495 | The Lazy Landlord | James Lowery

24:54And that gave us the ability to have a high savings rate that we could then put into properties. And so once we found financial independence, we really downgraded our... And downgraded sounds extreme. It wasn't a downgrading to us. It was fun. It was gaming the system. We had gone from a fancy condo in a fancy area to a much smaller condo for a third of the price. Actually, I think it was a fourth of the price. And so from there, we sold our cars. We did all these different things to try to have a higher savings rate. And at the time we didn't have any money. So that was part of the reason why we only bought properties for under a hundred thousand dollars is because that's all we had the cash for to put down payments on.

25:34And at the time, all of our properties for the first 10, 12 properties we got, we went to the bank, did a traditional mortgage. We were not doing anything creative. We just did like everybody else does when they buy the regular house. We were putting 15, 10, 20 % down on properties. So sometimes we were having to pay PMI. Sometimes we weren't. It depended on how much money we had in our pockets at the time that we could then put towards a property. And so that was one of the key factors as to why we bought cheaper properties is because that's all we could afford at the time. And that's what made it easier to accumulate quicker.

26:06But we did have some career changes and career choices that happened. So I went from making$12 an hour at a gym to kind of picking up at the bottom of a physical therapy clinic and then working my way up the ladder there to then I was a district manager over the administrative side. And so from that perspective, I went from being like a PT tech to then being like one of the administrative people, then an administrative manager, then the manager of the region. And so part of that's just work ethic showing up. And the idea to us was that our real estate, we were using that to invest, but the companies that we were working for were really our biggest investors.

26:46So we were viewing them as our partners, right? They're the ones that are giving us the money. So we need to put in the work and do what we can to show that we can be promoted to make more money to do all these things so that we can then have more money to put into real estate. And so, you know, our companies that we were working for were actually our biggest investors. That is super cool. So, yeah, I mean, just embedded in there is really like the encapsulation of your five story, right? It's, Hey, we're going to, in essence, upskill ourselves. And we're going to try to earn significantly more money in our day jobs.

27:20You cut your expenses. It sounds like by 60 to 75 % or your structural expenses, at least you saved all that money and you started investing. And obviously whatever investment we choose, I mean, that's our own personal preference. Clearly in hindsight, obviously the real estate investing has worked out marvelously for you. But I mean, that is the path to FI, right? And it's cool to see how that can happen almost on a dime like that. And I want to just slow down real quick on the, all right, we cut our structural expenses 75%. Because I think for a lot of people, even people on the path to FI, right, is, hey, we're earning so much more money now.

28:00We're owning way more than we ever maybe dreamed of. Certainly when I was making$12 an hour, that's not a time to cut. If anything, maybe you loosen the purse strings a little bit, but you guys went the complete opposite way. And there's something psychologically there that is maybe I think you take it for granted as, oh, this is just what we did. But there's something special there. And I'm curious, did you guys have conversations about life goals? Was it a larger picture thing? Or was it just a day-to-day granular, all right, this is the next step we need to take. I'd love to hear how that started.

28:36It was a little bit of both. It was like, what do we conceptually want our life to be? And so for us, we dreamed of quitting our jobs and retiring to go to Europe. And my wife, Emily, didn't really enjoy being an engineer. And so for that, she didn't enjoy her day job. She didn't enjoy going to work, seeing the people that she was, not necessarily the people, but the lifestyle that they had created for themselves. There were people that were dying at their desk. There was a study that came out that the average Boeing employee takes their pension for less than 18 months because they end up dying from heart attacks or whatever stress.

29:10And so for us, it was this concept like, let's create the life that we want. How quick can we do it? And it sounds very easy now, but this was over the course of a year we had downgraded. Again, I used the term downgraded. And from the outside looking in, our families thought that we had like problems. They thought that we had financial problems because we went from living in this fancy condo and having nice cars to downgrading to a smaller condo to then. And part of this is also like, I would have lived in a van by the river if I could have, but you know, there are certain standards that my wife luckily has because it would have just been terrible lifestyle wise.

29:49And so that's kind of another aspect of it is that like, if I'm in something I'm a hundred percent in and is like, you know, I'm going to burn the bridges on my way across. So it took a little bit of convincing to get in convincing is not even the right word. It was, you know, the concept of like, what do you want with life? And so that got my wife on board because at first she wasn't on board with five and actually taking her to a camp five event where she saw there were actual real normal people doing this and they had successfully done it. Right. And we had met Justin from root of good, went to his house, met his family, and then rode with him from his house to the camp.

30:26And so to her, she's like, okay, these are real people. This isn't some like weird concept online that James has stumbled upon and now he's obsessed with. And so it was this slow, gradual change to the point that we went from a nice condo to a smaller condo to a mother-in-law suite of a house that we bought. So we were living in the mother-in-law suite and we're living for free at that point. We're house hacking, right? But our families, specifically my wife's family really thought that we were in dire straits. They were concerned. We were actually, they gave us a ride to the airport to go to a camp fi and they asked us what we were going to.

31:01And I was like, you know, oh, it's a, you know, a financial camp. It's like a bootcamp, you know, and we didn't really know cause we hadn't been yet. So we're trying to describe something that we don't really know what it is, frankly. And, you know, she was like, I just want y 'all to know that everybody struggles, everybody has hard times. And the funny thing was, is at that time we were doing better financially than we ever had. We had tens of thousands in the bank. And from the outside looking in, when we were doing great, we were living paycheck to paycheck. We were happy at the end of the month if we had a thousand dollars in our account.

31:31And we were like, hey, we need to not buy this until the mortgage comes out. We have texts going back and forth about how we needed to manage what little money we had. And then now we're doing the best we've ever done, but everybody else thinks we're doing bad. They think that I've got a gambling issue or that there's some loans somewhere. Who knows what? I don't know what they were thinking, but it's just kind of funny that the outward appearance is what people really take a hold of. But now that's not necessarily the case because they see the lifestyle that we live and now they understand that the sacrifices, I'm going to use that term pretty loosely, that we made then definitely paid off.

32:10Yeah, it was all in service of something. And I think this community, the five community, are the ultimate millionaires next door, right? It's the people who are unassuming and you would never guess by their clothes and their cars that so many of us are millionaires, right? Or on the path to that. And yeah, it's so interesting. That is hilarious that Emily's parents thought you were going essentially to some remedial finance camp for marriage counseling, it sounds like, right? Like, but I mean, I guess it's not an unrealistic assumption if they don't know any better, but you guys, again, we're doing it all in service of the life that you wanted to live.

32:49And yeah, it's amazing to see where you are today. And essentially, as far as I understand it, financially independent from your real estate rentals at a really, really young age, it's absolutely wild. So I'm kind of getting way ahead of the game here, but okay. Okay. So one thing I heard in there was you got like traditional mortgages. Now, like, did you live in these places for a little bit? Like, how does that work exactly? Because I think probably some questions arose when you said that, like for the aspiring real estate investor, like, are there different options for mortgages? Like, is that generally the accepted way to do it is to like get a primary residence mortgage or am I misunderstanding entirely?

33:31No, there are definitely different options. So for instance, one of the places we would buy and live in it knowing that we were going to move out of it in a year. So at that point, you have kind of satisfied your mortgage, like the paperwork that you signed that says, I am going to live in this property for at least a year. And then from there, you get to maintain that same mortgage. So that means that you get to put less percentage down. That also means that you get a better interest rate. Now, alternatively, you can buy a property as a rental property, as an investment property. And typically they will require 15 % down.

34:04And if it's a multifamily property, so for instance, a duplex, triplex, or anything like that, then they require 25 % down. So that kind of changes the numbers on that. But the interest rates are just higher. It's typically one basis point, at least higher than what your traditional mortgage is for a house that you're going to buy. So for instance, if the mortgage rates right now or 6%, then for an investment property, it's going to be 7%, if not a little bit higher than that. That's just kind of a rule of thumb. Okay. So right, 1 % higher on the interest rate generally. So okay. And obviously, it goes without saying, and James has just reiterated that there is no fraud going on here.

34:44You're not misrepresenting to the mortgage company that you intend to live in here. You are fulfilling the stipulations in the mortgage requirement. And you obviously have to read on your mortgage. This is all your mileage may vary. You need to look into it. But it sounds like the boilerplate language, James, as I'm understanding it is, I intend to live here for one year. And once you fulfill those requirements, then like you said, you get to keep your nice mortgage that's on like a primary residence, but still rent the thing out. So that is a cool little hack that is not really a hack, right?

35:17It's just knowing the rules in essence. Yeah, exactly. And for us, it gave us a year to do some thoughtful upgrades to the place, paint the cabinets, put in new appliances. So we're not killing ourselves trying to get a place ready so quickly. We get to wait for the deals to kind of come to us and then just kind of jump on them as we do. And then for us, it was typically a little over a year that we were living in a place and we only moved out when the right property popped up that we could then do the same thing too. So we could owner occupy. So for instance, I mentioned that mother-in-law apartment that we were living in.

35:50That's the same concept. We could live in the apartment and put 5 % down on the property. And we qualified for a better mortgage rate because we were living in the property. And then we could rent out the main house because we're still living on the property. So because of that, we get the residential real estate, like mortgage, the rates, everything like that, the less percentage down as we're living in it. But we also have a section of it that we can rent out. And so that's kind of the concept behind like, you know, a house hack or anything like that, you know, like a duplex, a traditional duplex house hack would be you live in one unit.

36:22So you get to get the lower interest rate and you're renting out another portion of it. So you're kind of offsetting some of your living expenses. For us, the house was big enough and the apartment was small enough that we were actually living a hundred percent for free, including our utilities, our internet, everything. So our living expenses to live in that apartment were zero. Wow. Yeah. House hacking is like the secret key to life. I feel like that's the one thing on my financial journey or one of a very short list that I would do over is yeah. If I had the opportunity, man, if you're in your not just limiting belief, I'm saying here, if you're in your twenties, but I mean, it could be any age, obviously, but goodness, if you're starting out and you're in your twenties and you can figure this out, that is just the key to life.

37:08It's remarkable. So I do want to drill down just on one last thing here. So before, when you said that if you're getting more of like a, not quite, I know there's some very specific terminology, so I don't want to say commercial because I think there is a line of delineation there, but let's say a triplex or a quad, right? You said generally you're going to need 25 % down on something like that. But then in there, you said like, if you're living in one of like a duplex, you can still get the lower residential. Do you know if that applies to the triplex and quads if you're living in one of the three or four units, or is there just like the line of delineation or is that outside of the scope of where you've come across?

37:47No, that does apply. So for instance, if you live in one of the four units in a quadplex, you get to qualify for the 5 % down. The difference being when you put as little down as you can, one, you don't have as much equity, right? And so there's a little more risk involved from that perspective. If the property were to kind of depreciate for any reason. So that's kind of a risk. Another thing is you're paying PMI, which is a mortgage insurance, right? And so sometimes it's worth it. Sometimes it isn't. We've put down as little as 10 % on a property knowing that we were going to have to pay PMI, but the PMI ended up being like$16 a month.

38:20And so for us, the opportunity cost of that extra 10 % that we could use towards something else made more sense. So we would just pay the$16 for as long as we had to. Yeah, that's brilliant. Yeah, it's funny how I think a lot of us just reflexively say like, oh, we don't want to pay any fees. And I think that's good advice, generally speaking. But sometimes you have to look at the more holistic picture of, hey, in this case, if the case is$16 a month and the opportunity cost clearly says, hey, we could do a lot better with this lump of cash, like rolling into another property or do whatever. I mean, then that seems like a no brainer to me.

38:55So yeah, I mean, I think that's a cool illustration of just like think a little more broadly. I think it's easy to think myopically and just like look at that one little, Oh, I just hate paying that PMI, you know? But yeah, that's super cool. So, okay. I think we've gone through like the early days and it sounds like, you know, this was just, I certainly don't want to say a slow methodical process because it doesn't sound like it was slow, but it sounds, it sounds just very thought out and methodical and Hey, we're just gonna, we're going to live in this place. Then we're going to rent it. We're all the while looking for other opportunities and we're just going to keep expanding.

39:31And so you told me before we hit record, you just bought a six unit place. So that expanded from 11 units to 17 you have now. And maybe we could talk a little bit about the process and the whole thing you have going on with renovating the six unit place. But as I understand it, you guys considered yourself financially independent at 11 units. And I'd love to hear just kind of like a general overview of like how you thought of and think of your financial life with 11 units, I guess. Yeah. So we kind of touched on it earlier about like the focus on real estate. I do want to mention we maxed out both of our odds and we maxed out one 401k every year.

40:13So we still have index funds to fall back on. They're just growing in the background while we live off of the cash flow. So that's kind of the key part of cashflow was, you know, it would have taken us so many more years to create the amount of money that we did through real estate. But the 11 units, we were definitely financially independent on, right? So we quit our jobs in 2019 at 28 and 29 and moved to Europe. And at that time, we had nine long-term rentals and we had one short-term rental. And the idea of the one short-term rental was we actually weren't planning on doing any short-term rentals We were in the process of selling off all our stuff to move to europe And one of our tenants turned in their notice to move and so now we only had like a week to place a tenant Before we were going to europe and we didn't trust our tenant placement process at that time remotely Like so we had placed all our tenants there while we were in town and it is a little bit of a process It's a fun process for me.

41:11I actually enjoy it a lot, but I don't trust that it's going to happen within a week. And so for us, we were in the process of selling off our things and we were like, well, let's just take our things, put it into this apartment, and then we can try to short-term rent it. We'll do it for six months. If it doesn't work, then we can always turn it back into a long-term rental. And so the concept was while we're in Europe, we can have this short-term rental. And then when we come back into town for whatever reason, we need to be in town, visiting family, you know, whatever the case may be, we can always just block off the calendar and use the space ourselves.

41:43It's our own things there anyway. It's our couch, it's our, you know, appliances, it's everything we need to live somewhere. So that kind of kickstarted this process. And we had that all the way through. And then it turns out that being a nomad and traveling around a bunch wasn't as cool during COVID, right? So we got, we got shut down in Europe and it was a pretty crazy process. We had to take a repatriation flight from Cyprus to the US. So they only opened the airport for our one flight to repatriate some people back to the UK. And then we got to the UK and it was like London Heathrow was a ghost town.

42:19This was at the height of COVID. This was like the peak COVID time. There were people walking around in hazmat suits. There was only two flights out that day, I think from London Heathrow. So then we flew from there back to the US. And the reason why is one, we thought that all our tenants weren't going to pay. There were all these eviction moratoriums. I mean, everybody was being laid off. It turns out that most of our tenants were going remote or had found other jobs where they could do that. We didn't have a single late payment, much less a missed payment. So that's kind of a credit to our tenant placement process and our tenants.

42:52And another part of that is that we are like quality landlords. We attract the type of people that we want, as opposed to just taking whoever can come in. And so part of that is having a quality property, being a quality person of quality manager of the property is a key part to this. But during that, then we then moved back to the US because one of our tenants had turned in their notice to move. And so we moved into one of our units and then renovated it. And so anyways, I believe your question was, what did our financial life look like? So we were living. I mean, to us, we were no longer living frugally.

43:27I have the healthiest relationship with money today than I ever have in my life. When we first quit our jobs, it was, is this going to work? Because we didn't really know if at the time we had just launched a couple of rentals, we had just gotten a few tenants. And so we hadn't lived off of just our rental income. We had our W-2 job income coming in up until the day that we quit essentially. Now I will say we dipped our toe into the water as opposed to just like outright quitting. Both of us took leave of absences to see if it was going to work. So for me, it was only 30 days. If we miscalculated and we only lasted 30 days, there was some serious issues.

44:07So if we didn't make it that long, there was going to be some issues. So we knew that that one was kind of a done deal. But Emily had a six month leave of absence. And so that was us kind of dipping our toe into the water. If it didn't work, she could always come back. And so we actually got lucky with the timing of COVID because had it happened a month earlier, we might would have thought the sky is falling and she would have gone back to work. But instead, she had already turned in her notice. The end of the six months had happened and then COVID became a bigger deal. So luckily it happened when it did.

44:38I hate to say that it was like, it wasn't a good thing, obviously. But at the same time, if it was going to happen, I'm happy it happened a month later than it did. Yeah. Wow. That is crazy story. It was pretty bizarre. That's wild. So, okay. It doesn't sound, at least from the inception, it's not like you were buying these things in cash, right? So you obviously had mortgages. I do want to talk about your screening process, the tenant screening, because that jumps off the page to me because being a quality person, being a quality landlord and all the tenant screening. But before we get there.

45:12Just again, the nuts and bolts. So today, are you actively trying to pay down your mortgages? Because again, there's a lot of financial implications. It sounds like your guys' expenses are really, really low. And it sounds like you're living potentially internationally for some part, and you're living in some of your properties for others, which is just so cool and brilliant that you get to just zip across and go to these different places. But still, there obviously our cost of life and you're getting the cashflow, but it's, you're, you're paying a mortgage on each of these properties every month.

45:47And there's some again, balance of, Hey, do we take all the cash now? Do we invest it in index funds? Do we pay down the mortgages? Maybe if you got them all in the good old days of two and 3 % interest rates, I mean, is there an incentive to paying them down? How do you think about that? And how do you think about like, as part of that, I hate to ask three questions at once, but like the 15 year plan is the 15 year plan to have 30, 50, 100 doors. Or is it to have these 17 properties that are all paid off and just every dollar of cash flow is accruing to you? So the latter is definitely the goal.

46:23So it might be 20 at that point, you know, but to us, we were we were financially free at 10. We're financially free at 11. We're financially free, definitely at 17. but for us, it was going to be like a fun project. We've wanted these properties. That's the reason why we bought them for five years now. They came up before we quit our jobs, but they were just like, it was again, a limiting belief. I didn't believe that we could get them. And so the idea being like, we do own one property now free and clear. And so if it hadn't been for these properties, the new six unit, we probably would be paying our properties off as opposed to trying to accumulate more, but the right opportunity came up.

47:03And so it's always, it depends. And it's as easy as changing your mind on something. It can be very fluid. There are times that I'm like, you know what? I want to pay off all the mortgages. And then there are times that I see a six unit and I'm like, you know what? That's going to be a really fun project. Let's not pay off the mortgages. And so it's kind of one of these things. It's like six of one, half dozen of the other. It can always change depending on what your goals are. And for us, we don't want a hundred doors, right? So the idea would be we have a lot of equity built up in a lot of these properties.

47:34If we wanted a hundred doors, we could just get this big portfolio loan and take a lot of that money out of the properties and then use that to buy more. But we don't want more leverage, even though we just signed on to take the six unit. So, you know, take all this with a grain of salt. But now it's turned into what will be a fun project. What can I do with my time, in retirement. And it's like, I actually enjoy doing the renovations. I do not like to do any repairs. So I'm not going and dealing with a plumbing issue or things like that. But if I'm going to take down a wall and move it, that's fun for me.

48:08Or the concept that we use for our short-term rentals is we have a very specific avatar in mind. And so it's always fun to put ourselves into their shoes and say, okay, what is this person coming for? What would they like in the property? What are their issues going to be? And how can we solve those issues before they have them? And what would they like as the decor? So it's not necessarily for me anymore. It's not, what does James like? It's, what does this person like? And so it's a fun process for us. That is really cool. And yeah, it's interesting that, again, our FI journey and even post-FI, things can change on a dime and that is okay, right?

48:47I mean, it sounds like you're in the early stages now of this renovation of these six new units, right? And you are doing a significant part of the renovation, which is wild. So I mean, it's not like you're just kind of waltzing into Huntsville for five days and seeing the property and leaving and going to Cyprus or wherever. You're, it sounds like, going to be in Huntsville for a while. And again, that's okay. Yeah, exactly. So the idea, and there are times again that this changes, it's like, we want to spend as much time during the winter in a warm location, right? So we go to Florida, we've spent a few months in Mexico.

49:23And then, you know, there'll be last year, we spent seven weeks in Europe traveling around. And so it's like different times, there are different places to be and our families are in Huntsville. So for us, it's an opportunity for us to spend time with our friends, our family in the time that it's like getting warm, but it's not unbearably hot yet. And the same idea for Florida, there's no way that you would catch me in Florida in July. Like It's not the place to be. So July, for instance, we're planning to go to Colorado and spend the month hiking because we're planning to do Kilimanjaro in August.

49:54And so it's like life just happens and you get to take on these fun things that you want to do. And if I have to take a two to three month detour in Huntsville and end up spending more time with my family and friends, that's not the end of the world. No, that sounds pretty good. So, okay. I don't obviously want to get into like precise numbers. That's not usually the game I play here, but let's just say hypothetically each of these doors on this unit was a hundred grand, right? You said something about that number before. So 600 ,000, if you're putting 5 % down, you have to come up with 30 grand, 10 % down, 60 grand.

50:27So, I mean, there's a significant amount of cash that needs to be put into this, right? How, because I think this is something also like potential real estate investors or fledgling real estate investors are curious about, like, do you just have that sitting around like in your real estate LLC's bank account for like, hey, we might distribute this out to our own personal account. We might pay down the mortgages or we might want to have optionality for the future of buying a big unit or buying more units. Like, what do you actually do with the cash? Like, was this, hey, we needed to sell our own index funds on the personal side or like, was this more the business side, if that makes sense?

51:07So yeah, there are kind of a few things to unpack there. So I think that most people that are involved in real estate are typically a little cash heavy. I think that that's just like a natural way to lean because there are emergencies that happen. There are things like that that happen. And so if you're an index fund investor, it's a lot easier for you to kind of project what your expenses are going to be for the next six months to a year. And overall for a year, you can kind of do the same thing with real estate. But at the same time, there will be times that something happens. There might be a property that pops up that you want to be able to buy.

51:39And so just for example, we have bought properties with cash so that we can close quickly. We don't have to go through an appraisal. We can do these things. And so our offers become that much more enticing. And then we turn around and refinance six months later, once the title has seasoned enough, and then we can pull our money back out. So that's one thing. We do keep kind of more in cash than most, I would say, early retirees do because of the kind of heavy leaning towards real estate. Now, particularly on this property, I will say once you get five or more units, it turns into a commercial loan.

52:12So we structured the deal completely differently on this one. So we actually have a couple of partners on this deal. And so we are the sweat equity. We're the ones that brought the deal to them. And so they have put in 25 % and then we have a hard money lender that we then plan to pay out. That way, we've essentially done the same concept with this. We've bought it with cash. And then in six months, we can turn around and refinance our portion of it as opposed to the partner's portion of it. So all we have to do is get out 50 % of the money to refinance our portion of it, if that makes sense. Oh, it makes perfect sense.

52:45That's brilliant. I love that. And thanks for diving into that. That was really helpful. So we mentioned tenant screening before, and this is actually part of what jumped off the page to me when I heard your economy speech, which we are going to link in the show notes. And it was just awesome. What a great, just wonderful, wonderful presentation. So you knocked that out of the park. I don't know if we're going to have time to go through every aspect of the lazy landlord concept, but I really, for people who are interested, I definitely would recommend watching that speech. And then I know you have a ton of resources on your website, which is rethinktheratrace.com.

53:20And it looks like you have a lazy landlord bootcamp. I'm not sure. It says join the wait list as of now. So I'm not sure if this is currently active, but let's start with tenant screening. Cause I think again, you have come up with a system that not only just works to make it easier, but most importantly, to get your desired outcome. And that James was what I took away from your system was in every aspect of this, you're pushing to get your desired outcome. And there is a fundamental distinction between, okay, this is just hands off. This is lazy. and man, I'm going to do everything I can to build processes that work and get me what I want.

54:00And in this case, tenant screening, I think is the most important starting place. Yeah. So this is something that came out of, it's been definitely like a passion of mine, but it also came out of necessity because I do manage all our properties, even remotely when we're in Florida, when we're in Mexico, when we're abroad, I manage all our properties. And so to me, the key parts of this is, especially with long-term rentals, but even with short-term, you want the type of people that are going to make life easier for you. And so because of that, that's kind of what I brought up. It's important to have the type of property that is going to attract that type of person.

54:36And so the tenant screening process is a pain point for most people. I actually enjoy it. It's my favorite part of the long-term rental portion of managing real estate. It's my favorite part. So there is a key part to this. One is that the same process has to apply to every single person. Otherwise you're opening the door to, you know, some lawsuits. Like I can actually tell you, I know someone that says that they change their security deposit based on whether or not they like the person. And that sounds like the most outlandish thing I've ever heard in my life. That is like, now you've turned real estate from an asset to a liability.

55:12So don't do that. Right. So a key part to this is it has to apply to every person the same way. So my tenant screening process, what happens is I list the property and I will say it depends on what the price of the property is because in our area, you can still find properties for less than a thousand dollars to rent. So if it's under a thousand dollars, I have better luck on Facebook marketplace. If it's over a thousand dollars, I have better luck on Zillow, but I still list them in both places. I just want to mention that it's important to put them where you're going to get the right type of person that's going to match what you're looking for in a tenant.

55:46So from there, anybody that inquires about the property, I tell them that we will schedule showings after we have received a pre-screening questionnaire. And some people charge a screening application. I don't want to do that. I think it's kind of one, I think it's a little bit sleazy, but that's not like, you know, I'm not judging anybody that does it. It's just that that's their hoop that they've chosen for people to jump through. Some people don't have any hoops. For me, it's a pre-screening questionnaire. So I have it linked to a Google form. So I send them a Google form that then asks them, and it's a sliding scale of what their income is, how many people are going to live in the property.

56:23Are they going to have dogs? Yes, no. Do they smoke? Yes, no. What their employment is, different things like that. It's just all the basic questions to pre-screen someone. Now, the fun part is this then auto-populates a Google sheet that tells me yes, no, whether or not they are qualified. So it then color codes it and says they smoke, they don't make enough money, whatever the issue may be, because they have to make 3x the rent. So that's the first part to this process. One, 90 % of the people that inquire about the property are never going to fill this form out. And that's perfectly fine with me because I don't want that type of person.

57:00I want the person, it doesn't take any money. All they have to do is spend five minutes filling out this form. And then they can then see the property. That's all it takes. But 90 % of the people will not do that. And so that alone tells me that this is the type of person that's going to follow a process and they're going to be the type of person that I want. And then from there, they see the property and then I show them the property and then I tell them what my management style is going to be. We have automated rent collection. We have our maintenance requests all go online. And so I tell them exactly what the process is going to be.

57:32And then from there, if they want to choose to have the property they can. Another thing we do is we schedule all our showings in one day so that it's a little bit of salesmanship to it. But as someone's leaving, they see someone coming up to the property to view it. And as they're leaving, they see someone else coming up to the property to view it. So it creates a little bit of urgency as opposed to me scheduling a showing on a Friday afternoon and then another one on Saturday. They don't see anybody coming. And then they say, oh, I'll think about it. I'm going to kick the can down the road for a few days.

58:02This kind of puts the ball in their court. Do you want the place or not? And if you do, you better beat someone else to it. But the other part of it is I don't care who gets it because I've already pre-screened all the people. So any of these people that decide, I'm going to go ahead and put down my security deposit, which we've had people do before they've left the property, because they see people coming and going, they're like, I want this place. This is a nice guy. It's a nice area. He's priced it accordingly. He's got this process in place. I'm not having to jump through all these like crazy things to pay them rent or to do a maintenance request.

58:34And I've laid out the whole process. So that makes it a lot easier for us to find a tenant. And then from there, we will then do a background and credit check. And then we will double check their employment, make sure that they're actually employed where they say they are. We'll call. It depends. This is something that we've done recently is gotten references from landlords. And so that way we can call and we'll verify that, okay, where did they live? Ask some questions that isn't just like their friend that they've given this number to, right? And so from there, you go a little deeper into the tenant screening as far as background and credit check.

59:08But the pre-screening process is what gets us the right person. And so then we don't have to worry about the rest of the process. That is so cool. And really, frankly, the pre-screening process, once now that we're talking about it, it's so obvious, it's simple, but yet it's not because nobody, essentially vanishingly few people are doing that, right? Just doing that simple weeding out process, which sounds like a two-step thing, right? So it's the questionnaire, which weeds out 90%, obviously, and getting all the answers and making sure that they qualify to then see the place. But then also, you explaining how you're going to work.

59:42This needs to work mutually here. And if they're just not a right fit, they're obviously not going to put a security deposit down. They're going to walk away, no harm, no foul. but you're in essence building this environment for getting people that are going to work well with you. And I mean, James, I put you ahead of 99 plus percent of real estate investors right there with a fairly simple and replicable process, I think, for a lot of people listening. So that's, yeah, that's super cool. And a key part to this is we've actually done this entire process remotely. We can do the screening remotely.

1:00:15And then what we do is we've paid a local investor who happens to be a friend of ours to show the property. And so on a Saturday morning, she goes out there, shows the property, and then she gets paid half the first month's rent to show the property. So for her, it's an easy thing. She unlocks the door and then she has essentially a Google doc of like, these are the things that I want you to talk to them about. This is how we're going to do rent collection. This is how we're going to do maintenance issues. And so we've done the entire process while we were in Europe and placed a tenant. That's the tenant that I mentioned that I hadn't met until he was doing his walkout.

1:00:46Two years later, he was doing his move out inspection. And we happened to be in town for that. So we went and met the tenant. Otherwise, I would have never met this tenant. He would have lived with us for two years. And that's something that definitely happens with people that have like 500 units. They've never met a person. But for somebody that has 10 units, that doesn't necessarily happen because a lot of people try to be a little hands-on. And so you don't set up systems for one property, but you do for five or six and definitely for 10, it makes the whole process much, much easier. Yeah. Are there any other just simple tips like on the being a good landlord side that you have that just like jump out to you that are like, oh, if the choose of my listeners could think of one thing, like this is it.

1:01:28We are really over the top with our maintenance issues, right? So if anybody submits a maintenance issue, we get it sent over to a handyman. And if they can't make it, we send it to the next handyman. And we actually have a Google doc that tells us like, okay, here are the three plumbers. And then they're in order of importance, right? So it's like, this one's the fairest, they show up on time and then they get added to the list, right? And so we kind of go through this list of, okay, if the handyman can't do it, we send everything to our handyman first because they're going to be the cheapest and they're typically the quickest.

1:01:56And so then if they can't do it, then we'll pass it on to an electrician, a plumber, whoever that may be. So for us, that's a key part to the process. Another thing is if anybody asks for anything, then we try to like, especially if they're a good tenant, I'm not saying like, we don't, we don't treat anybody poorly, but there was a tenant who had been there for a couple of years. And he said, Hey, the dryer is like not really doing great. So we bought him a brand new washer and dryer, had it installed. So he's got like a brand new LG washer tower. And so now he is like the happiest guy in the world.

1:02:27And, you know, for us, that was like, he's been such an easy tenant to deal with. He pays on time and it's like something like that. It definitely helps. and there are tenants that say, hey, can we do X, Y, Z, right? And we want them to feel at home. This is their place as far as we're concerned, right? While they're living there. And so they'll plant flowers, they'll put out planter boxes, they'll do things like that. And if anything, something that we've explored doing, we haven't, I'm not going to say we've done it a bunch, but something that we've explored doing is, hey, what upgrade would you like done this year?

1:02:57Right. And so for instance, that's what happened with the washer dryer guy, right? So it's like, what pain point do you have at this property right now? And how can we make that easier for you? I like that. I like that a lot. So you've mentioned this online portal a couple of times. So it sounds like that's where you automated rent collection plus these requests for the maintenance. So that's really cool. That's just a neat way to come up with a system. And then, so you mentioned the handyman and trying to stay on top of maintenance. Do you send him or her out to like once or twice a year to the properties to kind of like eyeball things or like how does that work for like preventative maintenance?

1:03:38This is something that like some people do take kind of contention with in the real estate world. It feels like you're like trying to keep eyes on them. What we do is we do that exact thing though. I will say that. So we explain that when we're doing the walkthrough with the potential tenant, when they're applying for the property, we say, Hey, by the way, we do a quarterly maintenance walkthrough where we're going to send the handyman over and they're going to change out the air filters. They're going to check for plumbing leaks. They're going to look, they're going to check the roof line to make sure there's no roof leaks.

1:04:06And if there's anything that's nagging while you haven't submitted a maintenance request for, they can take care of that while they're here. Right. And so it's like, you know, a screw is loose. They're not going to submit a maintenance request for that. Or like, you know, like the toilet seat comes loose. Like that's something that's like kind of a silly maintenance request. Like they don't feel like they should submit something for that, but they get that taken care of during the quarterly maintenance walkthrough. And the key part of that is it's definitely a benefit for us. It's also a benefit for them, but most landlords and in real estate, this is kind of like the, I guess, rule of thumb is that your tenants are responsible for changing the air filters, right?

1:04:40So a five or$10 air filter is going to determine the life of my HVAC unit, right? And they're never going to change it. They're never going to change it. And so it's like, just send someone over once a quarter, it's once every three months, you know, to change out the air filter. And now the life of your HVAC that you're going to be responsible for repairing is so much longer, right? You know, you get to nullify any, you know, leaks under the sink or anything like that. And that's something that we started implementing because we had people that were like neglecting to submit maintenance requests because they were hiding the fact that they had like a pet or something like that.

1:05:13You know, they didn't want to pay the pet fee. Interesting. Yeah. It's, you know, the opposite of Pennywise pound foolish, right? It's like, you're thinking about, okay, repairing or replacing an HVAC system is going to cost me many, many, many thousands of dollars. And if I can get X number of years of useful life out of it by just sending somebody to just change the damn air filter, right? Like it's so simple, but yeah, to your point, there are zero renters, essentially zero renters in America who are going to buy air filters and replace them every three months. It just doesn't happen. So yeah, that's a, that's really, really neat.

1:05:48So, okay. We've kind of gone through most of the long-term rental, lazy landlord. I think the short-term rental is going to be outside the scope of what we're doing. Maybe we'll do a shorter episode just on that. And we'll obviously send people to your website because they think that's going to really interest a very small subset of people who are interested in doing short-term rentals. But for those people, it's going to be highly, highly effective. Did we miss anything on the long-term rental kind of lazy landlord conceptual framework? So you mentioned the portal that we use, right? So we use apartments.com.

1:06:24It's free to use. There's also Stessa and Avail, and there are plenty of them that exist that are essentially free to use. The way that they make their money is the background and credit checks, but they also, they field all the maintenance requests and things like that. So one thing that we have told tenants is that if it's an emergency, you're obviously welcome to contact us directly. We want to know if there's an emergency. The problem is now we've had to explain what an emergency is because we did have a tenant who called us within his first week of living there and said, hey, where do cats hide?

1:06:57Where would cats hide in the neighborhood? He was watching his sister's cat and it got out or something. It was the most bizarre thing. So now we've explained to people that emergency involves a fire, flood, or blood. If it involves one of those three things, definitely call us. otherwise submit a maintenance request because it's going to get resolved quicker if you submit a maintenance request than if you call me or text me or anything like that because I can immediately forward that onto the handyman or the plumber or the electrician whoever it may need to be to resolve whatever this issue is as opposed to like I'm on a phone call I'm in the middle of something and then I don't think about it again and I'm like oh I need to contact the handyman and it's like four hours later right so that's kind of a one part of it that we didn't mention That is awesome.

1:07:39Yeah, what a cool, cool system you've built. And just a huge congrats to you and Emily. It's amazing to see where you guys started and where you are today. It's just absolutely remarkable. And yeah, it's just cool to see the FI journey in every different version. And I think, like I said, yours was really a prototypical FI story and you've turned it into something remarkable. So yeah, James, it's been great getting to know you over the years and thanks for coming on. I think this is going to be really helpful for a lot of people. So we mentioned rethinktheratrace.com. Is there anything in particular you want to send people to or anywhere else that you want to send people to?

1:08:18Absolutely. So rethinktheratrace.com. I actually have a free ebook that is how to tenant proof your property. This is for both long-term and short-term rentals. And so it's rethinktheratrace.com backslash ebook. Well, that's easy. Yeah. Cool. Can't forget that. And we will obviously have that linked in the show notes. So, James, my friend, thank you for coming on. I really appreciate it. Thanks, Brad. Thanks for having me.

1:09:02Tuesday morning. So just head over to choosefi.com slash subscribe. And it's really, really easy to get on the newsletter list right there. And I would greatly appreciate it. It's the best way to get in touch with me. You can actually just hit reply to any of those emails and it comes directly to my inbox. So that's the way that I keep a pulse of the community and how we keep this the ultimate crowdsource personal finance show. And finally, if you're looking to join an in real life community. We have Chooseify local groups in 300 plus cities all around the world. So head to chooseify.com slash local, and you'll find a list of all of those cities in 20 plus countries all across the world.

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1:10:28Thank you.