Welcome back to the wisdom, lifestyle, money show. I'm your host, Scott Dillingham. Today, I'm going to dive into a topic that I wish I knew years ago, and it was how to successfully manage a real estate business when you're busy. So I find that is the biggest challenge for people that want to get into investing. Especially the ones with good incomes and down payments to make this happen.
Scott Dillingham:Often you're too busy with work. You're too busy with life. You cut up family, kids, all the good stuff. What happens is a lot of people that would be investing are not investing. And real estate investing is actually very important.
Scott Dillingham:There's lots of people, even friends of mine that are tenants and they talk about their landlord and how they don't like their landlord and this and that. And not every landlord is at the same level as others. But what happens is a landlord purchases a property and a good landlord will renovate it and turn it into an amazing place to live for somebody. So that's how I run my portfolio. And that's how I suggest everybody does it.
Scott Dillingham:But yes, the slumlords deferred maintenance, not being available, returning calls. That's not good. And that can happen if you're too busy and you try to get into real estate investing. Again, I want to share with you tips and advice that I wish I knew when I started investing in real estate, because it would have made my first few years that much easier. So I've spoken about it in other episodes, but really it's super important to have the right team.
Scott Dillingham:Absolutely. I would say you want to have a property manager. So again, I know I covered this in a previous episode, but the thing is with a property manager is they take a lot of the landlord and tenant issues away from you. So you get to focus on your life and what you want to do and not dealing with broken toilets or tenant disputes or anything like that. So a property manager has a cost, but if you look at it, like how much is my time worth?
Scott Dillingham:Is me paying this much to the property manager worth that time? And of course it is because time is our most valuable asset. It's the only thing we can really not create more of in our lives. Time is super important. The first part of this is about your team.
Scott Dillingham:So obviously yes, you want to get your property manager. You want to deal with an excellent mortgage lender like ourselves or any other lender that specializes in rental properties. I do not recommend just going to a mortgage broker or a bank and applying. They may be able to help you for the first one, two, three, maybe even four. But a lot of times we find we get clients that have all these properties and they're stuck and they can't move forward.
Scott Dillingham:So we undo the lending and the structuring that they've set up and we reset it and swap lenders and tweak things. And we do that to optimize the cash flow of their portfolio, but also to maximize the amount of mortgages they can get. Cause if you choose your lenders out of the wrong order, you're going to limit yourself. So again, back to the team, right? You've got to have that good mortgage lender or broker or bank that specializes in working with investors.
Scott Dillingham:You need to have a good realtor as well. A real estate agent can sell you any property. But if you're working with one that specializes in working with investors, they're going to say, you know what? You should avoid this area. The vacancy is a little high over here and the turnover is high too, because it's not a great area.
Scott Dillingham:So in case you don't know what that means, turnover is if somebody doesn't rent a property for a long period of time and then they leave and then you get a new tenant and they quickly leave. That's a high turnover. Or if someone wants to stay for a couple of years, that it's a better and stronger property. Oh, a good realtor who understands working with investors. A lot of them, like I said, we'll sell you a rental property and say, oh yeah, we work with investors.
Scott Dillingham:But in Windsor, there's probably less than 10 realtors that I know of that actually really focus on real estate investors. And I might be wrong when I count them, but that's just what I know personally, but there's more than 2,000 realtors in Windsor and Essex County. So it's just a fraction of it. So there's a very big chance. If you don't know who you're dealing with, you could be dealing with somebody who's not a good fit for you.
Scott Dillingham:So again, when it comes to investment properties, it's all about your team. And I would say even your banker, right? So even if you don't get your mortgage from a bank, it's good to work with somebody in the bank that understands money. And I know it's like an oxymoron because you would think people working in the bank understand money, but most of them don't. A lot of them are just there.
Scott Dillingham:It's just a job to get them to where they want to be. It's just something in the middle there, but you want to understand or work with somebody who understands banking because then they can make some tips for you. They can show you how to increase your down payments faster. There's all kinds of cool stuff that they can show you that most regular bankers are not aware of. Okay.
Scott Dillingham:Having a banker super important. Having a home inspector super important. Having a good lawyer who understands investors is important as well because most lawyers will be able to transact your real estate purchase or refinance, but very few know little about the landlord and tenant boards. It's super important to know about that, especially if you're getting into investing. Again, it's all about the team and all these team members.
Scott Dillingham:If you leverage them and create this team together and collectively, they will save you a lot of time. So I think that's truly one of the first and most important steps is to have that solid team from everyone, even contractors. You've got to look at that, like contractors, there's so many people. Now, if you're looking for any realtor recommendations or referrals, please let me know. Give my office a call.
Scott Dillingham:I don't care if you use us for the mortgage or not. Like we wanna help and we'll show you. We'll guide you to who we know that does investment properties. We will not recommend someone to you that we do not know. And if we don't know someone in your area, we'll also let you know, but we know tons of realtors across Canada.
Scott Dillingham:So give us a call. My office line's (519) 960-0370, or you can email us at team. So team@lendcity.ca. So that's L E N D D I T Y dot CA and just say, Hey, I'm looking for a referral in this market. And I will let you know, as far as the realtors are concerned with who's best.
Scott Dillingham:We do know a lot of lawyers in different markets and a lot of good property managers as well. So we can make those referrals to you as well, if that's what you're looking for. We generally do not recommend any type of contractor find with COVID supply issues with materials. The good contractors that I know and use are they've quit. They're booked for a whole year.
Scott Dillingham:It's so hard to get good work right now for, from a contractor. Not to say it's impossible, but that's an area that I think is tough to make referrals in. And we don't recommend any contractors unless we know and seen their work because we don't want to suggest someone to you. And again, it's the project turns out nasty. So we want to avoid that at all costs.
Scott Dillingham:We won't make any contractor recommendations. But so again, back to the team. So every single person is important and you might not think you need to create a team with that many people in it. And you need to, even if you're not going to use a home inspector on this purchase because maybe the seller or like just whatever the scenario is and you feel confident about not using a home inspector, you still need to have one on your team because the next property is going to come up where you may not have that confidence. And you're going to be like, you know what?
Scott Dillingham:I need a home inspection on this thing and you will have your contacts. So even if you don't need the person now today, even in the near future, it's still good to call them up and say, Hey, I'm building my power team. I just want to interview you. Just see if we can connect. And if we do, I'll use you as projects come up and that's it.
Scott Dillingham:So you want to create that power team. You want to do it early, right? If you have the right team, you're laughing. And my first property was a single family property. I don't know if you heard my beginning story, but the there was an investor from Toronto.
Scott Dillingham:He asked me to find a property, like a wholesale deal. He was going to buy it. So I found a nice wholesale deal. I put in a cash offer because that's what his instructions were to secure it. I got the property and he ran away.
Scott Dillingham:So I had to do it. Like I had to take over and purchase this and move forward. And again, I'm so glad it happened because I, we had to repair everything in the house. There's not a renovation or a fix that I'm scared to do. But what I did discover is I did have a couple of contractors.
Scott Dillingham:And what I did is I started them with small project on the house to test them out and see if I liked their work and working with them, that type of thing. And I did that until I found one that was really good. And then I had them do the whole, like the rest of the property. So if you're getting into a big project and you don't have a good contractor, I recommend just starting them with just a small job and just see if you can connect, if they show up in a timely manner, if they're professional, like their work quality. And that's how I would work and find a good contractor.
Scott Dillingham:Then we come back. I've talked about the team. I'm going to talk about the finances. We have to take a quick pause and we'll dive into the finances and how to optimize everything on autopilot. So you, it requires none of your time.
Scott Dillingham:Welcome back to the show. So this part I'm excited about because dealing with the team I think a lot of investors do know that I like to stress it because again, a lot of new investors, they don't build the correct team. So I do like to talk about it, but the experienced investors know how important a good team is. So the first part of the topic for any investor who's experienced, you probably want to fast forward through, right? Cause it's something you already know, but financial part of things and automating.
Scott Dillingham:That's really cool that I see a lot of investors failing at. And I did it to my whole portfolio and it is absolutely amazing. Just the time savings. It's a really simple process. You just want to automate all of the expenses.
Scott Dillingham:So with my property manager, he actually has direct deposit. Most of them will have direct deposit for you. I just, I have one bank account and I have him direct deposit all the rent into that bank account. And then what I've done is I've set up all of my mortgages to also withdraw from the same bank account. So that's all taken care of.
Scott Dillingham:Now property tax is debatable. I get asked all the time. Should you include property taxes with your mortgage or should you pay them to the city separately? I like to pay it to the city separately. I don't like including them in the mortgage.
Scott Dillingham:The reason is some years that the city or town that you're investing in, they may or may not increase the taxes. I've had some investment years where they did not increase the taxes. I had some years where they increased them a lot and other years where they increased them a little. So if you build in your taxes with your mortgage, the lender is going to just take an average. And what happens is at the end of the year, they're going to say, okay, I'll pick an easy number Just to go with it, let's pretend your taxes are 1,000 for the whole year on a property that's super low, but just as an example, and they feel that the market's going crazy and the taxes are going to go up five to 10% this year, then they will make your payments $10.50 to 1,100.
Scott Dillingham:So that's what they start collecting from you. However, if the city says, no, we're only going to increase taxes 2% this year. Then the bank is collecting more money from you than what they actually pay out in taxes. And the banks, they like to get a surplus from you as well. They don't like to have to pay tax bills and then you pay them back.
Scott Dillingham:They're doing it as a service. They're not charging for it. So they don't like to use their money. They want to use your money. So they charge you extra to build up that surplus.
Scott Dillingham:So if the taxes go up, they're not paying out of pocket while they wait to collect it from you with the regular installments. Just with the way that they do it, you get the money back. If it's the end of the year and there's a big credit, they'll issue you a check. They'll allow you to pay it to your mortgage. There's different options, but I'd rather have my money with me now as opposed to having the bank hold it, me not making anything off of it.
Scott Dillingham:And then just getting it at the end of the year. Like, don't like that. I want my money now. I prefer to pay my taxes direct through the city and not with the mortgage lender. Now it's pretty easy.
Scott Dillingham:You just call up your city that you're buying in and you just say, Hey, I need the pre authorized debit form to set up my taxes for automatic payments. And it gets done. So I do the taxes automatically. There's some properties like duplexes that have single meters or even larger units with less meters than there are units. Sometimes there's meters for common areas that's billed to the landlord and the tenants have their own separate meters.
Scott Dillingham:So they're paying their own utilities. So where possible, I get my tenants to pay their own utilities. However, if there's a shared meter, I will always set up automatic payments. Plus, even if you have a separate meter, what the utility companies do, I can't say they all do, but all the ones that I've personally dealt with is when your tenant moves out and they set up an account for you, they charge you a fee to set up the account. Where if you have it automatically set up through them, where they can take any payments or whatever from your bank account, a lot of times they waive those setup fees between every single tenant.
Scott Dillingham:By automating that process, it's been really cool. Plus I had it at one point where in my online banking, I actually couldn't add any more bill pays because I had so many properties and so many things going on at this account here and that account there, different cities. Right. It was so much that I actually couldn't add the bill payee on my online banking to pay the property taxes. So I had to delete like a credit card or something.
Scott Dillingham:I had to delete something to add in the tax bill to pay it. So it was a huge pain in the butt. Automating it was absolutely incredible. And then obviously any other expenses like home insurance, I would automate that from the bank account. And when you take all the expenses that are rental property expenses and you withdraw them from the account automatically, and you just look at your account, you get an average of how much is left over at the end of paying all your expenses.
Scott Dillingham:So I would set a bare minimum of what I need for in like in my bank account. A lot of times the suggestion would be like three months rent per property. That's been my focus of what to have in there as a minimum. Everyone's different. I didn't want to do much more than that.
Scott Dillingham:I've heard some people say you should have six months rent per property. I think that's a little high personally. If I can have those funds instead and invest them somewhere else, I'd rather do that. And for me it's worked perfect. So make up your own thing, but I would have a reserve fund in there.
Scott Dillingham:So that way, there is vacancies, right. The mortgage payments, cause they're coming out, it's automated at this point. So you want to still make sure you have that reserve fund in case the there's some vacancies on a property or multiple properties. So that's all automated. And then I, I send myself the balance and I use it for whatever I want to use it for.
Scott Dillingham:And then taxes and I don't do any mortgage principal pay downs while I'm growing my portfolio. And there's a lot of clients and a lot of people I speak to that are as a homeowner, the mindset is pay off the debt, pay off the house as quickly as it can. Credit card debts bad. Like all this stuff's bad. So you want to pay off debts when you're an investor.
Scott Dillingham:You still I still don't like going anything on my credit card and I'll pay it like every single month in full. And if I can't, it pisses me off. It's very rare that I don't pay it in full, but when you have this, those big random expenses come up and I could take money from other accounts and paid in full, but I try to if it's for rental properties, I try to only have the rentals pay it. If it's for my business, I try to only have my business paid. I try not to take anything from the other accounts, but long story short, what I'm saying here is you want to know exactly what's coming in, what's going out.
Scott Dillingham:And with investors, you have to understand that the debt is not bad. So you don't want to pay off your mortgage right away. If your goal is to acquire additional properties that doesn't make sense. Plus if you increase your mortgage payments on your rentals or even your owner occupied home while you're acquiring rentals, it will go negatively against your debt to income ratio and it makes it harder for you to qualify. So my suggestion to all investors is don't worry about paying off your mortgages.
Scott Dillingham:Now use that money, build up your down payments, use it to upgrade your properties, like reinvest into your business. Don't pay down the mortgages extra now. Then what you do is once you've acquired the enough, like the amount of properties that you're satisfied with, then you start changing your focus and working on paying them down. But while you're building up, you wanna keep your debt ratios as low as possible. So another quick tip here, which is not about necessarily automating, but when you are qualifying for the mortgages, I do recommend the variable as well.
Scott Dillingham:I know I spoke about that in another episode, but for investors absolutely go with the variable because what happens is when you're qualifying for mortgages, it's based on your mortgage payment. And I know variables going up. We all know it, but at least if you're buying something relatively in the short term, like relatively quick, the variable mortgage has a lower payment than the fixed, right? Sometimes not half, but a lot of times it's drastically reduced compared to the fixed, but really improves your purchasing power. And then once you've acquired your property, if you're absolutely one of those people that hate the variable and you only want to go with fixed, then you lock in your fixed rate.
Scott Dillingham:That way you are meeting the system, right? You're getting that variable, which has lower mortgage payment, which is allowing you to qualify for more. And then when you lock in that fixed rate, only if you're scared of variable, I keep all mine variable. I don't lock them in at all. I don't care what the rates are doing in the market.
Scott Dillingham:The variables might exit strategy in case I need to upgrade to something bigger and better. So I will never get rid of my variables. I don't care what the rates are doing, but if you are someone that's scared and you want to lock in, you can do that. But pretty much the point of the second part of the show is to automate all of your expenses and income coming in for the rental property. So you don't have to think about it.
Scott Dillingham:Once one property, it's easy to pay the bills, but once you start getting handfuls, all the bill dates are due at different dates. It can almost be like a full time job paying the bills. I know it sounds silly, but like it is when you got stuff going on over here and then you're like, did I pay that bill? And it's a lot where if it's all automated, it's completely off of you. And it saves me so much time.
Scott Dillingham:So we're back to the time thing again. Having the right team for your portfolio and automating everything that you can on your end saves you so much time. Just a quick tip and not to promote, but Amazon Subscribe and Save. I went through everything in my house that I order all the time and I figured out how frequently we bought these items. And I set all of that up on subscribe and save.
Scott Dillingham:Right? So I'm saving myself time. I'm not going to the store. I'm buying those things and it's coming when we need it. And it's just time.
Scott Dillingham:So when we go to the grocery store, it's a quick in and out. It's not this long. Let's go over here. Let's go over there. So everything saves you time.
Scott Dillingham:If you can optimize your life. So that would be my message for you today. I hope this helped again. If you need to reach out to me, you're looking for a realtor recommendation or a property manager or a lawyer, give us a call (519) 960-0370. Thanks so much.
Scott Dillingham:Have a great day.