LANDLORD OF THE MONTH, Phillip Hauenstein

Landlord Since 2005
State: NY
Property Type: Three-Family, Owner Occupied

How I Got Started

I have one main reason for starting my investment into real estate, especially the landlord arena. That reason was, I wanted to move out. I did some research on what it would cost for me (a 22 year old college graduate who just started a full-time job and had a fair amount of debt) to purchase a small home to live in. Since I was only 22, I still lived at home with my parents. One thing I vowed never to do, unless it was an emergency, was rent. I never want to spend money without retaining some type of equity in a residence. After doing some investigating, I came to the conclusion that purchasing a $90,000 home was a fairly affordable mortgage. Unfortunately, when you add on taxes and homeowner's insurance, that $500 a month payment can double. After searching for at least a two unit home (I specifically wanted at least two bedrooms for my unit but preferred three) in the area I wanted to locate (near the airport in Buffalo, NY, close to my work), I was extremely disappointed. I figured I would never find anything worth buying. Well, I looked at homes from $50,000 (bad neighborhoods) to $130,000. When you make just over $33K a year and have school debt and credit card debt, they don't want to extend more than about $110,000. The two family or larger I was looking at needed a lot of work. It just wasn't worth it. Luckily, my agent found a beautiful, huge, three unit home (three separate three bedroom units, for a total of 4,536 square feet) that needed (and still does) a few big ticket items, but was worth a bundle more than what they were asking for. Now, you have to understand that I have limited furniture (due to living at home) and limited funds to purchase what I would need to survive. The house was being sold as part of an estate. The friends of the previous owner were the executors of the estate. They put a ticket price of $89,900 (which I paid, no questions asked) when I could probably turn around and get between $100 and $110K immediately. Due to it being a part of the estate and the estate being worth so much, the couple didn't want to bother with some of the things in the house, so they left me three refrigerators (one really old and just going to sell), a stand-up freezer, three stoves (one was broken so I had to buy my electric new, the other two were gas), two full-size beds, two full dresser sets, three kitchen tables, plenty of chairs, many small tables/end tables, a couch with matching chair, a recliner, plus other various items throughout the house, basement, and garage. After the home inspection, the husband mentioned he would take care of a few things for me, not even in the contract of the sale. He changed a few of the outlets near the empty unit's kitchen sink to GFCI units, he fixed a hole in an empty bedroom wall (old water damage), he replaced the missing siding, and he even had the two largest cracks in the basement (small amounts of water during heavy summer rains) waterproofed, which had to cost close to $1,500. The sale could not have gone any smoother. This was just over two months ago so I'm really not up and running. The tenant that came with the house is great. She's like an older sister. Most people say to keep your tenants in a business relationship, but this one is out of the ordinary. I will explain. Her parents are my next door neighbors and due to their exceptional kindness and generosity when I need anything, or even don't (she brings over leftovers for my dinner) it's hard not to make their daughter a friend. She signed the lease as I prepared it and is actually helping me to make this house a home. She's been there longer and knows the neighborhood and I respect her input into things like house rules. She has also added value to the house by financially and with time, put effort into planting a few gardens. These are all things I already took into account, but as a tenant that has made her unit her home and taken care of her place, I wouldn't have it any other way. Well, this brings me to today basically and I am already making plans to make this income bearing within three years and attempt to purchase another property within five to ten years.

Philosophy of the Working Landlord

Research is a good way to start, the more you know, the bigger the step you have above your tenant. This helps in many ways. My current tenant was always on a verbal month to month lease. I made her sign one (the LPA Lease with adjustments) and was able to inform her not only of how this protected me (something she understands being a respectful tenant and the ability for someone to take advantage of me), but of how many of the provisions protected her. This knowledge helps you to stand above the other landlords because it shows that you're not just interested in your protection, but theirs as well. With this specific tenant, it's in my best interest to be the nice landlord. I don't extend any special circumstances for this tenant (except that she could keep her cats), and she knows that I can keep her to the lease, but she's also respectful in response to my attitude towards this business. She's not used to being treated like a tenant instead of a friend and I scared her when I wanted to do things by the book, but she also knows that I'm doing the work to research it all this information and I'm there to explain the things that don't make sense.

How I Do It

I don't know. I'm flying by the seat of my pants, but at the same time, absorbing enormous amounts of information in order to protect myself and my tenant. I actually work with numbers on a regular basis and pride myself in being able to prepare budgets and to prepare a plan for the future. My key to success for this new venture will be to achieve the goals I set. Not only do I want to turn a profit, but I want to do it in less than three years. How do I do it? Plan my budget, understand the value of my property, understand the key elements that need repair, value the minor cosmetics (they can add rent), and be prepared for the slow periods. What has started making this fun for me, is putting effort into the cosmetics of the home, since it is owner occupied, as well as realizing that this is the home of others and they would appreciate the value of a beautiful garden, trimmed hedges and bushes, and a lawn that is properly mowed. I recently spent one week rebuilding a large garden between the two drive-ways. I feel as though I've accomplished something beautiful when I step back and can say, when this is added to all the other cosmetic features of my property, it makes it more attractive and will fetch a better rent, as well as, increase the overall property value in the long run. I guess after about a year this philosophy may change, but until that time comes, this is how I work. I understand money and I like it a lot, so running this business revolves around the numbers. One major thing to keep in mind is documentation. Document in a letter any verbal agreement or conversation that has any relation to the lease, rent, or property. I recently allowed my tenant, verbally, to pay her security deposit over a three month term. Although we were in agreement verbally, I still prepared a letter stating so (that way she is protected in case any issue arrives) which also allowed me the ability to prepare a schedule of payments for the months ahead so that she understood exactly how much she was going to owe, and what portion was rent/deposit. This also protects me when the next months come around and the security deposit portion is not included. I have proof that our verbal agreement was documented and delivered. If it's not documented, you leave it up to a judge to decide. Personally, I'd rather know ahead of time.

The Lease...

My lease is the basic outlined LPA Lease. I had it reviewed by two separate attorneys. One was my law teacher at Canisius College in Buffalo, NY. He felt that it was a strong lease and helped me to protect myself in other ways that some people don't think about. The other lawyer, or law firm, was a previous employer of mine. I was in charge of accounts payable and accounts receivable and other various accounting tasks. They are great friends/colleagues that were very impressed with the lease. Basically, it protects me beyond the law, but those parts that are considered illegal will not effect the remainder of the lease. Also, if the tenant doesn't know, he/she will most likely comply. I am confident with my lease and will continue to make adjustments as necessary (when I have an issue, you'll see it posted).

Tips on the Landlord / Tenant Relationship

I am in a difficult situation. As stated above, I can never really have a strictly business relationship with my tenant, but that also coincides with her knowledge that I laid down the law in the lease and I will do whatever it takes to uphold it. I really scared her by making her sign a seven page lease. Other than that, I would have to say that I want to rent to a friend for my empty unit, but not a close friend. I have one person in mind that is more than well off, but going through a possible divorce situation. She would be another perfect tenant. If that doesn't happen, well, I'm back to square one and will prepare every form of tenant screening I can for myself in order to protect my investment. Since I live in the building I cannot really remove myself from contact with the tenants beyond the business relationship, but I still feel confident that when push comes to shove, I stand strong. I've dealt with people (working at my family owned convenience store) you never knew existed. It seemed that every day people got dumber and dumber. I know some tenants know their Landlord/Tenant Law, but I will too, and if I don't, I'll make sure my lawyer is on speed dial. I will not and cannot afford to mess around with my income.

Managing The Rentals...

Management in itself is an interesting field. Besides the obvious of taking care of the house (if it was your personal residence, you would want it to be presentable), management in itself is understanding people. How people think, how people act, and always, how to expect the unexpected from everyone. If you're not prepared to be blasted by stupidity, don't every converse with 90% of the population. "Never underestimate the power of stupid people in large groups." That's my quote for the day, a definition for "idiocy." That's basically what the tenant world is like. This is not a definition of tenants, but you're average person at times. Learn to deal with and enhance your ability to manage difficult people. It's the only way to survive.

Legal Tips and Words of Wisdom:

Legal tips: Learn them. I don't really have any legal advice off the top of my head. If you need to know the law, go look it up. If you can't find it, come here and ask for help. There's one thing I don't necessarily enjoy about forums and the reason is that people come for an immediate answer, but never learn where to go in case a similar question comes up. I admit, I have been one of these people at times, and sometimes it's an emergency, but in the long run, I'd rather someone tell me where I can get the information, that way, I have a new immediate resource and I may run into answers to a multitude of other questions on the way. As stated by most who have been with the LPA for a period of time and as most recommend on these things, tenant screening is a big issue. I have not had to do it yet, but I am in the middle of finishing my empty unit and will be prepared for the worst. You can't always set your standards high due to a lack of interest, but you can always set your standard and allow yourself a choice on those who pass it. It’s not always the credit check that makes or breaks a tenant. Go look at my credit right now and you will find a mortgage for $95,000, a car loan for over $20,000, school loans totaling over $14,000 and credit card debt around $6,000. That's $135,000 from a guy who works for less than $35,000 a year, but I guarantee, even if I had all of that and came to your door looking at an apartment, I bet I would be your best candidate over all of them. I can't even get a store credit card with a limit of $500, but I guarantee that rent would get paid on time. Although, if I were renting, you can guarantee I wouldn't have the mortgage, or if I did, the building would be turning profit beyond the mortgage. I pride myself in being responsible and at the age of 23, owning a home (investment property), a new car, a bachelors and masters degree, planning my retirement savings, and working a full-time job, you won't find a more mature person fresh out of college. Value your knowledge of those who seem "shady" and learn all you can about those who will attempt to take advantage of you and those that are sincere.

The LPA would like to thank Phillip for his valuable input and sharing of knowledge with us. When first asked, Phillip wasn't sure if he had anything to share since he has been a landlord for such a short time. But as you can see, he has an excellent business sense and handles his rentals accordingly. Thanks to landlords like Phillip, Landlords everywhere have the opportunity to benefit from the lessons and knowledge brought to us by our Landlords of the Month.

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