The rental property business is tough. Especially if you self manage your own properties. To do it right, you need systems and people in place to do the work for you.
Today I have Tom Sylvester on the show with me. He is the founder of Lifestyle Builders podcast and he is a real estate investor, and that is why I brought him on the show.
I want you to see how other people invest in real estate and use that to quit their job and change their life.
In addition to real estate investing, Tom teaches people about lifestyle building, how to build a business that fits with how you want to live your life.
I learned a lot interviewing him and I hope you do too.
Tom’s Business Tips:
- Be real, be genuine, and honest as possible. Don’t fake that you are bigger than you are when you are starting out.
- Do the right thing. If there is a decision to make, always do the right thing. Look to help others.
- Be fine with making mistakes.
- Have the right people around you to help you build your business well.
- Check local banks that give portfolio loans which can have more flexible loan terms.
- Create systems to run your business without you.
- Get the current and previous landlord referral before placing a tenant.
- Put processes in place in your business and keep them all standardized.
- Find out your end goal that you want for your life and work backwards from there.
Tell us a little about yourself.
Tom will be married for 10 years this September. He and his wife have a six year-old daughter and a three year-old son.
He and his wife currently run three very different businesses: real estate investing, a wine and liquor store, and a business that helps other entrepreneurs start and grow their businesses.
Tom and his wife have been able to leave their jobs and build the life they want, spend time with their children, and do the things they want to do without being constrained to a job.
What is your ideal life?
Tom got started in real estate and entrepreneurship as he was graduating college. He was about 21 years-old and had a software development degree.
As he was looking ahead, he realized he didn’t want to spend the next 45 years in a cubicle. He decided to retire by 35, but he didn’t know how he was going to do it.
A couple of years ago, he had a mentor that told him to stop telling people he wanted to retire at 35.
He said this because he knew Tom was never going to retire, he was going to have more control over his time and how he spent it. Tom liked that
His ideal life is having control over what he is going to do and when he is going to do it.
This year, he and his wife decided to take Fridays off and start taking day trips, because their daughter is home from school in the summer and they took their son out of daycare.
Tom and his wife have a podcast called Lifestyle Builders, and it is all about helping people build their ideal lives.
Quit saying there is no way to do what you want to do and, instead, start thinking about how you can do it. By doing that, it opens up your mind to what you can do instead of instantly shutting it down.
Opportunities are all around, but they are often disguised as problems.
Most entrepreneurs realize that when people are complaining or something is causing pain, there is an opportunity to help them solve that pain, or make money, and create a business out of it.
Was your first business real estate or was there another avenue you were planning to take?
Tom didn’t like learning and did everything he could to avoid books, because he found no interest in it and he found school to be boring.
He got good grades, but he wasn’t engaged in the process.
When Tom was graduating college, he realized cubicle life was not the life he wanted.
A friend gave him the book Automatic Millionaire and said it would change his life.
Tom’s parents were divorced when he was younger and he had his own apartment and had jobs and side businesses since he was 16.
The concept of the book was if you pay yourself first and save money starting young, you can become a millionaire.
That concept blew Tom’s mind.
Tom didn’t want to wait 45 years to become a millionaire, so he started looking for ways to make money quicker.
He first went to the stock market and realized you needed to have money to make money and you needed to know a lot and learn a lot, because there are a lot of factors outside of your control.
After that, he went into a multi-level marketing (MLM) business, because it seemed like a good direction… that wasn’t a good path to follow.
Tom kept trying to start different businesses, but his wife kept saying no.
One of his great ideas was to buy a duplex, live in one side, and rent the other side out. He thought it was genius, but she wasn’t onboard.
Tom was driving home from work one day and was really depressed, when he heard an ad on the radio about a free, two-hour real estate training.
He went to the training and all it did was get him really excited, and then they sold him a three-day training for $500.
Tom took his cousin and went to the three-day training.
There, they gave him a little more information on real estate, overloaded him with different strategies to use, and then tried to up-sell him into very expensive training packages.
Tom was ready to walk out the door, but thought if he wasn’t going to make this work, how was he going to make it happen.
He charged about $7,500 on two different credit cards, with 25 percent interest, to buy advanced real estate training.
This was about nine months before he was getting married and they didn’t have any money.
Tom went to one of the training sessions and found out that he was going to have to travel all over the country to go to the other training sessions.
After that, Tom started to do some research online and decided instead of going to the trainings he was just going to do the work.
Within a couple of weeks, he found a duplex, called the owner, and got the property under contract. It snowballed from there.
Was it difficult to get that first property? Did it get easier?
The first property was the most difficult, because you don’t know what you don’t know. He was afraid to talk to anyone or make offers, because he thought nobody would take him seriously.
He spent a lot of time making business cards and creating a company.
Tom’s advice for anyone who hasn’t bought their first property is that you are better off to be an individual who is inexperienced.
Sellers don’t want to work with a big corporation where they are just a number.
If you are honest that you are just getting started and that you want to help them, they will be more open to talking to you and they will actually help you along the way.
They will be appreciate your honesty.
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One of Tom’s core tenets of how he runs businesses is “do the right thing”. This is the right answer to every decision.
The more people you help, the better your business will become.
You need to learn a little bit about real estate before you begin, but at some point you just need to jump in.
You are going to make some mistakes. It is important to have the right people around you to guide you.
Find people who have invested in real estate and learn from their successes and mistakes.
Did you live in the duplex you purchased?
The duplex was purely an investment property and Tom never lived in it.
After Tom proposed the duplex idea to his wife, she shut it down and they bought a single-family home that they moved into.
After that, they found the duplex, and one apartment was rented and the other wasn’t.
They were able to go in and renovate a little bit and they had both units rented within a month.
Can you expand a little more on the duplex? How did you find it, how much did you pay, and what is the rental income?
Tom and his wife found the duplex in the local newspaper. He called the owner and they wanted $36,000. Tom negotiated the price down to $29,000.
When Tom talked to the seller, he started asking questions because he didn’t really know what else to do.
It turned out the sellers bought the property as a foreclosure a year-and-a-half earlier and then realized they didn’t want to be landlords. They tried to sell it once before, but the deal fell through.
At this point, they were just trying to get rid of it. By asking questions, Tom found out by mistake that their biggest concern wasn’t making money, it was getting rid of it.
The sellers originally bought it for about $10,000, so they were going to make money off of it no matter what. It was a win-win.
The most difficult thing is that it was such a good deal, they couldn’t get it financed with the bank because it was so low cost.
Tom was 22 years old with a deal for $29,000. Some told him he was too young and others told him the cost was more car loan territory, not mortgage territory.
He was turned down by a lot of banks.
He sought the advice of other real estate investors and they encouraged him to go to a local bank, because they can sometimes do portfolio loans, where they do the loans in-house, instead of selling them.
They can be more flexible.
He got the loan through a local bank and when he first had the duplex, they were getting about $500 per unit, for a total of $1,000 per month.
The mortgage, which included taxes and interest, was about $469 per month.
They were making well over $100 per door after they took all of the expenses out.
Did you manage that first property yourself or did you have a management company?
For the first property, Tom and his wife did everything themselves.
They invested in smaller, rural towns and they didn’t have property management companies there.
A big mistake he made at the time was not including a 10 percent cost for property management.
Whether you manage a property yourself or hire it out, make sure you include this cost.
If you start out managing it and you later want to hire it out, you want to make sure this cost is built in.
How do you buy properties now? What do you do with managing your properties and maintaining them?
Most of the properties they buy are pretty run down.
Tom finds properties in the newspaper, at tax auctions, at bank auctions, and sometimes people come to them because they know they buy properties.
Their strategy was to buy a couple of properties every year and at first they were doing everything, but Tom got sick of working on the properties every weekend.
They decided that for every property they were going to buy, they were going to start systematizing it more and hire more things out.
They knew they couldn’t hire a property manager, but decided to put the right people in place so eventually they wouldn’t need to do much.
Even though they didn’t have a property manager, they built the staff, the team, and the systems to take care of their properties.
If someone is interested in one of their properties, they can go to the website and find all of the information they need, schedule a property tour, and submit an application online.
Tom has people to handle maintenance issues and administrative tasks. He and his wife now spend only a couple of hours a month on the strategy and financials and that’s it.
Are these people contractors or are they actually W-2 employees?
At this point, they are all subcontractors.
A couple of years ago, Tom and his wife tried to bring an employee in to handle all of this, but even though the employee was just showing properties and doing administrative tasks, they were considered a construction business and insurance was crazy.
They shifted away from that to contractors.
How do your tenants submit maintenance requests? Is that through your website? Do you manage all of that yourself?
You can set up a free phone number through Google Voice that is a local number. It can then be forwarded to anyone, anywhere.
Tom uses this and has someone who takes care of these calls. That person has a process they follow (if this then that), and they coordinate all of it.
How do you handle the concerns that pop up that are emergencies?
A lot of people will do the least amount of work and cross their fingers that nothing will happen.
When you take that approach, you end up getting a lot of emergencies.
Most of the properties they buy are run down, and Tom and his wife renovate each one from top to bottom.
They take care of anything that may become a problem, like wiring and plumbing. They also do routine checks on the properties and they encourage their tenants to call them if there is an issue.
In their area, Tom had to pay for water, because the utility company was sick of tenants skipping out on it.
However, water is only billed every three months, and if there is a leak they won’t know about it until it is too late.
In the past, they had a toilet that ran 24 hours a day and the tenant didn’t tell him.
He found out about it, when he received an $800 water bill. After that, they really emphasized the importance of the tenant telling them about any issues.
They now do periodic inspections to make sure there are batteries in the smoke detectors and to see if there are any issues.
This helps them stay connected with the tenants and the property.
They’ve also focused on their onboarding process and set expectations from the beginning. The more proactive you can be, the more money you can save in the future.
Do you run background checks?
Tom and his wife have gone back and forth on this. In their area, credit scores were almost worthless, because most people coming in had credit issues.
They have a lot of questions on their application and on there it says any incomplete or incorrect information will disqualify you.
This lets them know if applicants can follow directions.
They also require them to attach a copy of their paystub, so they have verification. If someone is not willing to do that, they are probably not willing to do other things as a tenant.
Make sure you get the phone number for not only their current landlord but their previous landlord as well. Call them both.
If applicants follow the process, it is usually a good sign they will be good tenants.
The background check process completely depends on where you invest. In some areas, landlords will do what is called cash for keys, where they pay the tenant to leave, instead of going through the eviction process.
When this happens, it doesn’t show up on the eviction history. Knowing this, it makes less sense to run a report.
Is there anything else you can think of that someone should do to save themselves money in the long run?
Tom has lost tens of thousands of dollars early on, by not doing some of the stuff they do now.
The biggest thing is to put processes in place and try to keep them standard. For example, all of their properties have the same paint color, same trim, and they buy everything in bulk.
When they renovate a property it is all consistent and they probably have leftovers from the last property.
Systematize your business. When tenants are calling in with this issue, here is what you do.
Whether you are managing the property or someone else, it takes decision making out of the equation.
When you got started, what was the catalyst for you to jump into the next property? What made you be able to buy? How did you get to that one and subsequent properties?
Tom recommends figuring out your end goals. For him, it was to leave his job and support his family with real estate and his other businesses. He figured out how many properties he needed to buy in order to reach his goals.
Figure out what type of investing you want to do. For Tom, he knew having long-term rentals was going to be the way to do it.
Tom and his wife figured out how they wanted to invest and how many properties they needed.
He was always looking for the next one, even if he didn’t have the money available. If the deal was good enough, he would figure out how to do it.
Tom partnered with his father and he took a loan from his dad’s home equity line of credit to buy the first property.
Once they bought and renovated it, they refinanced it with the bank.
When you refinance, the bank will typically give you 75 or 80 percent of the property’s value.
For example, if you buy a property for $25,000, put $10,000 into it to fix it up, and it is worth $65,000, the bank will give you $52,000, which is 80 percent of the property’s value.
After refinancing the first property, Tom took $35,000 and paid back the home equity line of credit, which left them about $10,000 or $15,000 to buy the next property.
The more properties you buy, the easier it is.
It is important to get over your ego and surround yourself with people who are successful.
Find some people, or pay a coach, to get a second set of eyes. It will save you stress, time, and money in the long run.
How hard was it to setting up that business and finding the people you needed to help you run it?
If you have a property manager in your town or city, go to them first. They probably already have a lot of the processes set up, so it will save you a lot of time.
Tom treats real estate like he would any business. It is all about strategy and planning. What are the goals, what are you doing, and how are you going to do it.
There are three main functions: marketing, sales, and operations. How are you going to get tenants and rent them the properties.
After that how are you going to deliver on that and give them a good house. Then track the money going in and the money going out, and track the profit.
Find the core functions within each of those that need to be there for everything to work.
For marketing and sales, you need to attract tenants, screen them, and move them in. After that, figure out the major steps.
If all of your businesses were gone and you had to start over with $100 in your pocket, how would you start investing in real estate and building your business back up to where you have passive income?
Tom would look in his local area and find the people who are doing what he wants to do. He would then spend the $100 to take them to coffee or lunch to get close to these people.
Tom would figure out how he could work for them. Another way to learn is to work for somebody who is doing what you want to do.
They will teach you their processes like how they find properties and how they run their ship.
You will get really good insight into how they run that business. If you find a good deal, they might partner with you on it.
Work to gain knowledge, not to gain money. Do something to pay your monthly bills and then search for knowledge. Oftentimes, the knowledge is worth more than the money.
What book would you recommend?
Tom has read over 1,000 books now.
He recommends The Seven Habits of Highly Effective People, by Stephen Covey. It is all about you and your mindset, how you think about things, and who you are as a person.
Success comes down to who you are as a person and the decisions you make. Tom reads this book every year and it helps reiterate the key things he should be looking at and doing himself.
Rich Dad Poor Dad was also a great book that changed Tom’s mindset.
Tell us a little about your coaching business and how you help people with their businesses.
Tom and his wife have a coaching business that came about because people kept coming to them and asking how they were getting everything done, with kids, jobs, etc.
Tom took a lot of the stuff he learned from business and corporate consulting and applied that at home. It was very natural for them and they realized other people could benefit from it.
They do more one-on-one coaching for more established business owners, but their big focus now is Lifestyle Builders. They have a podcast and a mentorship. They help people get clear on the life they want, and help establish the routines, planning, and systems to make that a reality. They have training to support them while they do it.
Their first two businesses were never passions, but steps to get them where they wanted to go.
Now they get to work with all sorts of entrepreneurs to guide them away from some of the common pitfalls they run into.
They help them figure out what goals they have, if it is the right idea for them, and if people going to pay them for it.
Tom and his wife are excited to help people who have families and want a better life to not only dream it but put the steps in place to make it a reality.
How can listeners find you?
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