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Sarah Karakaian: [00:00:05] Hey, listeners, welcome back for another great week. My name is Sarah Karakaian.
Annette Grant: [00:00:08] I’m Annette Grant, and together we are–
Both Annette & Sarah: [00:00:10] Thanks for Visiting.
Sarah Karakaian: [00:00:11] Let’s start this episode like we do every week, and that is sharing one of you, our amazing listeners who is using our hashtag. That’s #STRShareSunday. We will share you on Sunday to our Instagram account, and we’ll also share you here on the podcast, which also means on our email list that goes out every Thursday, which by the way, if you’re not on what we call the check in, we’ll put a link in the show notes that you can join our email list and get all the amazing content that we put out every week, not just here on the podcast, but also on YouTube and everywhere else in the World Wide Web. But Annette, who are we sharing this week?
Annette Grant: [00:00:43] This week, we are sharing @lakearrowheadmanor. Again, that’s @lakearrowheadmanor. And talking about a celebrity stay is what they tout. I’m here for it.
Sarah Karakaian: [00:00:57] I feel FOMO.
Annette Grant: [00:00:57] I know.
Sarah Karakaian: [00:00:57] I want to be a celebrity.
Annette Grant: [00:00:58] It’s like, tell me more about these celebrities. But I just want to let you know, we have been really chatting about pets recently. Man, this place is pet-friendly, dog-friendly. Check it out. They’ve got a ton of animals in their feed, and they’re super cute. And they’ve done some holiday decorating. Really nice touches. Very classy. I want you to check out the way that they have done that.
And they’re actually marketing to that, letting people know if they’re booking their stay during the holiday months, that they’re going to be able to enjoy the mountains with the snow and their holiday touches. But they’ve got it dialed in. Go through their feed. All of the things that they can highlight inside their property and outside of their property, they are just making sure to go over it again and again and again.
And I know as hosts, when we’re posting on social media, we feel like maybe we’re going over the same things. It’s okay. People need to see the same message over and over and over again. We are inundated with ads. We’re inundated with information. You’ve got to continually put out, what are those highlights? What is that amazing hot tub that they have? They have amazing views. They’re close to the lake. They’re letting us know.
And I just want to encourage you, once you think you’re saying it too much, say it again and again and again. It matters. We’ve got to be our own marketing firm, our own marketing agency. And Lake Arrowhead Manor is crushing it, making sure that their potential guests know what they have to offer.
And I do love their holiday touches and their amazing hot tub. Sarah, we have somebody who is always marketing herself and her properties, but she’s doing it for long term rentals. We’re going to flip the script today.
Sarah Karakaian: [00:02:50] Right. Before you think that this episode is not for you, I just finished refinancing an Airbnbrrrr. And if you think that has anything to do with winter, stay tuned. If you know it has nothing to do with winter, still stay tuned because we have an impressive, impressive woman on the show today. Jesse Lang is a buy-and-hold investor with over 70 rentals. That’s right, 70, which most of these she’s accrued since 2021.
In Columbus, Ohio, she has used the BR method to acquire her portfolio with little to no money of her own left in the deals. She teaches others how to do the same, plus a little bonus content, we are going to go over her process for qualifying residents because if you are even considering mid-term rentals, you need to understand that you are no longer than hosting guests. You are hosting residents, you are hosting tenants, and laws kick into place that you weren’t used to. And getting someone to remove themselves from your property if they don’t want to might be a bigger issue.
So stay tuned for all of those details. My favorite tip from Jesse, I think, Annette, might be what application process she uses for her residents. Easier than you think. Jesse, welcome to the show.
Jesse Lang: [00:04:05] Hi. Thanks for having me.
Sarah Karakaian: [00:04:07] Jesse, we are excited for the content you’re going to share here because you actually don’t own any short-term rentals, and you truly want nothing to do with them. Isn’t that right?
Jesse Lang: [00:04:16] Not a one.
Sarah Karakaian: [00:04:18] But it’s funny because I’ll talk to Jesse. I’m like, I have no idea how you handle these long termers and all the things that go along with it. But I have had some questions for Jesse over the past several months because I take the midterm rental thing really seriously, because they turn into tenants. I know nothing about that world. And I was like, my friend Jesse does.
But also, Jesse, I want you to explain to our listeners what you’ve accomplished over the past few years with the BRRRR method, because no matter if it’s for a long term or a short term, the BRRR method works. And Nick and I are doing it right now. We just refinanced out of it. Why did that refinance take forever?
But that’s besides the point. Jesse, tell us who you are and then educate us in case someone’s not familiar with the BRRRR method as well. But take them back to before you start investing in real estate and how the heck you got to where you’re at today.
Jesse Lang: [00:05:08] Again, thanks for having me. And my name is Jesse Lang. I teach people to buy and manage long-term, not short-term, rentals. And I got started by accident. I was an accidental landlord about 10 years ago. So you’ve probably heard from quite a few people who real estate is now a career. It’s like you just fell into it. And that was my story.
So they say buy a house, get a job, have kids, get married, blah, blah, blah. So I did some of it. I bought a crappy little condo in Austin, Texas. I had roommates. So my partner at the time was a roommate, and I had a Craigslist roommate. If that dates where we were, it was before Facebook Marketplace even.
And in a very, very short amount of time, I went from just living my life to split up with my partner, and I had four college boys living in my house in a matter of two weeks. So it was crazy. And I was completely making it up as I went. This was 10 years ago. And honestly, I fell into it. I didn’t even know that real estate was a serious career until about 2017. I moved to Columbus from Austin.
By this point, I had a couple of rentals under my belt and was like, this is pretty awesome. I’m making money. But I didn’t know real estate could be a career. So I’m going to meet-ups, and I’m introduced to a bunch of people, and I’m introduced to the BRRRR method. So that’s what we’re here to talk about today, the BRRRR method.
And I learned that the skill set I had and the experience I had put together in a different strategy and a different package could result in like extreme growth. So I went head over heels. January 2021, I pretty much moved strictly to the BRRRR method of investing, and since then, we went from about 11 doors that I was buying conventionally to 70 that we just closed this week. So that’s about 60 or so doors in under three years.
Sarah Karakaian: [00:07:21] Let’s unpack a few things first.
Annette Grant: [00:07:23] Have you slept in the past three years?
Jesse Lang: [00:07:25] Yes. Because we have systems and processes, which you understand.
Sarah Karakaian: [00:07:30] Yes. Okay. First of all, I get that you were house hacking in Austin. That happened by accident. You had roommates. You owned the condo, and everyone was paying you, Jesse. Is that right?
Jesse Lang: [00:07:39] Yeah.
Sarah Karakaian: [00:07:40] Okay, so then how did you get the idea of just the first rental? You saw the value of your roommates paying you and you not having to pay a mortgage. And so that’s what got you to buy your first rental?
Annette Grant: [00:07:50] I don’t even think it was that. It was that I knew it would be crazy to sell the condo. And it was 2014, ’15 in Austin, Texas. That would have been crazy. So I knew better than that. I knew that I couldn’t emotionally live there myself, and I knew that I couldn’t pay two mortgages or a rent and a mortgage.
So it was the only choice. So I was like, shoot, let me get someone else in here real quick to pay the rent. But I had never done a long-term lease or anything. So in the matter of two weeks, I got the house ready. I got the paperwork ready. I found the people. It was, like I said, four college boys, and they could have ruined my investing career before it ever got started. But thankfully, they were really good.
Sarah Karakaian: [00:08:40] So then you moved to Columbus. Is that where you buy the next 10, or 11, or what happened when you moved here before 2021?
Jesse Lang: [00:08:49] I got the taste of it. In Austin, I had moved out. I was renting for a little bit, saved up a little bit more money. I bought another house that I lived in with roommates. Next year, I did it again. So at this point, I have roommates where I live, plus two long-term rentals.
And again, it’s still all just a complete hobby. I’m like, okay, well, it makes money. And I saw my W-2, and I didn’t even understand appreciation principal pay down. I just was like, these people pay me money every month, and they keep letting me buy houses, so let’s do it.
Sarah Karakaian: [00:09:24] Let’s go.
Jesse Lang: [00:09:24] I had three under my belt by the time I moved to Columbus and decided to take it more seriously, but I was buying it either owner finance, like owner occupant financing, or conventional 20% down. I did not know about the BRRRR method.
Sarah Karakaian: [00:09:41] Okay. Unpack the BRRRR acronym for someone who’s never heard of it. They have dreams of just owning a vacation rental in the middle of the Smokies. But I want them to understand this the power of the BRRRR method. And so take us through first hearing it for the first time.
Jesse Lang: [00:09:58] Yeah. So if you’re thinking like it’s about snowflakes, or snowmen, or something like that, people get that wrong all the time. It’s B-R-R-R-R, four R’s. It stands for buy, renovate, rent, refinance, repeat. So you take the money, you do it again. Now, the idea is that you’re buying a distressed asset with room to add value and force appreciation to the point that you can refinance it and pull out all of your initial investment between the purchase and the rehab. That’s the perfect BRRRR.
Annette Grant: [00:10:37] I got to play devil’s advocate right now. Are there any BRRRRs left?
Jesse Lang: [00:10:41] Yes. Yes, there are.
Sarah Karakaian: [00:10:43] In A or B neighborhoods?
Jesse Lang: [00:10:46] Fewer.
Annette Grant: [00:10:47] No, I mean I want to keep it honest in that, of like, obviously, we know where interest rates are, and the BRRRR method is very popular. And it’s like, is a BRRRR property something that I could go to the MLS and find today, do you think?
Jesse Lang: [00:11:04] We just bought one.
Annette Grant: [00:11:06] Okay. Tell us the real time one that you just bought if you could.
Jesse Lang: [00:11:09] So it hit the MLS? I think it was listed for 105.
Annette Grant: [00:11:14] On in the MLS?
Jesse Lang: [00:11:15] On the MLS in Columbus, Ohio, between Bexley and Whitehall area, if you are familiar at all. Little 3, 1 ranch, no basement. Attached garage. It was listed for 105, and it needed a full cosmetic, full mechanical. So I think we ended up paying 116, so over ask. There was a competition. We put about 33 into it. Let me get my calculator. And it just appraised for 185.
185, 0.75, because that’s how much the bank will give me, is 138. So it’s not perfect, but it’s pretty darn close in an appreciating market. So 138 minus– we put 33 minus 116. So we have a little bit of money into it. But y’all, it’s a deal.
Sarah Karakaian: [00:12:10] Yeah.
Annette Grant: [00:12:11] Okay. Thank you for the real-time numbers on that property.
Sarah Karakaian: [00:12:16] I’m not afraid to ask these questions, Jesse, because I know that you talk about this all day, every day. Share with our listeners down to like– you’ve created a science when it comes to this. You know how much you’re spending. When you go into a property and it’s distressed and you’re seeing if you want to buy it or not, what are you asking yourself so that it can be as close to a perfect BRRRR as possible when it comes– how are you calculating that so fast?
There’s not a lot of time to hem and haw. You have to decide. So how have you perfected that process, and what tips and tricks can you give our listeners for them to understand what they have to be ready to do to be able to get a deal like this?
Jesse Lang: [00:12:52] Yeah. So it’s fast, especially when there’s multiple offers you can’t dilly dally. I would say my biggest security that allows me to move this quickly is my team. It’s the people that I work with. So RGC, I have worked with exclusively for two years, which in a contractor relationship is a really [Inaudible].
Sarah Karakaian: [00:13:12] Very rare.
Jesse Lang: [00:13:14] Yeah. Because they come and go. So we’ve been together exclusive. They’ve done probably 40, coming up on 50 properties for me. And I get my GC with me on the first walk through because we’ve established that relationship. And I’m not wishy washy. They tell me how much it costs. I make the offer. If I get the offer, we do the project. And they can count on me. I can count on them.
Sarah Karakaian: [00:13:39] Yeah. And you mean your relationship with your GC, he tells you it’s going to cost you $40,000 to get it to where you want to go, and you don’t even question that at this point?
Jesse Lang: [00:13:48] No. At this point, no. But we do the same flooring, the same paint. This is different than you would do in short-term, where the esthetics are much more important and you have personality. We’re going for the cookie-cutter method because I can move my materials between projects. If we have too much and not enough, I don’t have to pick finishes every time. So when we’re doing a punch list, it takes me less than half an hour in the property because we’re just doing the same thing.
Sarah Karakaian: [00:14:20] That being said, listeners, something you could know is I know about how much the luxury vinyl that I like to use is going to cost per square foot. I know about how much Sarah Karakaian spends on a furnishing. I know that I get the best paint so it’s washable. You know what I mean? But I know the cost of those things.
And then also know that I’m going to leave some extra room for making it special and have special touches, whether that’s wallpaper, or special lighting, or whatever. So you can take the same concept, right, Jesse? And just make sure that it’s not just the renovation. It’s also going to be the furnishing of it.
Or maybe listeners are thinking about a mid-term rental, where it doesn’t have to be as glitz and glam or as unique. It still has to be a solid rental with great furniture, but you can understand how much it costs to furnish a certain amount of square feet. And you could do that math.
Jesse Lang: [00:15:07] And I think regardless of what your exit is, it’s all just planning. If you plan for the exit that you are aiming to, then as long as the numbers work, it doesn’t matter what it is.
Annette Grant: [00:15:20] All of your properties are buy and hold, though, right?
Jesse Lang: [00:15:23] Yeah.
Annette Grant: [00:15:24] Correct. All right. You also know what the market rent would be as you’re walking those properties. Okay. Obviously, you’re at this 70 doors, I think you said. I’m just thinking for someone doing their first BRRRR. They don’t have that GC to walk through with them. They don’t have their team. They don’t have their furnishings. So take us back to the first one.
What are some of the mistakes, some of the mishaps? Someone that’s working full-time, they’re maybe not going to be able to be the first person to walk through. They don’t have that GC. What are some of the things that you could help them with to speed up the pace?
Or is this something for someone that is working full-time and wanting to get into real estate this way? How did you fast track that? I’m just trying to put myself in the shoes of like– really, the number one thing is not being able to walk through with a GC. That’s super powerful that you have that relationship.
Jesse Lang: [00:16:13] Even if you haven’t done work together before and it’s your first project, why couldn’t you have a GC with you?
Annette Grant: [00:16:20] You could. I’m sure.
Jesse Lang: [00:16:22] Yeah.
Annette Grant: [00:16:22] To have that relationship ahead of time worked out.
Jesse Lang: [00:16:25] It helps. So we teach people to build your team before you need them, which I’m sure you have similar concepts. So don’t wait until the house you want hits the market to go looking for your GC. Use your networking. Use your social media. Use your personal connections. That’s how I found everyone that I work with, truly, is through the power of social media and the power of networking.
I’ve had my team ready and then the property hits. They know what you want to do because you have example photos. You have a budget, and then they can help you figure out does it fit this budget? They can help you. So I would not recommend as a newbie going alone.
Sarah Karakaian: [00:17:06] What were some mistakes you made– that was a good question– back in the day, Jesse, even early 2021? So just a few years ago.
Jesse Lang: [00:17:13] All of them. Every mistake you can imagine. Now, a big one was over renovating, overdoing it for– I’m in the affordable housing space. We’re looking for clean, safe, affordable housing. We don’t need a tile accent wall. We’re always doing LVT because I don’t want to replace carpet every year, but it doesn’t need to be super upgraded, or high-end, or anything like that. I like granite because it’s really durable, but you don’t need granite. So I think in the beginning I was doing too much, and it wasn’t really adding to the appraised value or adding to my monthly rent.
Annette Grant: [00:17:53] Okay. Fair enough.
Sarah Karakaian: [00:17:54] That can even get us short-term rentalers. It depends what market you’re in and what kind of average daily rate you’re going for, for sure. But there are definitely things where you can overdo it. No one’s ever going to know that plumbing fixture is whatever. You know what I mean? There are some sensible decisions that you can make. Okay. What else? Give us one more, Jesse.
Jesse Lang: [00:18:14] I was buying with conventional financing. That, to this day, is my number one I wish I could have done different.
Sarah Karakaian: [00:18:22] Let’s talk about it. How did you fix that? How did you do that?
Jesse Lang: [00:18:25] I didn’t know that there was a different way. It can be really straightforward. You do this, then you do this. But there’s a lot of steps. This isn’t just you’re buying something stabilized and maybe even already has a renter and you transfer ownership and call it a day. You’re going through finding an off-market or on-market distressed property, a full renovation. You have to finance it two times. There’s a lot of steps.
So no one explained all of that to me. So I didn’t even know it was an option. I was my little W-2, and my rental income. I was just saving up my 20% and putting it down on the next one. And I had all this equity tied up in these properties that was my own money.
When you BRRRR, the equity you create, a portion of it, or if it’s the perfect BRRRR, all of it, is money you created. But when you put 20% down, there’s equity, but it’s your money as the equity. So I was just saving up 20, 30, $40,000 and sinking it in a property. And it was just sitting there.
Annette Grant: [00:19:40] So take us through the last property. You said you just bought, the 105 that appraised for 185. How did you purchase that when you’re out bidding everyone? Was it a cash offer? How was that offer brought to the realtor?
Jesse Lang: [00:19:52] To the listing agent?
Annette Grant: [00:19:54] Yes.
Jesse Lang: [00:19:54] It’s cash. We use hard money. There’s some debate on this. You can’t claim it’s cash if you’re using hard money, unless you also can close it in cash.
Annette Grant: [00:20:04] Got you.
Jesse Lang: [00:20:05] So we write it as cash because I literally could close it in cash. But then I put hard money in place.
Annette Grant: [00:20:12] Okay. And then that hard money also covers because I heard you say the contractor needed $33,000. And I’m sure he’s not waiting for everything to be complete before he is getting paid and buying materials. Where is the 33,000 for his quote and his work coming from?
Jesse Lang: [00:20:30] Maybe I’m at a slight advantage, but they bill me one time at the end of the project.
Annette Grant: [00:20:36] That’s not a slight advantage. That’s a huge advantage. So pretend you don’t have that advantage because I don’t know a lot of people that could have a complete renovation done without putting money down. So what would the average person have to do in order to facilitate that?
Jesse Lang: [00:20:52] So I will say there are contractors out there that do this. They are rare. But any major operation– these guys do 500 houses a year. So they’ll bankroll your whole project until the end if you’re a good client. And we built that over time. So in the beginning, before I had that relationship, most contractors understand the draw process with hard money lenders.
So essentially you’re borrowing the money for the renovation, but it’s held back with the lender until the lender sends an inspector to confirm that the work was done so that they can release that payment. Most GCs understand that there’s a three to four-day delay on your draw, and they can wait to be paid. So that’s what we did in the past.
I didn’t have the money out of my pocket to pay them ahead of time. If you do, you can pay your GC for the work done, get reimbursed, and keep going. But if you don’t have that money, you just talk to them up front and say, hey, can you wait three to four days for my draw to hit, and I’ll get you paid?
Annette Grant: [00:21:58] Okay, that’s more likely–
Jesse Lang: [00:22:00] It’s okay to have the money, but you have to establish that conversation upfront.
Sarah Karakaian: [00:22:04] Okay. So most hard money lenders, Jesse, do want you to have some skin in the game. Are you using your own skin, or do you leverage relationships for that down payment with the hard money?
Jesse Lang: [00:22:14] Personally, I just put my own. We call fund the gap. It’s your down payment on your hard money. I fund my own gap. You definitely can raise that from a private lender. And it’s a really good way to start a private lender relationship because it’s typically– I mean, it depends where you’re investing, but typically, under $30,000, that’s a good entry point.
We like to say, 20, 25K, especially if you’re trying to establish a relationship with someone who has more money. And we see this a lot with our students, is that all the big private money lenders will say, let’s do a small one first. So if you have them fund the gap, you build that relationship, build that trust, and then you may not need hard money.
Sarah Karakaian: [00:23:04] Yeah, right. Especially their smaller projects like that. Okay. And then you do the project. Everything’s going well. You are tracking your renovation, I assume, to make sure that you stay on budget. Because every dollar you go over is a dollar out of your pocket.
Jesse Lang: [00:23:17] That’s correct. Yeah.
Sarah Karakaian: [00:23:18] Okay. And then are you then refinancing into a conventional loan?
Jesse Lang: [00:23:23] I am refinancing currently into a DSCR, debt service coverage ratio. So it’s based on the actual income that the property is bringing in versus my personal financial situation.
Annette Grant: [00:23:38] I thought with the DSCR, though, you still need the 20% down, correct?
Jesse Lang: [00:23:43] Yeah. But you made it. You created. They’re going to lend 75 right now. It’s 75%. Some will do 80% loan to value, but you’ve pushed the value so high that whatever they’re lending you, in theory, repays everything you owe. And the rest of it is equity you created out of thin air. So it is still 20, 25% down, but it’s the money you earned.
Sarah Karakaian: [00:24:11] And then you mentioned you want to pull out funds from that refinance so you have money to go to the next one. What math needs to math in order for you to pull out funds from that refinance?
Jesse Lang: [00:24:21] So the real quick down and dirty is that everything you spent to get the property stabilized needs to be 75% or less of the appraised value, the new appraised value once it’s renovated.
Sarah Karakaian: [00:24:37] Do an example. Use easy numbers.
Jesse Lang: [00:24:40] So if the ARV, after repair value, is $140,000. This sounds crazy. These are deals that we buy in Columbus. That’s real.
Sarah Karakaian: [00:24:53] Yeah.
Jesse Lang: [00:24:53] So 140K. If you are all in at 105, then that’s 75% of the appraised value. And by the way that 105 is 75K purchase, 25K reno, and 5K holding cost. So you’re in it for 105. It’s worth 140. You pull out the 105 as 75% of the 140. You have 25% equity and all of your money back.
Sarah Karakaian: [00:25:22] Great. So that equity, that difference between 140 and 105, the DSCR lender is giving you that money back at closing.
Jesse Lang: [00:25:31] They’re giving you the 105.
Sarah Karakaian: [00:25:34] Oh right, right, right. Okay. That’s what I meant to say. They’re giving you 105. Yeah.
Jesse Lang: [00:25:37] I think you only spent 100 to get the project complete. They’ll still give you 105 because what you spent and the loan to value are not related at all. They don’t care what you spend. So if you only spent 100 and the new refi lender will give you 105. You just got 5K tax free in your pocket.
Sarah Karakaian: [00:26:01] Yeah. Okay. And then you go and do it again.
Jesse Lang: [00:26:05] And then you go and do it again because this freed up your hard money. You freed up your private money because they’ve all been paid back. So everyone has their money back, and you go borrow it again.
Sarah Karakaian: [00:26:17] Yeah. And listeners, I did not make up this word right. This is BiggerPockets like years ago now. But BRRRRbnb was a thing that people can do. So while Jesse’s doing it for long-term affordable housing, this is absolutely something you can do for your short-term.
And I know that a lot of times, people say, I have no more capital. I have no more to do this. But if you can find a distressed property and start building these relationships, Annette and I wanted to show you that there is a way for you to continue to build your portfolio without your own money. Even though, Jesse, I know you’re funding your gap yourself, for the BRRRR that Nick and I just did, we reached out to a friend of ours, borrowed the down payment from him at, I think it was 6%, and paid him back when we refinanced and all that.
And so we really didn’t have any money of our own in the project. We didn’t pull out as much as you do. But that’s okay, because for me, like my cash flow, once the properties open, should my calculations be correct– you know what I mean? It’s still a great deal. So anything else about the BRRRR method that you think our listeners should know, the good, the bad, the ugly?
Jesse Lang: [00:27:22] Rates right now are hurting your cash flow, just flat out. And a lot of people go into short-term because there is better cash flow. There’s no doubt about it. So if you want your cake and eat it too, maybe go short-term, if you can get higher cash flow. But either strategy, the point is that you are holding the real estate long-term.
Sarah Karakaian: [00:27:49] It’s like a free house.
Jesse Lang: [00:27:50] I mean, honestly, you got all your money back. You have 25% equity when you go sell this thing. That is your money. It’s just in a house. So everyone’s like, why would I do all this work so I can just break even? I’m like, you did not just break even. You earned $50,000. It’s just tied up in a house.
Sarah Karakaian: [00:28:06] Right.
Annette Grant: [00:28:07] But I do think it’s fair that argument that they’re saying. It is a longer-term play for them or for you. The term tied up, they’re not going to be able to liquidate probably the next day and make the money that they wanted to. So I can see that mindset of– for short-term rental and long-term rental, you do need to be in the game for a longer period of time probably to have the– the longer you’re in it, the larger the payoff is going to be for you. So depending on what their I guess their goals are, their strategy is there.
We have a lot of guests, but, Jesse, you got a lot of tenants. Like, okay, a guest canceled and that impacts, but are you freaking out the first of the month every month? You got 70 checks coming in. What if 10% of them don’t pay? Talk to us about that stress. To me, that’s a different stress level.
We’ve got reservations all coming in for different lengths of time, different like peak season, shoulder season. For you, though, what happens around the first of the month, and how do you keep all that straight? Because you self-manage. We have guests that want to cancel for miscellaneous reasons, but tell us about the emails you get about maybe my rent’s not going to be on time, and how do you deal with that?
Jesse Lang: [00:29:29] There’s a lot of mindset work around it, and there is a lot of systems and processes. So we have every element of, we say resident communications in software. We use Buildium. There’s Tenantcloud. There’s Anada. There’s so many. Just like short-term has their own software, there’s software for long-term. So every single thing, every single bit of communication is through the app. You can’t call us. You can leave a voicemail, and we’ll call you back.
Annette Grant: [00:30:04] Okay. No, this is interesting. I didn’t know that. Okay.
Jesse Lang: [00:30:08] Every single thing comes through the app. And if someone is going to be late on rent, we just ask that they tell us ahead of time. And this is where the mindset work comes in. Because we’re dealing with human beings. We’re dealing with people’s housing. It’s emotionally stressful. If someone thinks that they’re on the verge of losing their housing, the natural part of the brain takes over, and people do crazy things.
They’ll stop talking to you, or they will yell at you. And it has nothing to do with what I did. So we just ask people, listen, we’re not going to put you out if you communicate. There are so many programs out there that– we’ll have people get two, three, four months behind on rent, and they have nowhere to go, but they are working daily on getting their rent covered. So I’m fine with that. They get caught up. They always get caught up.
Annette Grant: [00:31:05] Okay. How do you manage, though, that risk of, okay, I always know maybe X amount of people are going to be late. I’m sure your math and your finances, you know what you need to bring in every month to cover everything. When you started to grow your portfolio, like, how did you plan on the savings that you needed to have hedging, like, okay, well, what if 10 people missed their rent for two months? You’ve got to cover that to your lenders. How have you done that math? And how do you extrapolate it over months with that many properties.
Jesse Lang: [00:31:43] So after about 10 or so doors, it was a natural progression. It wasn’t like one day it just switched. But you start thinking of all your properties as a portfolio instead of individual properties. 10%, not paying on time is pretty accurate, honestly. So if 10% is late, I can still pay all my mortgages. And if 10% is late for two months for some reason, we have reserves. But the point is like they get caught up.
That said, I am not a charity. If someone is not paying and not communicating and not making an effort, then we have processes to get them out of the property. And I don’t like doing it. But you know, sometimes people shut down and they don’t try. So there’s nothing I can do to help.
Sarah Karakaian: [00:32:35] Right. We can’t enable them.
Jesse Lang: [00:32:37] Yeah. So we rarely make it to an eviction. I have 3 or 4 things we do ahead of time before we ever would get to an eviction.
Annette Grant: [00:32:48] What are the 3 or 4 things that are they secrets?
Jesse Lang: [00:32:50] So first is rental assistance. That’s a huge one. Payment plans. If someone can pay $200 a week in addition to getting caught up on the next month, that’s fine. Totally fine. You don’t do it all the time. So payment plans, rental assistance, and then you probably don’t have to deal with this in short-term. It’s called cash for keys. Instead of going to an eviction, I will pay someone to just leave. And usually, it’s forgive their unpaid rent.
Annette Grant: [00:33:19] Oh.
Sarah Karakaian: [00:33:21] Yeah. You inherit a property, that’s the thing that you can do too. If you inherit a tenant, you don’t want them there.
Annette Grant: [00:33:27] So basically making them an offer financially. Okay, I’m here for that actually, cash for keys.
Jesse Lang: [00:33:34] Because it’s going to cost less in lost rent.
Annette Grant: [00:33:36] For everybody. And that gives them some cash to find the next option for them.
Jesse Lang: [00:33:42] If the reason that we’re cash for keys is unpaid rent, usually we’ll just forgive the balance as long as they’re gone. And it’s not like, oh, well, you got till the end of the month. It’s like, yeah, you have three days. If you’re taking this offer, you have three days to get out. And they take it. So it’s pretty rare that we make it all the way to an eviction, even with 70 units.
Sarah Karakaian: [00:34:03] Which I love that, Jesse, because while I am on a mission to explain that mid-term rentals are so much different than short-term when it comes to the processes that you have to go through, I also have to work on my own mindset that Sarah– because I’ve been fighting against the mid-term concept because I don’t want to have to be faced with an eviction.
But number one, it’s rare. And number two, I have friends like Jesse Lang, who I can ask questions, which I want to get to that, Jesse. Put your hat on. I’m asking you as a short-term, mid-term rental investor. And I want to know, Jesse, what do I need to do to qualify a human being to stay at my place for more than 30 days?
What processes should our listeners be going through if they want someone to stay with them for more than 30 days? Background check, but what kind of background check? How long does that take? What qualifies someone as being able to afford it? And then what else do we need to know about when they check in and before they actually get the keys or the smart lock code? Talk us through all of that process.
Jesse Lang: [00:35:09] Okay, so you got three more hours? I’m teasing. I’m teasing. The quick version. We use Zillow applications for a very specific reason. So we do not do any showings without an approved application. If you’re asking someone to do your company’s application and pay for it, that’s never going to fly. But if you’re asking them to do a Zillow application, if they don’t like your unit or they don’t qualify for your unit, they can use that same fee that they paid, the $39 or whatever, across thousands of other units.
Annette Grant: [00:35:49] Oh, I love that.
Jesse Lang: [00:35:50] We get very little pushback on the requirement to apply first.
Sarah Karakaian: [00:35:55] I love that. I wonder if that’s a little different in our world because they’re not looking for a year or more home. But I like knowing that’s an option. And is using the Zillow application free for you, Jesse?
Jesse Lang: [00:36:07] It is free for me. Yeah. It’s free. If you list on Zillow, they charge, I think it’s like $10 a month. So we pay it.
Annette Grant: [00:36:20] Is that where you list all of your units also, Jesse?
Jesse Lang: [00:36:23] So we syndicate out of our software. We take professional photos one time once the house is complete, I use those same photos for the end of time because I’m not changing the paint color. I’m not changing the flooring. I’m not changing anything. So those pictures are going to be our pictures. So when someone gives their 60 days notice, I just push a button in my software, and it goes live. The same photos, everything.
Annette Grant: [00:36:47] Love that.
Sarah Karakaian: [00:36:48] We call them channels, but other than Zillow, do you list on other platforms where people are looking for housing?
Jesse Lang: [00:36:55] I will tell you, I don’t even know because they all go through my software.
Sarah Karakaian: [00:36:59] Oh, so your software just–
Annette Grant: [00:37:00] So it’s probably like Apartments.com, similar to just a PMS. It just pushes them to all– you flip the switch, and it’s deployed to all of those.
Jesse Lang: [00:37:09] They’re like 12 or something. But I would say the ones that the leads that are good all through Zillow.
Sarah Karakaian: [00:37:15] Okay. That’s actually a good hot tip to listeners. Zillow is a great place for a mid-term rental to live too. So there’s that. Okay, Jesse. So application, they like that better because the Zillow logo on it. And if they get turned on by you, they can go to another landlord.
Annette Grant: [00:37:30] I do have a fair housing question. Again, none of us are attorneys or know the law back and forth, but can you require that an application be filled out before you even do the tour?
Sarah Karakaian: [00:37:45] As long as you do it to everyone. You have to treat everyone the same way.
Annette Grant: [00:37:48] Okay.
Jesse Lang: [00:37:49] I don’t know. Fair housing is race, religion, familial status, disabilities, I’m not discriminating on any of that by requiring that you give us your credentials.
Annette Grant: [00:38:01] Sure. But that’s part of yours, is an application must be filled out before you even show them.
Sarah Karakaian: [00:38:06] It just has to be for every person has to be treated the same.
Annette Grant: [00:38:09] Got you.
Sarah Karakaian: [00:38:09] Okay, so just because they have a certain last name, you can’t have them, oh, I’ll show you, but then the next applicant, I want your application first. You can’t do that.
Annette Grant: [00:38:18] Right. Okay. Got it.
Jesse Lang: [00:38:20] And Zillow has blurbs that you can write ahead of time. So my VA just sends the same thing to everyone. Here’s our process. You have to apply. It goes to everyone.
Annette Grant: [00:38:28] Got it. Got it.
Sarah Karakaian: [00:38:30] Okay. What’s next? Sorry.
Jesse Lang: [00:38:31] Application comes in. We show the unit a variety of different ways, like open houses, or individual showings, or even self showings. It’s like the person can go on their own time and look at the property. One is controversial because you’re giving someone a lockbox code. But we take some precautions on– we get their ID, and we get a bunch of stuff. And I figure at this point I’ve saved easily 100, probably 150 showings that I haven’t gone to. So I’m like, you know what? If you steal my used appliances–
Sarah Karakaian: [00:39:02] That’s the loss you’re willing to take.
Jesse Lang: [00:39:04] Yeah, yeah. I’ve saved so much time at this point. It’s fine. So they go see it. If they like it and they want to move forward, then we do their full approval process. And this is not a small task. References on employment, references on previous housing providers. We dig deep and check that they are who they say they are, and that everything lines up.
If they pass and want to move forward– I say “we” because I have an admin who works for me. She’s not full-time, but probably 25 to 30 hours a week. She’s the one doing all these extra research, and checks and balance, and all that. So she will go do that research and fill out a applicant scorecard. And literally, it’s the same for every single person.
How long have they been employed? There’s different point system for that. How long were they at their last house? What’s their credit score? What’s their percent of on time payments on their credit check? All that. Each one has a point. Associated fatality. Black or white? Is the person approved? That’s it. And then she’ll send it to me for final approval. If everything checks out, I say yes. There’s no reason I’d say no, and then they move in.
Annette Grant: [00:40:28] That scorecard, does your rental platform, like AI do all of that for you, or is that literally the human touch of going through the scorecard?
Jesse Lang: [00:40:39] We do the scorecard manually.
Annette Grant: [00:40:42] Yeah. Okay.
Sarah Karakaian: [00:40:43] Did you create it, Jesse?
Jesse Lang: [00:40:44] I have modified it over time from something I got years ago.
Sarah Karakaian: [00:40:49] That’s fancy. Okay. Background checks, job checks, all that. Is there a platform that you prefer, that you like? Is it within building itself? Is it third-party?
Jesse Lang: [00:41:00] We collect their information and call the employer or call the housing provider.
Sarah Karakaian: [00:41:05] Okay, so you’re not doing any– I don’t know. I forget the one like C4 or something like that. There’s companies that will do the background check for you. You’re not doing anything.
Jesse Lang: [00:41:15] That’s all through the Zillow application. Zillow checks their credit background and eviction history, like criminal background, criminal.
Sarah Karakaian: [00:41:25] Got it. And then to make sure they can afford the place, what are you doing there? Just credit check or their employment?
Jesse Lang: [00:41:32] [Inaudible].
Sarah Karakaian: [00:41:32] Okay. And you’re collecting that as part of a manual process as part of your process? Zillow is not doing that for you.
Jesse Lang: [00:41:38] So as part of their application, they submit all of that ahead of time.
Sarah Karakaian: [00:41:42] Okay.
Jesse Lang: [00:41:42] If they’re pre-approved for a showing, they go to the showing. If they like it and want to move forward, then we do the things that a computer cannot do– human phone calls.
Sarah Karakaian: [00:41:55] Right. Listeners, this is a good tip I want to share with you. So a friend of mine who has been doing strictly mid-term rentals, a lot of times, people, Jesse, in our world, get the leads from a platform called Furnished Finder. They aggregate from other furnished rental websites and populate. It’s like the Zillow for mid-term rentals on furnished rentals.
Jesse Lang: [00:42:13] Yeah, gamble in Furnished Finder.
Sarah Karakaian: [00:42:14] Yeah, but she gave me a great tip of when you get a lead and they’re interested, to get some proof that they have a contract in town for what they say they do because unlike Jesse’s lead, who wants to live there as a home, the things that we need to think about as short-term and mid-term rental hosts is that they could be coming into town for a short-term basis for illegal activity, and you want to make sure that they’re actually coming into town to work for that hospital, or work for that construction project, or whatever that is.
And so to do some deep dives to make sure, first of all, they are who they say they are. And so taking a selfie next to their ID or something of that nature. And then, of course, like you do Jesse, calling their employer, their temporary employer, and making sure that they are who they say they are and they’re doing what they say they’re there to do.
Jesse Lang: [00:42:56] Correct. And you want to go one step further because there is an entire underworld of friends and family who will pretend to be–
Annette Grant: [00:43:10] Oh, gosh.
Jesse Lang: [00:43:12] Yeah. So you’re like, oh, call my direct manager. This is their cell phone. And it’s like, hey, Mike. I don’t know. Whatever. And we’re asking the questions, and they’re giving all the best answers, and you’re like, oh, this is so good. So yes. If someone’s living with a private landlord, you can’t call the company. You can’t call whatever. They’re with a large housing company or a large property management company.
Don’t just call the phone number that the applicant gave you. Call the one on the website. Same with the employers. Oh, this is my direct manager. Call the number on the company’s website and get to the right channels. So that’s something we do to get around friends and family acting as a reference when maybe they’re not.
Sarah Karakaian: [00:44:03] This just happened to us on Sunday and Monday. We’re recording this on whatever today is. Tuesday. Jesse, we just started using Google Vacation Homes as a channel. We got a lead that called in saying that they wanted to book a short-term stay for that night, and could they book with us? And honestly, my our team member was like, absolutely. Here’s the link to book.
But because it’s same day, we asked them to prove their identity, especially if they’re not coming through a channel of some sort that already has like a verification process. And ours would have taken a little bit of time to get that back. So long story short, the person who sent the picture holding their ID was not the same person who made the reservation. So all these red flags are popping up.
So listeners, I just want you to know that, especially if you’re like trying these other sources, you still need to be very vigilant. And I know we talk about automation like it’s this awesome sexy thing, but at the end of the day, it’s really up to you. And Jesse, I love because you love systems and processes, but it sounds like a lot of the verification process and choosing a tenant or a resident takes some manual tasks and you take it very seriously.
Jesse Lang: [00:45:11] Yeah, we do. And I will say some of my early mistakes that I love to talk about are that I, when it was just me, didn’t take the time to do this because I’m lazy. So I was putting the wrong people in place more frequently than I would like to admit. But now, in the last year and a half, I don’t do this process. I have it outsourced to Cassie, who is doing everything, and she’s doing it by the book.
Maybe I shouldn’t say this, but she’ll go on their social media. She goes deep. She goes really deep in finding this person and figuring out if they’re legit. So when it was just me, I didn’t have the bandwidth. If it’s something you think that that’s not your strong suit, being an investigator, then you could outsource it. There’s companies that do placements also.
Sarah Karakaian: [00:46:05] What happens if you get someone and she’s on their social media and it’s a red flag? There’s something about who they are and they’re not approved. Are you ever nervous about repercussions, or how do you handle that?
Jesse Lang: [00:46:18] Anything that someone wouldn’t be approved for is already published in our ad. She’s come to me before with a couple of things like, hey, this was a red flag on their social media, but I didn’t have anything concrete. So you get into fair housing, and I’m like, okay, it’s not cause for denial because that’s not listed in our ad, and I can only go off what’s listed in the ad.
So it’s more like for our reference. But honestly, the couple of people that we move forward with that maybe had red flag, they’re fine. It’s like long-term, if someone’s a little bit disorganized or a little bit messy when they move out, their stuff is gone, and it’s fine.
I can’t expect someone to live in some pristine condition all the time. And that’s maybe something that short-term and long-term I have to come to terms. You may walk a house, and it’s like lived in. It’s well-loved. But nothing that can’t be fixed with coat of paint on the next turnover.
Sarah Karakaian: [00:47:25] Right. Right.
Annette Grant: [00:47:26] Yeah. My final question for you is, what’s the long-term? You’ve got 70 doors. Is it 100? Are you gunning for a monetary monthly income? Is it a portfolio value and you want to flip the portfolio? What’s Jesse’s long-term right now, your plan with all of these properties? Because it sounds like you’re humming along, but as of today, what’s the next step? What’s that next goal to tackle?
Jesse Lang: [00:47:56] So we have been averaging the last three years about 20 to 25 units a year. Probably hit that again 2024. I have some goals to actually become a private lenders for others. It’s far more passive, and in today’s market, it’s very lucrative. I don’t want to get you in trouble, but 6%, that was a steal, man.
Sarah Karakaian: [00:48:23] He loves me. He loves me hard.
Jesse Lang: [00:48:25] Charging people 16%. So I want to take a lot of the equity that we’ve created and start a lending business. I have a similar Thanks for Visiting and the mastery hosting business. Tell me. What is it?
Sarah Karakaian: [00:48:46] So yeah, our membership, Hosting Business Mastery Method where people can come and learn our processes for operating a short-term rental. You have it for the long-term. You’re like our sister product.
Jesse Lang: [00:48:56] Yeah. So you two were incredible inspirations in me starting my own education platform. So that’s a huge focus for me in the next three to five years, is just growing that. I see what you girls do, and it’s super impressive. So I’m on your foot heels. But that’s a big goal for 2024. And the next couple of years is building out our education platform.
Sarah Karakaian: [00:49:22] We’ll put the link to Jesse’s long-term rental. What Jesse promotes is self-management, that you can manage your own long-term rentals. You don’t need a property manager, which obviously, Annette and I love that. Plus I’m in Jesse’s group because I know nothing about long-terms. I’m starting to get into the mid-term rentals, and I’m going to treat it just like you would a long-term.
But I also love, Jesse, that you have calls about analyzing deals, and you’re even doing some stuff in person where you’re– if you happen to live in the Columbus area. But I know your members are really all over the country, but it is a really awesome, safe community to learn about the BRRRR method, which encompasses construction and working with vendors and contractors. And that’s a tough skill to learn. And you can lose a lot of money if you’re not vigilant or have a guide like yourself. So what you’re doing is really great.
Jesse Lang: [00:50:14] Thank you. Yeah. So that’s a huge focus. You ask what’s next. I keep building my portfolio. I say once you turn on the machine, it’s really hard to turn it off. I can just basically take an address and put it in our system and push a button, and a lot of people do a lot of things to make it happen. And people send me deals. All I have to do is say yes or no, and then a lot of the process happens for me. So once you build that machine, why would I turn it off? That’s a great machine.
Annette Grant: [00:50:55] So the machine keeps rolling. That was my question. It’s just going to keep going.
Sarah Karakaian: [00:50:59] And so anyone listening out there, this is very similar to building a co-hosting business. Obviously, we are managing other people’s properties, but when you build that system, I have found, Jesse, and tell me what you think about this with managing your 70 properties, that the more you have, you can find more support and more backup support. And so it actually gets easier.
Jesse Lang: [00:51:21] It does. 1,000%. Here’s another reason. What I teach people is if you’re only doing the leasing process two, three times a year, you’re not going to be very good at it.
Annette Grant: [00:51:33] You got to be sharp.
Jesse Lang: [00:51:35] When you’re doing two or three a month, due to what we buy and due to natural turnover, you’re going to get really good at it and it’s fresh in your memory. Even if you have it all written down, which, obviously, we have everything written down, but if you’re doing it all the time, you don’t have to refer to it every single second. And so Cassie is a master at getting units leased.
Annette Grant: [00:51:57] I lied. I have one more question. When was the transition from your W-2 to full-on landlording?
Sarah Karakaian: [00:52:04] Is that even a thing that people say?
Annette Grant: [00:52:07] Oh yeah, I guess it– I never even thought–
Sarah Karakaian: [00:52:09] You could be a Lord. No, I screwed that. You can be a Lord.
Annette Grant: [00:52:12] When was that tipping point for you, Jesse, of leaving the W-2 behind and going all in? I’ve never asked you that
Jesse Lang: [00:52:23] Two answers. I left my W-2 in August 2018. But I’ve never not had active income. So a W-2 is just one version of active income. I wholesaled for four years. I have an education platform which is a full-time job, as you know. So even with 70 doors, I’ve never not had a job because I’ve always had active income.
Annette Grant: [00:52:49] Thank you. Thank you for saying that because I think what’s silly is, even the question I just posed of like, when did you leave your W-2? Because it’s funny. We’re scurry back to get back to the W-2 because lenders want to see a W-2.
Sarah Karakaian: [00:53:04] Your own W-2.
Annette Grant: [00:53:06] And tax. it’s just a whole thing to actually pay yourself W-2. But anyways, I love that you said that active because I think W-2 or active gets a really negative–
Sarah Karakaian: [00:53:17] Connotation.
Annette Grant: [00:53:18] And it’s like, it’s fun. Work is fun.
Jesse Lang: [00:53:22] Work is so fun.
Sarah Karakaian: [00:53:23] Contributing to the world and helping people. Yeah. It’s funny. So, Jesse, also, with my husband, they run a monthly networking meetup here in Columbus. And Jesse, you weren’t there in November, but our speaker was just saying how he doesn’t take– his CPA– just any client, and he’s really selective. And someone from the crowd made a joke like, oh, how dare you want to make money? Because the CPA was just saying, like, I really have to protect my time and who we work with to make sure it’s the best fit.
And it’s funny because that does end up happening, where it’s like making money can be a negative thing somehow. And I guess if you’re doing it in the wrong way and for the wrong reasons. But you’re making a living, you’re helping people, you create amazing housing that’s safe and reliable, you’re a fantastic housing provider. So you’re doing the thing.
Annette Grant: [00:54:15] I love an active income.
Jesse Lang: [00:54:15] I think we’re both partially blessed, but partially, we created it ourselves. So I found absolutely what I love to do. I’m in heaven. I wake up every day. I’m so excited to come to work because I get to change people’s lives. And I know you feel the exact same way. You say, yes, it’s work, but I found what I love, and it doesn’t feel like work. It really doesn’t because I’m so excited about it. And what would I do all day? If I was just doing my rentals, what would I do all day?
Sarah Karakaian: [00:54:53] I don’t know.
Jesse Lang: [00:54:55] And we travel. I still travel. You travel. You can do both. You can have a thriving business, and make money, and travel, and be a good, responsible citizen who’s doing right by others. I hate the saying you can have it all, but I feel like I’m almost there.
Sarah Karakaian: [00:55:14] You also can create what all is for you. So it doesn’t have to be this gluttonous thing where you’re never happy. You can decide that where I’m at– there’s always going to be challenges. Ask Annette. There are days where I’m like, what am I doing, and why am I doing it? But I would say–
Jesse Lang: [00:55:31] Turn it down.
Sarah Karakaian: [00:55:31] Yeah.
Annette Grant: [00:55:32] We’re having tech issues today.
Sarah Karakaian: [00:55:33] Six and a half days of the week, I am flying high, and it’s great. Could I have more? Of course, but we’re not all Taylor Swift.
Jesse Lang: [00:55:42] She has that too.
Sarah Karakaian: [00:55:43] She does. She does have bad days. Jesse, where can our listeners find more about you? Let’s say they want to learn about the BRRRR method, they want to diversify their portfolio with long term rentals, where can they find out all the amazing things that you’re doing?
Jesse Lang: [00:55:55] Yes. So there will be a link in the show. It’ll take you to a quick little page. We just need your email, phone number, and then we’ll send you a link to our Facebook group. That is the number one place where I’m active, our community is active. I do live stream trainings every Tuesday. We bring on guests. We bring on people who are specialty on a certain topic. I teach newbies. I teach advanced, teach all these strategies that we’ve talked about. And that’s all inside the Facebook group. So hit the link, and we’ll get you that link.
Annette Grant: [00:56:33] Yeah, join Jesse and her group. Unlock your success.
Jesse Lang: [00:56:38] Unlock.
Sarah Karakaian: [00:56:40] Unlocked, yes.
Annette Grant: [00:56:40] Jesse, thank you for helping us understand a little bit more. That first of the month, I’m going to text you here in a few days.
Sarah Karakaian: [00:56:50] Get in her Facebook group.
Annette Grant: [00:56:52] So good. No, we love it. Thanks so much. We appreciate your time.
Jesse Lang: [00:56:57] You’re so welcome.
Sarah Karakaian: [00:56:58] With that, I am Sarah Karakaian.
Annette Grant: [00:56:59] I am Annette Grant, and together we are–
Both Annette & Sarah: [00:57:01] Thanks for Visiting.
Sarah Karakaian: [00:57:02] We’ll talk to you next time.
