BRRRR for Beginners & The “Lazy” Method to Raise Rents (Rookie Reply)

19:29Tony J. Robinson:So this person is saying that if they increase their deductible, the actual monthly cost or the annual premium would go down, which is an option. Or changing carriers, which, yeah, different carriers offer different options at different costs. But I think maybe just taking a step back, one of the things that I would do is just shop around and not necessarily looking for a budget or lesser reputable, quote unquote, insurance carrier. But if you go talk to an insurance broker and give them your profile, your property's profile, and let them go shop around to a bunch of different carriers, I think that in and of itself would give you a better idea of, hey, let me get some apples, Apple's quotes on the coverage amounts, the deductibles, what's included, what's not.

20:14Tony J. Robinson:And maybe it is a case where every person that we go talk to, they're within 5 % or 10 % of each other. That's what it was for us. And that was a sign of like, hey, there's no way around these new costs. So our best option here is to sell. And maybe that's the same conclusion you come to. Or maybe you go to a different carrier and you find that, hey, for pretty much the same coverage, we can cut our premium costs by 25 or 30 % and undo this increase that we're seeing. But I don't think you'll really know until you shop it around to quite a few different options.

20:44Ashley Kehr:Tony, I just pulled up an example of a quote I just got that shows the deductible options and then what the premium would change to. So for a$1 ,000 deductible, the total cost would be$3 ,300. For a$5 ,000 deductible, it'd be$2 ,800. But it also goes up then all the way up to$50 ,000 deductible and a cost of$2 ,136. I bought this property for$15 ,000.

21:11Tony J. Robinson:I've never seen it. I've renovated it.

21:14Ashley Kehr:It's still like, I think we, it's, you know, put total$130 ,000 into it with the purchase and the rehab into the property. But yeah, so like that just shows you, it's almost like I think of buying points for your mortgage rate. Like they'll show you like, okay, you pay two points. This is what your interest rate is now. You pay two and a half points. This is what your interest rate is now. And you got to try to find like that happy medium.

21:42Tony J. Robinson:$50 ,000 deductible is crazy. And that was only to save like how much annually? Like 800 bucks, you know, it's like, yeah, yeah.

21:48Ashley Kehr:Not even, yeah. Like, is that even worth it?

21:50Tony J. Robinson:You know, but yeah, I think it's math that they'll have to, have to go through, you know I think something else too, and I've, I've never done this, but I, I wonder, you know, like a lot of times when you shop around for your insurance, like they'll ask you questions like, hey, what's the age of the roof? When's the last time you replaced this thing? Do you have a pool? Do you have this? Do you have that? And maybe just making sure that your insurance provider has the most up-to-date information. Because if you bought these properties and like Ash, you said you bought it for 50, you invested another 70,$80 ,000 into the rehab, you probably improved a lot of the things that insurance companies might lose sleep over.

22:25Tony J. Robinson:And if you say like, hey, did you actually know we replaced a roof last year? Did you know that we, you know, added this thing or that thing? Or did you know that we filled in that pool that was, you know, you guys were worried about just making sure they've got an accurate picture of the current property and any improvements you've made. Sometimes that can reduce the cost as well. Or maybe sometimes it's a simple fact of removing something that could reduce your insurance premium. And I'll give you guys an example. When we, two different examples, actually one time where we did do what they want us to do and the other time where they didn't.

22:56Tony J. Robinson:But when we launched Star Hotel, the previous owners used to let guests rent bicycles for free. It was just like a perk of seeing at that hotel is that you got bikes you could ride around. And every insurance carrier that we got said, that's a huge liability for us. So you guys can keep the bikes if you want, but your premium is going to go up by X percentage. And we said, hey, it's fine. Let's just get rid of the bikes. It's not that big of a deal. At one of our single family Airbnbs, we have a slide that goes into the pool. And the initial carrier that we were going with, they were like, hey, we like everything about this property.

23:28Tony J. Robinson:Here's the quote, but we actually won't underwrite you if you keep the pool in place. And we're like, well, or if you keep the slide in place and we're not getting rid of the slide, right? So we went to a different carrier who charged us more to account for the fact that there was a slide going into the pool. So sometimes you can ask the carrier like, hey, is there anything that I can remove from this property that would allow me to bring my premium costs down as well?

23:49Ashley Kehr:Yeah, that's one thing I've learned is like, what do carriers like and don't like in your area? And you can talk to your insurance broker about this as to what are red flags like, you know, wood burning stoves, row houses, trampolines. These have all been things that have been like red flags on my insurance or will increase the premium. So things they won't land on and things that will increase the premium, I think, is also a great starting point. And not only for your current property, but when you're looking to buy properties in the future of knowing what an insurance carrier would like and what they don't like, too, I think can go a long way with helping you keep that insurance cost down.

24:31Tony J. Robinson:Ash, just really quick, because you said the word trampoline. I just found this out yesterday. If I say Q-tip, right? Q-tip is a brand name, but it's actually called a cotton swab. If I say, I don't know, like jacuzzi. Jacuzzi is a brand name, but it's actually called a hot tub, right? Right. Trampoline, do you think is that the generic name or the brand name?

24:46Ashley Kehr:Well, now I don't think that it, I thought it was the generic name, but now I'm not. And also that Jacuzzi, I did not know that was a brand name because my kids literally asked me the other day and I was like, I think it's like something with the Jets or something like they're two different ones.

25:03Tony J. Robinson:Jacuzzi is a brand name, but Trampoline is also the brand name. I want you to try and guess what the generic name is for a trampoline. Those are all great guesses, but not correct. It's a rebound Tumblr. Never in my life. Anyway, trampoline's a brand name. So maybe I just, you know, you were today years old when you found that out for over. We're considering listening.

25:22Ashley Kehr:You know, and we, like people study brands of like Apple and like different things. People need to be studying Jacuzzi and trampoline as to like how to become a household name.

25:33Tony J. Robinson:All right, so we're going to take a quick break before our last question. But while we're gone, be sure to subscribe to the Real Estate Working YouTube channel. You can find us at Real Estate Rookie, and we'll be back with more right after this. If you own a short-term rental, here's something worth knowing. Not all landlord policies are built for your type of property. And with holiday bookings, chilly weather, and higher guest turnover, having the right coverage is more important than ever. Steadily offers insurance designed specifically for short-term rentals, covering property damage, liability, lost rental income, and even unexpected issues like bedbugs.

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29:18Tony J. Robinson:All right, let's jump into our last question. This one comes from Jimmy. And Jimmy says, I have a three-bed, one-bath family house, which is rented at$1 ,400 per month. The current comps in the area are around$2 ,000 to$2 ,500 per month, and I should be able to easily get that amount. My current tenants have been there for almost 10 years now, and they always pay on time. In fact, they're usually several days or even one week early paying the rent. They are great tenants and rarely ever have a maintenance call and small stuff they just take care of on their own and don't even charge me or let me know.

29:52Tony J. Robinson:I've already went a couple of years without even talking to them. I've been slowly raising the rent like 50 bucks a month every year, but it's still way under market value by at least 500 to$1 ,000 a month. It's an old house and does have its flaws, which is expected on a 100 plus year old home. But what would you do or how much should I raise rent at renewal? It's a yearly auto renewal lease. All right, so we're talking about raising rents and what's the best way to do this. Um, uh, you know, Ash, I'll, I'll defer to you here because obviously you got a lot more experience than I do when it comes to, uh, to raising rents on folks.

30:26Tony J. Robinson:Um, I think that just from like a, there, there's some level of value that we should give to peace of mind, you know, as a, as a real estate investor. And you said it's been, you, you've gone a couple of years without even talking to them. How much is that silence worth to you? And maybe it's not a thousand dollars, but maybe it's 500. So maybe instead of raising the rent by$1 ,000, you raise it by$500 or maybe raise it by$250 on their next renewal. But I think there's something to be said about the peace of mind that comes along with having great tenants who don't say anything, don't make a fuss, and they just pay their rent on time and leave you alone, right?

31:05Tony J. Robinson:And maybe you can go out there and get that$1 ,000 premium that you're looking for, but if it now requires you talking to that tenant every month and they're always complaining about something, you've got the vacancy you have to worry about of like, okay, they've been in it for 10 years. Now you've got to go and maybe renovate this place to get it up to standards, to be able to run out at the amount you're asking. Is it worth all of that? And is there a better way to maybe meet in the middle with these tenants where you both kind of get what you want? They get to stay at this place. They've been out for a decade, maybe slightly under market rents.

31:33Tony J. Robinson:You get to keep these amazing tenants, but you get a little bit closer to what it would demand on the open market. So just my initial two cents, but I'm curious what your thoughts are, Ash.

31:40Ashley Kehr:Yeah. I always like to include the market rent in the area and show them like, here are comparable markets in the same area, and this is what they're going for. So example, if their rent is$800 per month, everybody else is paying$950. So not only are you having$150 per month increase, but you're having to pay moving costs, you're having to switch all your utilities, you're having to forward your mail, like there's a lot that actually goes into moving besides just paying new rent. So just the convenience of being able to stay where the person is. I really try to capitalize that and to show them that I'm still very competitive.

32:16Ashley Kehr:I'm not trying to overcharge them. And if there is a drastic difference in the rent, sometimes I'll do the step-up method where it's like, okay, let's start with a$50 increase for three months, and then we'll go to a$100 increase and keep doing it that way. So it's over time. I do that mostly for inherited tenants where I'm taking over the property and their rent is below market value already instead of just this big shock of here comes a mean old landlord raising our rents right away. I try to do it a little bit over time because there always is that fear factor. Your property that you're living in as a rental, it's selling and you have no idea.

32:58Ashley Kehr:Sometimes when I've gone and looked at properties, you can see the terror in these tenants' face, not knowing are they going to be asked to leave? Is their rent going to increase? Who is going to buy it and what's going to happen. Like it has to be a really, really scary and uncomfortable feeling. So I try to not be, you know, like first impressions I think are always like a very, very big thing. So I try and just do the step up thing instead of just slapping them like, you know,$500 right now. So you could always do that over time. And with, you know, putting the market rents, they're going to see that even if they move somewhere else, they're going to be paying the same amount unless they find a great deal somewhere.

33:37Ashley Kehr:So that's kind of how I handle it. But I 100 % agree about the point of if they are great tenants, take care of the property. You don't really hear from them. They don't have issues. They don't put in a ton of maintenance requests because they're actually taking care of the property. You know, if someone's putting maintenance requests in and it's actually legitimate things and not just like them trying to nitpick at things that have literally been there the whole time they've lived there. And all of a sudden one day when they get a rent increase, they're deciding to bring it up to your attention.

34:11Ashley Kehr:But I think that's like a good starting point. And also think about it, too. Like you can give them options. So you could do here's a one year lease with, you know, eight hundred dollars. here's a two-year lease at 750 so you could even lock them in longer you know showing them like okay you can actually i'll increase it by just a little bit if you are going to actually stay in the property for another two years but i i've had a tenant that has lived in a property for let's see it will be nine years i think right now nine years and i've never raised the rent once because they have always paid on time.

34:51Ashley Kehr:It's like a different unique property to me that I want to keep forever. I never want to sell it. And they take great care of it. And they have paid the same amount of rent every time. And they've stayed there for the whole nine years. And there's never, ever, ever been an issue.

35:06Tony J. Robinson:We've interviewed Dion McNeely a couple of times in the podcast. And I really like his approach where he puts the onus on the tenant to say like, hey, what do you feel is a fair amount? You're currently at$1 ,400 a month in rent. Here's five properties that are within walking distance of your unit that are renting at$2 ,500 a month. This is a big gap. What do you feel is the best way for us to address this? And he said a lot of times they'll end up saying a number that's higher than what he even thought. So I think just showing them the facts and letting them kind of lead that conversation is always a good way to go.

35:41Tony J. Robinson:But yeah, for me, peace of mind. I think there's a lot of peace of mind that comes along with great tenants. So I would try to hold on to them as long as you can.

35:50Ashley Kehr:Thank you guys so much for joining us. Make sure you're subscribed to our YouTube at Real Estate Rookie and you're following us on Instagram at BiggerPocketsRookie. We'll see you guys on the next episode of Rookie Reply. I'm Ashley. He's Tony. Thanks so much for joining us. At some point, your little real estate side hustle stops feeling little. Rent's coming in. maybe you've got a couple properties now and suddenly the money part gets real. Your tax bills going up, you're Googling LLC versus S Corp at midnight, and you're just hoping you didn't miss something that'll cost you later. That's where Collective comes in.

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37:10Tony J. Robinson:Hey, rookies, if you're watching this, we want you to apply to be a guest on the real estate rookie podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our real estate rookie podcast. Now look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener.

37:28Ashley Kehr:As a rookie investor, especially if you just got your first deal, it is all fresh in your minds and you are the best person to tell your story, give your experience on how you got it done to help someone else get their first deal.

37:41Tony J. Robinson:So head over to biggerpockets.com slash guest if you want to be a part of our show. Again, that's biggerpockets.com slash guest, and we'd love to have you on.