets damaged, the relationship is never the same and then you’re always fighting an uphill battle. Before I left for here, one of our maintenance guys was in our Bobcat, clearing the melting snow because there was some thick snow. We’re getting record-low temperatures this weekend. If I didn’t get that slush off the sidewalks and the off parking lots, it will be a block of ice for which everything else will build on top of. Again it’s prevention, so with a little extra money, but it keeps things cleaner and easier to maintain and less likely to have problems in the future, so just keeping that mindset whether you have two properties or 20, it applies. It’s a business. Treat it that way.
Rich: I can’t think of a better way to end the meeting than that. Let’s hear it for these guys [applause].