Tenant Selection Archives

The REI Diamonds Show - Daniel Breslin | Mitch Ripkin | Single Family Houses

Mitch Ripkin, & Dan Breslin discuss Investing in Single Family Houses in Advance of Gentrification.
Gentrification is the process of a neighborhood changing demographics from a lower class neighborhood with low property values to a higher income area with much higher property values. Find the gentrifying area & buy right and you become wealthy. Click Here to Read “Buying in Advance of Gentrification”

Discussion Includes:

Effectively Self-Managing You Rental Portfolio
How to Buy in Advance of Gentrification
Approaching a Hard Money Lender for Financing

More Info About Mitch Ripkin
“We Will Fund Your Deal” (Philadelphia Region Only)
215-740-0200

Claim Your Copy of “7 Sources of Off Market Deals” by Dan Breslin
www.REIDiamonds.com

Relevant Episodes

Episode #22 Frank Montro on Closing 300 Deals Per Year
Episode #11 Justin Turner on Scaling Up to Large Commercial Deals
Episode #10 Bill Becker on Doing Million Dollar Deals
Episode #1 Joe Scorese on Financing Commercial & Residential Real Estate

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Watch the Episode here

Listen to the Podcast here

REI Diamonds #4 Mitch Ripkin

Introducing Mitch Ripkin

Welcome to the REI Diamond interview. This is Dan Breslin. I have the special opportunity to be in person here with my guest Mitch Ripkin. He is a friend of mine, a fellow investor here in Philadelphia and he’s got to be one of the most brilliant people that I’ve met so far in real estate. When I first started getting into the business, it took a lot of those get-rich in real estate seminars. I’ve read a lot of books and Mitch was the guy that they would use as their example when they were telling people what you’re supposed to do and do right, and be conservative, and be smart with your dollars and smart with your purchases. Most importantly, be smart with the management of your portfolio. Mitch, fill us in on how you got started here.

I started my career as a teacher in Philadelphia. I had an opportunity to buy a piece of property. I did that. It was always nice at the end of the month to have this couple of dollars in ten minutes a day. I have to worry about how I pay my bills at the end of the month. As time went on, I turned around and I had a property that I couldn’t at school. I couldn’t be a teacher and also manage the portfolio at the same time. After about only 35 properties, I gave notice to the school I was teaching and I became a full-time in real estate management.

What year is that when you stop teaching?

That was sixteen years ago.

Right around the 2000. You’re looking at 2025 years to put together the 35 properties from 1975 until 2000 when you finally were like, “This is too many to handle.”

I don’t want property, two or three. I’ve spent a lot of time in my teaching career, and real estate was an opportunity. I took advantage of an opportunity, but I wasn’t aggressively out there trying to buy properties. It’s always been a slow process than getting rich fast. People are like, “I’m going to get this money and I’m going to get rich fast. It looks good and it feels good but the reality is it doesn’t work that way for most people. It’s a timely long process, and you need to be in it. That’s when it pays off.

How many have you got today under management?

I lost track.

Did you have a method for your mailers in the beginning? Were you particularly choosing to buy properties in this neighborhood or that neighborhood for some reason with the long-term perspective, or did you haphazardly collect these rental properties?

I ran into a friend. His name is Kenny Ross. He’s not with us anymore. We were working in South Philly around maybe 24th and Mifflin neighborhood. You can own a house for $3,000 and $4,000 back then. One day, Kenny said, “One day that center city is going to grow. At that time, anything north of Pine Street or north of Lombard was, you would not go one block south of Lombard because it was hell. The prices were reasonable and we could still buy a house, but you couldn’t get good rents, you couldn’t get sound people, but the price is reasonable.

I took the gamble with the perspective that the city had to grow. I bought a lot of property around 16th and Bainbridge back then. One other theory was to try to buy properties in the same general area because you can’t do the job of a manager if you’re running around in all parts of the city. You spend too much time traveling instead of getting work done.

Got it. You prefer to sell management. Have you ever tried management companies? There are two schools of thought. Some people don’t want anything to do with it and I know you want nothing to do with management school. Do you want to give me some insights?

There are a lot of pros and cons of self-managing. I’m a hands-on guy. In the beginning, I would never thought about having anybody matter probably because there was not that much left at the end of the day that I am in recovery. I like what’s going on on a day-to-day basis. Maybe that’s one of my downfalls. A smarter person might realize they can make more money. The money-making part of the deal is the management part of the deal. To each his own.

Effective Systems For Zero Vacancy

You’ve come up with some pretty good systems. What’s your vacancy rate? You’ve told me about the move-in season. Fill me in on some of those.

I never had a vacancy in five years. It’s going to sound crazy. In the past four years, my window of move-outs or move-in windows doesn’t come open until May, June, July, and August. They are the only dates that my lease is run. I know that starting February, all through say February, March, April, May, and maybe June, I’m working hard to find tenants for my house. My big movement dates are June, July, and August. In the past couple of years, I’ve been able to have 6 to 7 houses turn over at the end of the month and the same house gets fixed up and occupied these days with zero vacancy.

That blows my mind. In my own rental properties, we have been lucky. We don’t have many at this point, so we haven’t had a lot of turnover. I know you have a few more that you manage, but it sounds impossible.

Number one, you have to get yourself a good tenant who is going to take care of the property so that when it’s happening, you don’t have to do five days’ worth of work. Number two is to return the property in the exact same condition that they got it. That may include a paint job that they have to do themselves.

They understand that it’s all about the lease. It’s all about the training, it’s all about the explanation. If people who live there understand that they get the security back or the positive back, they’ve got to give you a house that looks as nice as they got it, then it makes it easier. There are some other issues. Sometimes you get lucky. Sometimes, if you work with college kids. Sometimes you get an extra 3 to 5 days in there before they need to move in. I know this secret thing to make that exact transition easier.

My lease is at 10:00 in the morning on the last day of the lease. The next lease doesn’t start until 5:00 PM on the first day of the lease. It gives me a window a little bit bigger. What I want to do is double up. Right now, I’m looking for June 1st. Right now, it’s a weekend. I’m lucky enough to know people looking for work on the weekend who don’t normally work for me. They work for other realtors. I’ve got other guys who I know are lined up to come in on Saturday and Sunday so that they can get this place in shape for me so that on June 1st, they show me the problem.

Training And Working The Tenants

I like that. Talk to me about training the tenants. There’s a conversation that happens. It must be during these signings.

There’s one more point I want to bring up. The other issue is sometimes, tenants are stuck to move in. They have to be there at 5:30 on the 1st, their place is ready until 5:00 on the 1st. As a good guy, I might say, “No problem. Come in on the 31st.” They understand that I’m going to work with them and they come in on the 31st. It’s a team effort to get your house ready. Maybe it’s not perfect when you move in. It’s a two-way street.

I like that. Little give and take with the time. You are utilizing that time and getting them to participate in the turnover a little bit. It’s pretty powerful.

The worst-case scenario is if the place is different, and they’re still not happy. It’s because the old tenant didn’t leave it. You charge the old tenant. What you can do is probably higher standards and say, “Look, what’s it worth to you? There’s a couple of dollars. Maybe you like it. Here’s $150.” They go, “Really? Thank you.” People have different standards and there’s nothing out of your pocket and everybody is happy.

It’s all on the presentation. How about that? How does that conversation go? You’re signing the lease with the tenant and you’re going to tell them at 10:00 AM, the last day. Give me some examples of how the conversation goes when you sign a lease with a tenant.

I’ll tell you what I do. That tenant has read the lease and approved the lease before even giving me a deposit months ahead. When it comes time to sign the lease, they’ve seen it, read it, and approved it. There’s never a problem because they know that months ago before they even gave me the deposit.

Got it. You’re going over to the lease when they’re giving you the deposit and you point out the specific things.

If they are putting in deposits, that means they like the property and they want it locked in. They’re not going to get the money back. It’s a commitment to them, but they need to know what they are committing themselves to. They need to know the entire part of the deal. You can’t take a deposit from somebody and then, later on, show them the lease and expect them to take everything in the lease that you have not discussed about it. I always have people review them. In all my receipts when they give you the deposit says in clear language that the tenant has reviewed, agreed, and accepted the lease.

If you want your rental homes to thrive, you need to get good tenants who will take care of the property well.

It’s right on the receipt for the deposit.

A couple who moved are reviewing the least right now. Before they give me the deposit, I email them the lease. Before they come in with the deposit tomorrow, they will have had a night to read the lease and know what the deal is before they even sign up or give me money. Money is a serious thing to me.

All right, so you’re signing the lease with the tenant. Do you just count on that tenant to read the lease on their own and come in and sign the lease when they give you the deposit, or do you have a specific to go over clause by clause with that tenant when they come in with the money?

I don’t go over clause. They ask me questions about things in my lease. The general lease applies to different situations. Oftentimes, tenants will question things. They might question. “Wait a minute, I have a cat. Is that allowed?” They might have those questions. Typically, I’ll explain it. If we don’t agree, I’ll always strike the point that they’re focused. It doesn’t matter to me.

Do you allow pets?

I love pets. I don’t mind having pets in my house. It depends on the situation. Each house is different. Each tenant is different. Does the tenant take care of the animals? What kind of dog is it? Is a dog that I would be comfortable around, that my maintenance man would be comfortable around? I visited the house that people live in and have that dog to see how the house smells when I walk in, and to see if there’s damage to any part of the flooring or doors from scratching. If someone’s calling me with a pet, I always visit them in the house and meet the pet before.

Before you give them a yes or no.

It’s part of the inspection.

How much do you charge them if they have a pet, a deposit fee each month, or anything like that?

I charge as much as I can charge, so it’s a gut feel.

You’re taking $25 for a cat but like $75 for a pup, each month I guess.

It’s a fee. It’s not a deposit because in the event that they had a pet, the pet did not cause any damage, I would not be able to retain that deposit. The pet fee, on the other hand, is a charge that is not refundable.

You’re charging $20 a month, 12 months a year, an extra $300.

I guess that adds up. The damage caused by the animal could be a lot more than that. I’ve had a guy who had five Chihuahuas that damaged the flooring. It was thousands of dollars. You have to be careful with the carpet and animals. Everybody is responsible. Mostly, some of the house now that I can expect out, I’ll be much more open-minded to it.

Process For Selecting Good Tenants

What about the tenant selection? Do you have a certain process that you do to select your tenant? Do you show each person as they come and respond to your ads? What’s your process for choosing these good tenants?

It’s always good to have more than one person come anytime you have to show them. When I show a house, 90% of the time, the house is occupied by the current tenant who is leaving on good terms. I don’t like to intrude on their life too many times. I’ll pick a Saturday and I’ll tell them ahead of time. Saturday and Sunday afternoon, I’m showing the house and I set those times. I already have those times locked in and it’s always good to have more than one show because oftentimes, here’s what happens.

People make an appointment and I’d say maybe 30% of the time, they don’t come. They don’t come either because they overslept. They didn’t come because they found another property. They don’t come because they realize their neighborhood has the properties in there. There are many reasons they don’t come. They don’t call. You need to always hear the person’s voice within an hour or two before the actual meeting of meeting them.

Do you call to confirm then?

Confirm always. Don’t assume people are going to try. When you go to the house, it’s always good to carry people’s phone numbers with you.

That makes sense and is logical. I’m sure a lot of people don’t do it. In one of my first rental properties, I had that experience. I was disinterested and having any more rental properties and had any for six years. After that, I sold the one that I was trying to lease out because of the same frustration, and cancellations. People who have no respect whatsoever for the time. I wasn’t used to that when I first got into the business. That’s a great point. You have a man showing. You get the people there and then do you collect applications on the spot typically?

I do not collect application fees. I don’t want to start processing people’s credit. I want somebody who wants the product. If they come to me with a one-month deposit, which is not refundable, then I will process their application. Nothing. If a person comes to me with a credit report within 30 days, I do not charge any application fee. People come to me, there’s no risk of losing any money, if they come with their own credit report, then we know what we’re doing before we start. I know right away they’re good or not good.

You’re saying no application fee whatsoever.

I charge a $50 application fee standard if they bring a one-month deposit, but I will not charge an application fee. If they bring that deposit along with the current credit report.

What are you doing with the tire kickers? This person has already decided that your property is the one that they want to move into. They’re bringing $1,600 for the first month’s rent or whatever it is.

I have no time to risk.

You’re right about that.

I don’t know anybody else I’ve ever talked to who does this. It just works for me.

Good tenants will treat your home like they treat their own homes.

Visiting And Checking In On Tenants

Do you tell them to bring a check to these showings or do you usually let them see the property and then make a decision and tell them to bring the check at a future point in time? Speaking of the good tenants, do you do a house visit on every tenant that you allow in your property or only those with pets?

I like to visit.

Unannounced?

No. That’s the funny question. On my application, it specifically says that part of the application is a home visit. That’s standard. You’d be surprised, but even with unannounced home visits, some people don’t know what dirty means. They don’t understand it’s dirty. Even if they know you’re coming, they don’t know that their house is dirty or smelly or whatever. They don’t know I’m coming and it might be hours ahead. I tell him ahead.

I asked them when I could come. I said, “Today’s Friday, can I come one day this weekend? She’ll make an appointment and walk in. The minute I stepped in the door, I didn’t even have to go through that house. I can tell by the smell of the house that you look at the things we look forward to. It’s been important. The time I haven’t done it, I’ve been sorry because they will treat my home the way they treat their home. I got some nice experiences, trying to clean up behind some dirty people.

You got burned when you didn’t announce the house visits.

“How come you didn’t know?” One was this great woman. She’s amazing. I couldn’t do it because she was homeless. I tried to bring somebody. She was so sweet and so nice. How do you visit someone’s home with all this? I guess you can’t do that.

That’s a tough one.

I felt bad. I thought let me help society and give someone a home. I’ve learned my lesson.

Was she the only one?

Another woman had a fire. It’s not a perfect world. We try to do the best we can.

It wasn’t out of laziness. It wasn’t like, “I’m heading down the shore or I’m heading out of town.” It was they were let go.

Most of them. There was one interesting one. Her husband was trying to control her and explained where they would be okay. I calm her down. Something was going on and I had a gut feeling that I did not need to visit that home. My radar told me that they were going to be amazing tenants. My radar told me that by approving them without a home visit, they were going to be so appreciative that I was going to gain more points down the line. We, landlords, need all the points we can get, and I made that decision. It was a conscious decision that I felt good about. They are professionals who have real jobs and have a little boy. I thought we were going to be fine.

Did you get burned on that one?

They haven’t moved in yet. Get back to me in the next interview.

I will follow up about 18 months from now. We’ll see where we’re at.

They were showing me every canceled check this last year. They were showing me every electric bill and gas bill paid on time exactly everything, a lot of things that show a lot of strength. If they are showing canceled checks for 12 months, that’s a strong move.

Setting The Right Price Ranges

Got it? There may be extenuating circumstances that preclude the home visit from being a necessity. What about price ranges? Are we talking home visits on everybody who’s $1,200 and under in rent, or is there a certain high dollar rate?

I’m not going to answer this question. It could be trouble if the wrong person heard this. I would not look too good.

I watched that line question. What about Section 8? Do you do any Section 8? Do you deal with them?

I don’t go near it. Section 8 itself, is it flexible and practical to begin with? They will not even let you. They will not inspect the property until it’s totally vacant. That automatically loses rent because I have my properties rented out 60 days before people even move out so that I can have somebody move in the next day. I don’t lose that much. I don’t lose in a month right now, number one. Number two, this is locked in, but you don’t lock the tenant in it. They can move at any time. That never goes up on Section 8. They’re locked in and they don’t used to be here to go. I’m going to Section 8 for 35 years and they fact that side up again last year. They looked at my vendor number, which is right. They never see such a low vendor number. You just can’t call somebody to get something fixed. They come out and they expected that. You have to take the time to be there for the reinspection. The middle keepers keep the door jamb on the door.

Looking at your interior door.

There were two missing. Now you have to wait for four hours, not knowing when they’re coming.

I mean the same property was the rental difference. You say, if you got someone paying cash, that’s it, around the same money anyway.

Years ago, we used to raise the rent automatically every year. It hasn’t been anywhere. It doesn’t have any more money. I will not do this. The problem in Section 8 is that the exit strategy stinks. If the tenant says in your letters they’re moving and you turn around and that’s fine, you find a market rate tenant to move in. When the time comes for them to move, the section is still there because they haven’t found a place to move to or the place they found to move to has to improve by Section 8. It’s sticky.

They are dragging their feet and now you have an additional month.

What about the person who deposited their stuff and moved in? They have nowhere to go. It’s not always the actual tenants themselves. It’s the organization.

Everybody is different. When working with different people, look at them as individuals.

I think they’re used to landlords and property managers doing a little bit more of a loose job with the management within yourself, then it’s okay having a 2 or 3-month vacancy.

I can’t afford it.

I hear that. How many more years have you got left? Do you still go to the back?

Zero.

Keeping The Business Running

No mortgages, which brings me around. I guess you graduated to another position in the real estate investment world. Now you’ve moved on and you’re doing private lending, hard money loans, and things of that nature, right?

That’s properties in the market good. We got a couple of dollars per sign. The bank rates for me once again don’t do very much. It hurts that money sitting in the bank, so I partnered up with somebody, and the two of us together, our banks and I are now lending some money. We call it so soft hard money.

Fill me in on that.

My partner has been doing hard money lending. He’s an attorney. If you’re hard money lending for 35 or 30 years, their typical rate was 16.5% interest and five points. The deals they were getting were people could get money anywhere else. I’m going to continue doing more business charge a little bit less interest and get an investor who is a lower risk for me. Somebody appreciates my rate and right now, we charged 12%, two points, which is pretty low on the market, so it’s not as hard between the three of us, David and myself, and we have about 120 years in the business. We will take care of you. We will hold your hand. We will review the deal for you and work for a quick lane. We’re easy to get a hold of. We respond quickly, but we like to feel safe because it’s our money. It is not the bank’s money.

That’s the number one rule of investing. Warren Buffett said that. Number one rule of investing. Never lose money. What’s rule number two? See rule number one.

You have to accept the fact that if we do enough deals, some deals are not going to work out as well as you think. Be prepared to have a bad deal. It happens.

I’m in the middle of one myself. I don’t want to forecast that because it’s for sale, but we can get out and break even and it’ll be a happy settlement even losing $1,500 or $2,000, something tight. Hopefully, we can get out with our shirts. She said two points, 12% interest. You say you take care of it. I mean what else do you have? Do have contracts or referrals too, on top of that? What else have you guys got?

We don’t want to get involved with that. It’s not our job. If something goes wrong, it’s awful. We’re hands-off on that part of it. We do review a whole project financially with anything, whether it’s a good project or not. We set up terms that people can finance some of the points which you can finance here. We can keep the interest payments to where you have to pay until the end of the day. We can put them off till later.

Make it a balloon interest payment in a sense.

My partners are attorneys in real estate. That’s pretty good stuff.

You’re right about that. What projects will be ideal for you guys? I mean dollar size, give me an example of the size of a loan that would be ideal. If you could do 100 of these deals and none of the others that won’t be.

We’re buying a property for $100,000. He came to the table with 20% of his own money, someone with that builder experience with a $100,000 share. We put up, give or take, several costs up and down. He came up with $20,000. We came up with a $80,000. The renovations were $60,000. We came up with all the renovations. There was a pay schedule, you got this, we got that. We have five different pay schedules. At the end of the day, the job is gorgeous. It sells for $460. We are selling the property for the extension. He’s got that lined up and everybody’s happy but he’s somebody with experience. He’s somebody whose past job we’ve seen. We saw him in the middle of a job. We see the middle of progress. We see the work he does. We’re supposed to talk to other people who lend him money.

It will be too much for you to feel uncomfortable in one project. It was a $500,000 deal. That would be too much maybe.

We have a deal now for 350. 350 wasn’t too bad, but I wouldn’t want to put more eggs in one basket.

You sleep better at night if you have $150,00 to $200,000 or somewhere in that range.

Small deals. If the ratio came by, I find the money.

I mean what about a lot of guys I know? I do a ton of business, the West Philly stuff, it’s a $25,000 purchase, it’s a 40,000 dollar rehab. We’re talking $65,000 to $70,000 all in with the insurance policies and the guys are refinancing them out. Is that deal that I described too small for you?

I don’t like small deals. The money is small.

I love small deals.

I still do small deals.

Requirements For A Partnership And Fundraising Efforts

What about FICO scores, income requirements, and things of that nature? We have somebody listening to this interview. I mean, what would be ideal for them to put together and bring to you so that nobody is wasting your time?

In my part of the partnership, that’s not what I did. I’m only partially involved in the qualification part of the person. I’m more involved in the qualification part of the project itself or the real estate. That’s why I love it. My partner’s job has been lending money. His last name is Banks and he’s been lending money all these years and that’s part of the things, I think I and my partner do.

Did he change his name to Banks?

Real estate is a process. Do not try to get rich quick.

He’s a lot older than I am. The Banks owned the bank. That’s right here. Do you want to believe it, fine?

That’s cool. You guys doing the application fees. You guys do anything of that nature, appraisals, and things like that. Anything, they need to be aware of going in?

Everybody is different and we look at people as individuals.

Got it. On June 10th, you’re coming to the ring meeting in Philadelphia. I think you guys are sponsoring it. You spoke in there before. You come 3 to 4 times a year, seeing me.

I’m going to be talking about how I managed my properties and how I handled it, manage the properties I have to but still live in my life. There are a couple of forms I have, a couple of methods I have, a couple of ways to keep that occupancy up as high as it can be, a couple of ways to relate to tenants, ways to treat tenants, Believe it or not, you can like your tenants. Believe it or not, you can take your tenants to the owner and I avoid that question.

That’s how you do it.

It could be could be a fun thing. If you come to your intent, you’ll hear what I have to say. By the way, that money, was there money collected at the door?

We are going to be collecting donations. It’ll be free, but we’re suggesting that people make a $20 donation to come in for this one because normally it’s free. You want to talk about where the door money is going to go.

Every year, I speak to groups and what we do is I’m a cancer survivor. I had my kidney removed eight years ago. I’m good to go. My daughter and I have been doing this 65-mile bike ride for cancer every year in the summertime. It’s going to benefit Bridge City, I had knee surgery. Today, I’m not going to be riding, but my daughter will be, and I’m collecting money. Over the years, I’ve been one of the top fundraisers in the entire project, with over 5,000 riders and I plan to continue that. I was told that the money collected would be going toward the American Society toward my ride on that day. I should arrive on June 14th.

We talked about that in just a little while. We’ll put a link up if somebody wants to make a donation and they were listening to this interview. Will these donations go on to your name again even though you’re sitting right out?

Absolutely.

There you go. That’s it. Your daughter will be riding.

She did a 30-mile ride today.

Getting ready. How many miles is that ride?

65.

It’s a long ride. That’s cool.

You go. You stop and you rest. You go another 12. You stop and you rest. It’s a ride. It’s not a race, but it’s nice. I’ll be missing it this year.

Are you going to drive down to the end where you’re going to hang out for a race?

Of course.

Hang out at the end.

As they are crossing the finish line.

Closing Words And Episode Wrap-up

Nice. Good deal. I guess we’re getting to the top of the hour, top of the interview here. Do you have any final words of wisdom you like to bestow on the REI Diamond listeners?

For the men and women who are into this buy and flip, buy and sell, anybody today in this world who’s ever established any wealth, by owning real estate, my theory has always been to buy the property and let the tenant pay the mortgage. When everything is paid off, you have a property free and clear. That’s a slow process but I’m 40 years. Thank you. Shout out to all the tenants who our mortgages. It’s a process. Don’t try to get rich quick.

Don’t try to get rich quickly by owning the properties. That’s great. I got a whole page of notes out of that. I hope somebody listening was taking notes. Every time I do one of these REI Diamond interviews. I learned so much and it’s one of the best parts about doing these interviews. I get to be around successful people like yourself. Is there anywhere that anybody has any questions or reason to contact you, an email address or website, or anything of that nature you like to share?

You can have my cellphone number. Feel free to call 215 740 0200.

What I’ll do is I‘ll show up on June 10th. I’ll take some more notes. I’m sure I’ll have a ton of questions after June 10th. I’ll do a follow-up interview with you and maybe sometime this summer here when I’m back in town.

Sounds great.

Thank you for tuning in to the REI Diamond interview. If you’re not already on the email newsletter list, you can sign up at www.REIDiamonds.com. Until next week, this is Dan Breslin signing off.