How to Boost Rental Cashflow With a Few Simple Tweaks | Charles Carillo

In this episode, Dalyn Hazell sits down with Charles Carillo to talk about how to boost your cash flow with just a few little tweaks, some tips and tricks you can implement in your business to increase your cash flow, how to analyze rental properties, and what to look for in a potential rental investment and a lot more!

Charles Carillo founded Harborside Partners, a real estate syndication company. He works with partners and investors throughout the world who are interested in generating long-term cashflow and wealth through U.S real estate. He is the host of the ever-popular Global Investors Podcast. He is a licensed Florida real estate professional, an Eagle Scout and he first became a multifamily real estate investor in 2006.

Key takeaways from this episode:

-What is house hacking and how it can set up a career in real estate

-How to analyze rental properties

-What is a long term buy and hold strategy

-How to find a great prospect for a buy and hold long term cash flow

-The things to avoid when looking at potential deals

-How do you analyze a deal further to maximize returns

-Ways to increase rental properties net income

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Website: https://HarborsidePartners.com

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Email: dalyndhazell@gmail.com

Transcript

Introduction  0:00  

This is the real estate investing for Freedom podcast, where we bring on the experts to teach you the golden nuggets of real estate investing. So you can escape the rat race and start living life on your terms. Now, here's your host, Dalyn Hazell.

Dalyn Hazell  0:22  

Everyone, thank you for coming back to the real estate investing for Freedom podcast. I really appreciate you showing up every week and listening to our newest episodes, my guest and I work very hard to make these as action packed and as actionable for you as possible. So thank you for subscribing as well on your favorite podcast listeners so that you don't miss another future episode. Today's show is with Charles Carrillo. He's with Harborside partners. And we're talking about how to boost your cash flow with just a few little tweaks. There are some tips and tricks you can implement in your business to increase your cash flow. Imagine this if you were able to increase your cash flow by just $50 a month per unit, would you do that? If you have 10 units, that's $500 a month if you have 20, that's 1000. If you have 100 units, that's $5,000 a month. And so start thinking of it that way. And how can I get as much cash flow as possible out of my units. So if you're a landlord or thinking about being a landlord in the future, make sure you listen to this episode throughout. And with all that being said, before I get to the show today, here is the golden nugget of the day. Today's golden nugget is to show up in person for your sellers when at all possible. So for example, in my wholesaling business, I'm looking for off market, distressed property owners. It really helps if myself or someone on my team shows up in person for that appointment than just making an offer over the phone, you're still making the same offer. But when you are in person, you just have a higher chance of building that rapport, that trust. And you're not just someone at the other end of the phone line. So if you are starting off, this might need to be you. And you're going on appointments, you're setting them, you're looking at the house, you're taking notes, you're building that rapport, but that's going to result in a higher chance of securing that property. And if you are making offers on on market properties, it may help if you tell the other agent, the selling agent, hey, you know, we're not just some sight unseen offer, we actually saw the house today. And we'd love to make an offer on it. It's just a smoother conversation than if you're just some random person they don't know if you even are local. And you're just trying to make an offer on the phone. So when at all possible try to make it in person I understand with COVID. And also, with more and more people getting into real estate investing virtually that may be a little difficult, but I've seen it make a big impact on my chances of buying the property. So hopefully that helps you. And without further ado, this is today's episode with Charles Carrillo talking about how to increase your cash flow with just a few simple tweaks. Welcome to the show, Charles, how are you doing today?

Charles Carillo  3:29  

Doing well? How are you?

Dalyn Hazell  3:31  

Fantastic. I'm very excited to have you on. Because in this episode, we're going to talk all about how to analyze rental properties, and what to look for in a potential rental investment. And also how to increase, you know, our property's net income getting the most juice out of our properties that we can. So a lot is going to be discussed today. But first before all that can you kind of dive into your background and how you got started in real estate.

Charles Carillo  3:56  

Yeah, so I grew up in a family. My dad has been a real estate investor in multifamily and commercial properties since the 80s. And so when I grew up, we were from a little town in Connecticut. And we my dad was investing in a city about 15 minutes away 20 minutes away where I still have properties today. But he would go everywhere with him and he kind of didn't do any third party professional antibiotic. He managed them all himself. And it was probably at one point like 100 100 units between commercial spots and between rental multifamily. And he had superintendents and he kind of had a whole system and team in place for doing it. But he was much more hands on than I ever wanted to be kind of within and so I started selling that when I was in high school of his properties. And when I got out of college about 15 years ago, I purchased a three family property and now we call it house hacking or it's called House hacking. It wasn't that we didn't have these cool names back then. It was just really Hey live on one floor rent out the other two. And I actually rented out the other two and rented another bedroom right out of college and was about a mile and a half From the college, I just graduated in Connecticut. And so I was able to rent that out. And it was great. I mean, cash flowed on it. And it was, it was a great way of doing it. And the property had a little bit more hair on it, I guess you would say, then I knew what I was doing. When I got into it, my dad kind of mentored me, but like an arm's length. So it was something that I, my second property, didn't make those mistakes. And I mean, every property you go through, I mean, as you probably know, you have a list of what mistakes you made wrong, stuff you'll never do again. And that list was pretty long on that first property. But after that, I bought three more families than I bought when I bought a small mixed use. So mix uses commercial and multifamily property. And they kind of went from there, and now in Florida since 2012. And we focus more on syndicating properties, and really focusing on the southeast, and parts of the Mid South. Right? So kind of the whole belt from Texas all the way to North South Carolina and South.

Dalyn Hazell  6:00  

Awesome. Thanks for sharing that. And House hacking is not really something we've talked about on the show yet, because so can you briefly describe what is house hacking and how it really set you up for your career in real estate?

Charles Carillo  6:11  

Yeah, house hacking is a great start. And I think it's really under utilized or undervalued by investors, everybody says, you know, if somebody comes on here and has several 100 units, and everybody oh, I want to be that guy, I want this and I want that and but the thing, though, is that for anybody that's listening here, I mean, and that's why we love multifamily is that your housing is a huge chunk of most people's net home net, take home pay. And so number one, you can utilize the government with a like a three and a half percent down loan, and you can buy a property one to four units, we would want to really go to three to 40 units. So you can really maximize your cash flow, live in one of the units. And I think it's for at least a year or two. And then that will offset your other units, you probably in this market where we are now you probably won't be really cash flowing much. But if the majority of your expenses are taken care of, like how I had it, I was like, I think I was making like 40 bucks a month, right. And when I didn't rent out my bedroom, like the second bedroom, it was in my place, it was just like the other two floors. And then I would just move like three or $400 a month into my property account. Because you know when issues arise, right, you hot water heater, all that kind of stuff. And so if you do that, you can really minimize your living expenses, which is great, allowing you to invest, it starts building your resume. And I mean, I'm a licensed real estate professional, I'm an agent, I've never really sold anything I just do by referrals. But every time I speak to a broker that's in multifamily or commercial properties, it's experience, right. And it's great that they always tell you and partner with someone else who has experienced what's good. What's even better is that, hey, I have multifamily experience, I've managed this property. So you get to live for next to nothing, you learn how to be a landlord. And the best way ever, because it's downstairs upstairs or next door to you is where the problem is, right? So it's very easy. Like for instance, everybody's working at home, or a lot of people are working from home. And that's how I was doing it and the handyman shows up, you let them into the unit, they do it. So it's very easy to manage being so close. And you really learn all the mistakes, you make a ton of mistakes, and you're going to learn exactly how to do it. So in a year or two from there, I mean, you can really set yourself up and now you have your resume built, you have an inexpensive place to live, you're actually a landlord, you're not just, you know, reading about it or listening about it. And I think that's an awesome way for people to start. And I think it's usually just like two years of w-two income. I didn't even have w-two income. I was self employed at that time. So it's like tax returns and stuff. But it was, it was pretty good. It's a great way of starting.

Dalyn Hazell  8:40  

Yeah. And I just wanted to briefly touch on that. Because I think a lot of people know what it is but firsthand how it kind of catapulted you to where you're at today. It's a great foundation. People should utilize that if they can. But the thrust of our show today is, like I said, analyzing potential rental properties. So I want to dive into maybe some I don't want to get too into the weeds here. But some numbers that you initially look at, you know, the first thing that comes to my mind is like the 1% rule, and we'll talk about all these and gross rent multiplier cap rates. So can you dive into, you know, where you started out, and maybe the smaller buildings, you know, single family to small multifamily. What were you primarily looking at to see, hey, this, this potential investment is a great prospect for a buy and hold long term cash flow, cuz that's what we're talking about today. It's just the long term buy and hold strategy. So what were those things you look for?

Charles Carillo  9:37  

Yeah, when we say long term, just let people know, I would consider that five plus years. I would say, you know, you have people that are short term, you know, it doesn't have to be like we're going 25 years which I haven't sold any of my properties that I own 100% The only properties that we've sold are in syndications because you have other partners and stuff but so it's something that if you holding it five plus years, I would consider it long term. So just for this, so people know where I stand on what we're doing. But I'm typically the number one in the market. And the market is very important for anybody and like, not just, Hey, I love this city, or I love this country, it's get down like really granule and get like really into the weeds on it and no neighborhoods, and no almost streets of what you like, when I was buying in this town in Connecticut, I could get a picture of a property and I almost could pinpoint where it was in the town. And I knew which sides of town I wanted to be on which sides of streets I wanted to be on. I mean, you have, you know, the whole town you can separate out, everybody's done with the drive down the street, because every city has a place where you can't afford to live and where you don't want to live, right. And we're trying to rent kind of in that middle. So the thing is that this can change by a highway, a highway that gets put in it can change by a body of water, like a pond, like a Brook for I mean, can it just, it can be a train track, I mean anything. So you can be looking on Google Maps, and it can be very deceiving. Like, why is this renting for 1000 overhears renting for 1500? It's because it could be something that you don't even see here. Oh, that's train tracks right there. So it's a huge difference. So when you're picking these markets, drive, the markets really understand where you'd want to live. And keep that as something I would keep when I'm looking at properties. But if I'm buying in C class properties, obviously, it's not going to be something we're gonna be like, oh, yeah, I'm definitely living there. But it's something where you're like, This is nice. I want to drive through if you're looking for something because we're doing longer term holds, as you mentioned. So we're really looking for, if you really want to get on a wave of gentrification, and what I'm saying there is we're driving through a neighborhood, I want to see places that been renovated, that look nice, I want to see places that are dumps and I want to be placed with dumpsters out in front. And that means that you're in the wave of gentrification. It's a very aggressive strategy. When you're like, oh, gentrification is happening here, I'm gonna buy five blocks away, or you know what I mean? And you're like, Okay, that's great for your 1520 year holds if you're in a good market, but it's very difficult if you're doing like a three to five. So we couldn't do it with a syndication, I could do it with my own money, and maybe like a joint venture with a couple partners. But if I'm doing something, I'm like, Hey, I'm going to return money in three to five years. I can't do that. If I don't have that way. If you're not in the wave, you know what I mean?

Dalyn Hazell  12:09  

Yes, it's very important. We know what kind of timeframe you're looking at. Because when I said long term, buy and hold, I didn't mean you have to hold these properties for 30 years. I just, and thanks for clarifying the five year. So how can we get in on that gentrification and make sure we're actually riding that wave, rather than getting in on the tail end or at the wrong time?

Charles Carillo  12:29  

I would, when the areas that you find that you like that are coming around, you're driving through them, because it's gonna be very important. You're talking to your broker. But we haven't, you know, we're talking about analyzing deals, and we haven't gotten to a deal yet. But when we're in a hot market, like we are now, brokers, when they talk to you on the phone, they're going to nix you or check you off as fine within 30 seconds, right. And if you tell them, I want to buy multifamily, alright, well, you've just been next, you know, I mean, if you say I want to buy five to 15 units, I want to buy between Oak Street and Wade street, I want to buy B, you know, I want to buy these units that are somewhere between C plus and B, I don't mind putting in a few $1,000 unit, I have experience because I've house hacked before. So I'm a landlord, I understand it. And I have my financing lined up. I mean, you go and you do that call, you're on a call, you're on a list, and you're gonna get a personalized email, when a deal comes up, not just, Hey, I put you on the whole the MailChimp list, and you're one of like, 15,000 people that are getting this email, it's gonna be like, Hey, I have some that just came up for you, you might want to take a look at it. And here's all the details. And that's what we really want to get when we're getting deals off market. When you're looking for like your question the market exactly where you're going. When you're driving these areas, we're looking these areas, you want to see places where there's a few things we look for, we're going to be like, so we're looking at the market as a whole. Okay, so number one, we want to see, we want to see an increase in medium household income, right, maybe two or 3% a year, we want to see over and over again to over like, last 1020 years, it doesn't have to be perfect, right? But just like, from 20 years ago to now, right, maybe 2% A year or so like this, we want to see an increase in home prices as well. Probably the same amount, 2% a year, something like this, it's probably a little higher than that. And we want to also see a decrease in crime. So as we have, you know, housing prices like this, we want to see crime coming down like this. And it doesn't have to be perfect. But you can pull this stuff, you can literally google it. And without even clicking on anything it will tell you. And then you can find out the markets as a whole by doing that, right finding those three things and working off that. And then what we want to do is we're going to look at the household. Now we're going to look okay, so the average house is $250,000. Let's say we're looking at buying apartments, say for 80 to 110,000. Now, when you're looking at that, that is a good ratio. And why I would say that is because let's just say when you're buying there you are, let's say the average house is 210. We're buying units for 70,000. Okay, so if that's what we're kind of shooting for, this can be very difficult For a renter in a $70,000 unit to buy that house. So in multifamily, what we want is to minimize turnover. And when you say minimize turnover, it's not people leaving every 12 years, 12 months, and definitely not less than 12 months that really kills our cash flow, we want people staying there 24 months plus, I have one tenant that I rented to when I was self managing in 2010. That's still one of my properties. So the thing though, is that when you have this, right, when you have this inability, right difficulty from leaving the unit, right, you can minimize your turnover. And that will increase our cash flow. We don't want people where every year they're leaving, like how college housing is fine. But there's a reason why college housing is more expensive. Obviously, you know, there might be more damage to the unit. But we have lots of CO signers, but also that person's I mean, how many times do people really stay in a college apartment for more than 12 months, I mean, I never did when I lived in one. So the thing is that they're working that into the Make ready and getting ready for that unit. So those three things are what we're looking at when we find the market. And then when you're driving the market, that's where you're going to see when you're narrowing it down into the neighborhoods. And that will really give you a fantastic target of what you want to do. So you start from a larger, and you kind of, you know, you work your funnel down to the neighborhoods and the streets and really say, you know, I love this area, that's a great part of town. I love everything here. And I would even push it a little further out. And that's something you could do, like maybe with a house hacking, say, while they're doing beautiful properties, three blocks away, I'm gonna do it here. And, you know, over the next 10 years, I you know, I hope for it to come or I'll just buy in that area and pay a little bit more. Because usually when you pay a little bit more for property, it's worth it.

Dalyn Hazell  16:40  

Yeah. So basically what I'm hearing, Charles is that you're saying, you know, get the data, have your data. So you're getting that from things like Google, maybe a website, we've talked about the website, city slash data. Yeah, city dash data.com, I think it was, and then you're getting that from agents, brokers, and then you're compiling that data to find the best areas of, of town to invest in, and preferably towns that are on the way up that are being gentrified, that you can still get in at a good price point, but that are riding that wave up. Now, you also mentioned things to avoid, so maybe train tracks or so forth. So I certainly agree with that, you know, if I see an area that's across one bunch of Reno rundown commercial buildings, and it's the only residential property on that street, that's not a good place to invest. So what are some other examples of things that you avoid when you are looking at potential deals?

Charles Carillo  17:32  

Um, so I want to buy in quiet streets that are close to commercial. And that could be a corner market, that could be a, you know, you want within say, a half mile, there's not perfect sciences, half mile or a mile, have some large national tenants, right targets, a Starbucks, maybe Starbucks, or Dunkin Donuts, any of these type of things. That just shows because, like, they've done more research, right? Starbucks has more research than any event, anybody listening, this podcast will ever have a research department for where they're pinpointing out sites, they're investing for, they're going to sign a lease, that's a triple net lease that's 1520 25 years long. So trust me, they know exactly where it's going, or they have a very good idea, and they're putting their money behind it. And they need that thing to make money. So if you're seeing, Oh, there's a Starbucks here. And then, you know, over here, as close nearer is where the property is, or stuff like this, this is stuff that you want to be looking at, in these areas as well, is that we also want to make sure that when I was talking about all the household income and stuff like that, you also want to see a consistent increase in jobs and increase in population. So to be another thing that you want to see, right, we don't want areas with decreasing population. So when we're narrowing down, and when I am using train tracks or highways, I'm using that, obviously, those aren't optimum things to live by. But it just shows how quickly I've been trained to track. I mean, 20 feet, 30 feet, right, with all the side on it. I mean, that can change the whole neighborhood. So it's very important that when you're buying these places, that you're aware of it, because it's something that's really going to impact your property. And when you're, you know, that's about knowing the neighborhood, because there's train tracks where there's no trains on the right. So knowing what's going on there, knowing what the future is of that area, if you've never invested in the area, go to the city hall, right? Go to the City Hall, and you go down there and talk and talk to people down there and see what's going on. Go to a meeting, right. And all these different things. see exactly what's happening in the area. Drive around. They usually have these white and black signs that people put on there that say there's a zoning ordinance or something that's coming up, see what people are doing. I mean, what's going on in this area is your money coming into it? I mean, you can drive around and see, hey, this, this property over here has been renovated. They just put a new roof on it or this over that. I mean, that's the stuff you want to see with money coming into the neighborhood. So buying an area that's what I want to buy with. There's enough parking. I'd like to buy a separate meter. units, when I say that definitely electricity. Water is great too, especially if you're in a place with expensive water. But that's always something you can add on. But so that's another thing that we're going to look for. So meter, utilities, meter water, definitely metered hot water, that's something that they're going to have their own hot water heater for, even if it's a common cold water that's included with the apartment. So those are the main things from the opposite of what I want to see, I also want to see some mix of units, where we're going to have more two bedrooms, sometimes three bedrooms, you have to know what's in the market, what's going to hit, because if we're in a very urban area, right, and we have a lot of young professionals coming in, maybe one ones are going to be a hit in that area. Right. But if we're going into an area, which is a little bit more family oriented, I mean, you start getting into two bedrooms, but like three bedrooms, you know what I mean, these types of units, they might have a huge draw. I mean, I have when I have people that come to three bedroom apartments, they stay for three plus years. Right? We don't have that many, they're usually ones that I own myself, but usually it's like two to two bedroom apartments. I know in Tampa, during COVID. I mean, are two bedroom apartments 100% occupied, you know what I mean? Very difficult to find in our price point of where we are renting. That's fantastic, right? That's where you can hedge that rent up a little bit. And you can really, and that just goes all to the bottom line. 

Dalyn Hazell  21:25  

Yeah, great points. So what would you say to somebody who hears all this? And it's like, Yeah, but I still want to, you know, I know my town. I'm just going to invest over here. I'm just going to buy over here. And someone who's not really there haphazardly thinking about this. Do you think it should keep somebody from taking action? In wanting to carry out all the things we've said? Or should they should a beginner just go ahead and buy and in an area and learn the ropes? Should they be doing all this research ahead of time? Should it keep them from taking action?

Charles Carillo  21:57  

I mean, when we're going to a larger multifamily. When we say commercial multifamily, that's when saying like five plus units, that's what's considered you know, and that's where, when you're buying that, you really have to know these metrics to do it correctly. Now, when I initially bought my property, I definitely didn't do any of this stuff, right. So I'm not gonna lie about that, I would like to know and have an idea of where I'm investing, and have an idea of how long I want to keep it. I mean, if I'm living in an area, and it's fine, it's what we call, like, maybe a cash flow market, there's not much appreciation on it, but the returns will look good, when I rent it out. That's fine. I mean, that's a good first investment, make sure it's not something that you're getting in over your head, get something that, as we say, quote, unquote, turnkey, which really isn't anywhere like that, but find something that looks like it's been renovated, because there's gonna be a lot of things that haven't been. So trust me, you'll have your work cut out for you and your first deal, but just get something that's going to that that's fine, you don't have to pour a lot of money into it, then that's something that you have to bring more money into it. If you manage more stuff, the last thing that you want to do on your first purchase, when you probably don't have your contractors in your handyman all set up, like you will five years down the road. And that's when you start doing what we call heavy lift type deals. So it's um, that's, that's kind of my thinking. If you're living in an area, you have a job in an area, I mean, looking at an area to buy. And it doesn't have to be like these hot markets that we're always investing in as syndicators. But these are the places where we're going to, we're going to be able to build value quickly. And we'll be able to sell the property or refinance it in three to five years. And that's a different business model than someone's going in the house hack. That's I mean, worst case scenario, even if your house doesn't go up in value, if you're not, if you're paying half what you're going to pay before, and you're paying off your mortgage every month, you don't. I mean, it's a win win. It's not I mean, it's like, you know, it's a single or a double, it's not a Grand Slam, but was your first deal, you know what I mean? You're still making equity in the property, and it's going to go up to somehow at least holding with inflation.

Dalyn Hazell  23:54  

Exactly. So we've talked so far about the market data, and I want to turn our attention to once you have found the spot location neighborhood you're going to invest in, how do you analyze it further to maximize your returns? So what are some financial metrics that you look for, to gather that information, and really underwrite it to see if that's the right deal for you.

Charles Carillo  24:19  

So when we're dealing, if we're talking about house hacking, and I'll talk about doing with larger properties, so with House hacking, it's a much simpler process. So you're going to have an idea from your broker, your mortgage broker, of what your insurance is going to be, or what your principal and interest is going to be right, you should go out, get a quote for insurance on that. You should have an idea of what the water is the promise when you're buying properties on the smaller scale, people's records are terrible. So you're not gonna be able to get this from just getting leases from them at closing is going to be a pain, right? Or Before closing, which is really how you should do it, but it's kind of like something you don't always get and It's so when we're looking at these properties, and we're, we're going through them, we want to make sure that go through these numbers know that our property taxes will go up, you've got a quote for insurance. So you have an idea there. And then you have an idea of what your, your final, your final net amount, right, let's just say, of expenses is going to be just for your main things, principal interest, taxes, insurance. So we have that, now it's going through, where 's the quality and condition of the property, if it was something that hey, this was just, I'm buying this from a flipper, he just renovated the whole thing. Okay, so you probably you don't need, you know, I looked through now, roof, furnaces, heating and air, whatever it is, and hot water, those are the main things, I'm going to look at number one, and price that into what has to happen, because the amount of reserves that you're gonna need for that property will be dependent, if I go into a property is brand new furnaces brand new hot water units, brand new roof, and the windows are in fine shape. I mean, that knocks off pretty much all these huge items. So when you're going into it, you're like, Okay, I will put away like, you know, three or six months of this mortgage payment to the side, just that if I need it for anything. But if it's like, okay, now I'm gonna do a hot water heater, I'm gonna have to do that roof in two years, these are things that you're going to have to actively plan for. Because honestly, if you're told that it takes two years to do that roof, you know, in two years you have left on the roof, and in a year, it starts leaking. You don't want to be patching it where you can just pay for it, have it done and have it set for, you know, say 15, depending on where you're in the country, 30 years up north and probably down south 15 years.

Dalyn Hazell  26:37  

Good points. And I know we're kind of talking about multiple things here. We're talking about House hacking single family multifamily. So I know there's gonna be different approaches to each type of asset class. But is there a common thread at like what you'd like to see as far as cash flow per unit? cash on cash return? What are you looking for, that are like the must haves for your deals.

Charles Carillo  27:00  

So if I'm house hacking, I want to have two of those units. I'm going to live in the worst unit. Right. So that's probably like the third floor and a third, a three family place. And I want to make sure that humans can vacate. You know what I mean? Maybe it's the second unit that vacates earlier, and that's the one I'm moving to. But um, so I want to have two units paying almost all of my principal interest, taxes, insurance, right? If that's kind of it, that pretty much means together, like right there equal, then I'm like, Okay, this is a pretty good property for me, because the goal with House hacking is not having you paying that much money per month out of your pocket a fraction of what you would if you're renting. So that's how I would do house hacking. Um, the other thing too, is that I'm also going to put my numbers together, what happens when I rent out my property, I'm not gonna live there forever, right? Maybe 510 years down the road, I find a house I want to move in and get married, whatever it might be, at that point, what am I gonna rent that for? And then I can look back, okay, now I'm gonna make $100 a month minus expenses for this property, once I rent it out, like oh, okay, great. That's fantastic. And rents will probably be higher when I move out anyway. So even more money. But so that's what I'm looking at when the House is hacking when I'm talking with, you know, we, if you're buying, say, a smaller multifamily property, so two to five, two to four units. Usually we use, like what's called the 1% rule, I still use it in commercials, not really what I'm doing formulas, it's really something of just having an idea of how expensive something is. So for example, if for example, you're buying a property for $100,000 a unit, you really want to see the rents $1,000 a door, right? $1,000 A unit per month, and you've hit the 1%. I know some people say 2%, all this kind of stuff. I mean, when you're getting up higher than that, you're really getting into a lot of cash flow markets, which are fine. I want to find with the metrics I spelt out earlier finding a market, I want to have a mix of both appreciation and cash flow. Now, what do I look for in cash flow, if I'm buying a larger deal with a syndication, we are doing syndication, we're going to be looking for seven to 8% cash on cash, which is kind of low, you know, even goes to nine, it's even better over the lifetime of the deal. So if I were to keep this for five years, on average, I want to see 8% per year, get paid out in cash for that deal. Now when I'm buying a smaller multifamily, and you don't have to do this on your first one I didn't do on my first one. But now there's more hassle. With smaller multifamily properties, I want to see an increased cash on cash return for those properties. And that can be like low double digits. And so you might say 789 percent on syndications. I want to see 1011 12% on swarms all the time, because you also have to think of not just return on capital, turn on cash, cash on cash, return on your time as well. I mean, if you want to buy 20 units, and you're buying them all as five units, that's for insurance policies, that's for bank accounts, it's all this different stuff, how it's going to be it's a lot more hassle. So you have to work that into your return. And that's what's very important when you're doing that. The other thing too, is a huge thing is how are you going To manage now, in house hacking, if you are an aspiring landlord, I highly suggest that you manage yourself, it can be silly not to manage a house hack yourself, you're living there. Now down the road, though, if you're buying and you're like down the road, you're buying them and stuff like this, and you want to promote the management, you know, get yourself 1012 units, plus, find a property manager, that's gonna work for you, and find out what they're kind of what their numbers are, and how their pricing is everybody's different. Right, so I have one property manager that charges 6% $500, minimum monthly, right, and smaller multifamily. We have ones that start at like seven or 8%, at 30 units or so it goes down to seven, and then it goes down to six. So you have these thresholds of what you're looking at. And then just know, okay, when I hand it over to this person, which can be more expensive up front, the thing with management is, the more units you buy the scale, you have the economies of scale, the lower that's going to go, everything's gonna be easier, you're gonna be hire more people, maybe you hire someone, yourself, your manager, through your property management company, that takes care of it, you're gonna have better contacts with third party contract services, like a contractors, so you're not using someone's like what I always call like Yellow Page pricing for like, something happened with one of your ACS or one of your furnaces, you have someone that goes out and deals your properties and gives you a special discount for them. And that's where in real estate, you have an advantage if you've ever heard of it, like an economic moat for businesses, and in real estate, it happens when you have relationships, and you have access to capital, those two things will give it to you. And you can do that on smaller scale, those have to be 1000s of units, you can do that, when you're like, Oh, I hit 25 units, I can now have this manage for 6%, I know the guy buying it, this five unit next door, he's got to pay 8%, I can now sharpen my pencil more, because I can pay a little bit more to get this property. And then all my expenses go down. The landscape guy is not going to charge me $30 . Like he's gonna charge him will charge me 25 Because I have all these properties and everything comes down in pricing with the more units you have.

Dalyn Hazell  32:00  

Yes, yeah, that's right. That's what I've heard is that the more units you have the economies of scale goes up, and then it gets cheaper per unit to operate. There's an amazing book on this topic. It's what every real estate investor needs to know about cash flow, and 36 other key financial measures by Frank, Gal and Ellie, and I believe, yeah, that to be a really good book about breaking down. Everything we've talked about today. And there's so many ratios you can go into. And you can really get lost in the math. And we certainly don't want to make it complicated, but across, and then that can be across storage units, single family and multifamily. So making sure you know your numbers. But the key ones we've talked about so far is I guess we haven't talked about cap rate, but that would be another key one, and then cash on cash return and just looking at your return overall, because that's what it eventually comes down to. And then monitoring that market, like we've talked about earlier in the show. So moving on from actually analyzing potential real estate investment, what are some ways that we can increase the income once we have secured that real estate investment, because it's something that a lot of investors don't really talk about, because they think, okay, I can get $800 a rent from this unit. And then that's the end of the story. But there are creative ways that you can get out of your comfort zone and increase your rental properties. Net income, because what it is all about at the end of the day is getting that net income, right? So any way we can increase rents or improve, then I mean, our payments are gonna stay the same. So that is just extra profit in our pockets. So what are some of those ways that you have found to increase your rental properties, net income?

Charles Carillo  33:41  

So for buying and, you know, I hear it all the time. And it kind of drives me a little crazy with certain people because they're like, I'm buying this unit, I'm buying this property for $800 rent, and I'm gonna renew it 1000 Because that's market, and you're like, well, that person is not staying. I mean, you're that's great, you bought it under, that's why you're getting a deal. Now your goal is to get it up to market over so many years. And what's the biggest expense we all hate is making ready having to rent to someone, this guy's person already is paying rent, instead of you increasing it up to that just rate bump a little bit, maybe a little higher than what the markets are increasing per year. And you'll catch up to that, of course, when that person moves out, because at some point they will, then you can jump it all the way to market rate and do the work to the unit that's probably required to maximize its return. And that's all done on a per case basis. Because usually when you're buying properties, it's very rare that all the units are in the same condition, no matter even on a three family house. They might be like, we've never touched the third floor. The first one we went down to the studs on which has happened on the house that I bought before. And so everything's different. And you might say wow, we're getting you know, 900 a floor down here. We only get 600 Upstairs, well go down here, do the work to get into the 900 you know 900 to four and you should know this in your budget going forward. I think you know, minimizing expenses is always important as I really like following expenses, and trying to minimize them. But really the most effective way that you're gonna have is by pushing income, and you have to be a little bit more creative. There's not as many avenues to raising it when you're in a smaller multifamily. Without all the amenities that can be added to it. There's a lot of upsells, let's say when you're in larger complexes with onsite management. So when you're getting 50 units plus, that's when you're going to get a pool in Florida, you'll get pools and stuff like that. Maybe you need 100 Plus units and other areas to have pools and stuff in there. Well, that's where you're having gyms, that's rehab and stuff like this, and you can renovate them, and put in little tweaks and people pay more from there. So there's more routes to getting to that higher income. When you're in, say, a smaller multifamily, you know, to 10 units like this, you're not going to have all that stuff. So what you're trying to do is, you know, first thing you do is if you're planning on raising rents, you've purchased the property, start doing work around the property, so they see you they see your handyman on the property, I usually like add a lot of lights on to the property and makes it feel safe. And you can do little things like this around the property, even if your property is pretty much turnkey. As you start raising rents, you don't want to just buy a property and say, Hey, your month, a month, you have to sign a new lease, and your rents go from 800 to 900. You know what I mean? You might want to go in there and say, Hey, we're doing some work here, let's say that it's gonna be renewed for a 25. And you can keep the person in there, you're gonna talk to the landlord, too. I mean, you're going to be doing an inspection on his property, you're going to be talking to the tenants. I mean, me, you know, can you understand what their whole attitude is asking what happened with the what's wrong with the property? You know what I mean? Are you going to stay? Are you going to renew? Do you like the neighborhood? Do you like the tenants, you know, I mean, and you'll have this two or three minutes in there, where you can question them very nicely. And ask them what they like about what they don't. And you'll see the people that are always Hey, this is, hey, my blinds need to be cleaned, or I have a blind that's broken, or this is something small, like oh, this might be like a headache. So I'm probably not going to want to keep this person. Unless the landlord's like this person's fine, you know what I mean? So you're gonna be doing your own due diligence, while you're doing inspection, not just on the asset, right on the property you're gonna be doing also on the clients to tenants. And that will give you an idea. And we do like in large multifamily, we call it like a lease audit, it's much more scientific process. It sounds right. But it's really just we're reviewing leases. And with our property manager, we're going to read leases, which is extremely exciting. If you love that book you just mentioned, with all the financial formulas on it, you're gonna love reading leases. And it's really just going through and finding out really grading someone ABCD hopefully, you don't have any DS, hopefully, it's ABC, of how long someone's gonna stay there. And, you know, likelihood, they're going to be a problem, likelihood, you have to evict them, you know, all these types of things. And then you'll have an idea, you're like, oh, wow, you know, 80% of people are very good here, I'm gonna have 10% that are going to see that who knows what's gonna happen. And then I have 10%, which are like, you know, wildcards with no idea what's gonna happen there. And it's just something you have to kind of keep in mind. So, when you're doing this, when you're figuring out, this helps you with your underwriting helps you with your projections, and it doesn't have to be a huge, you know, like a huge 12 tab Excel spreadsheet when you're first small property, right, but just that you have an idea and go, tenant, one is fantastic. Tenant two's gonna be a problem 10 Three is going to be leaving, and I'm moving in there. So it's something that you have this idea of where you're going. I should put a little bit more money away, because I don't know what's going to happen on four, two, and their property, their unit was kind of in tough shape and was kind of a mess. And these are the things that you'll know. And it's not something where I'm gonna go back to the seller and be like, Hey, give me a discount, because your tenant number two is terrible. It's going to be something where I'm just have to put more money aside, you don't I mean, maybe if there's something that you found that was wrong, hey, this hot water heater is really on the fritz, I thought we could do something with it, can you give me some sort of credit on it, you know, whatever it is, and that's the stuff we usually doing smaller stuff. When you're getting into larger properties, we call it like renegotiating which is really retreating. And that's something that we kind of frown around. And we kind of know going in. And that's why we have a huge kind of additional extra amount that we add on to our expenses, because small stuff happens. But you know, it adds up. And it can be anything where the person you're buying from didn't cancel the dumpster or trash removal that happened at our last place. So we have this very expensive company another two months before we could get out of the contract, right? Because it needed a 60 day termination policy, or was something else used that they had a warranty on the roof, but they never activated it. It was like three or $4,000 and you could transfer it once. So this is a good thing because now we can transfer to who we sell it to. Bad thing though, is we have to pay whatever it was a few 1000 bucks. So this is not something I'm gonna go back to them and get mad at them because it's actually going to be a plus when we sell right? But it's something that somebody has to come up with. So you have to have this and I think when you're in your smaller properties, you can negotiate a little bit more when you're getting to larger properties. You don't want to be, you don't really want to be doing that. You don't want to be going back and retreating. Especially over small stuff. Maybe if you go back, you're like, listen, there's 15 roofs at this property. And we thought we only had to do six of them. And now we're going to do nine lots of different things. But, you know, you just don't want to be like, hey, you know, it's $2,000 often will make the deal. You know, I mean, when you're getting into a huge deal, so.

Dalyn Hazell  40:22  

Sure, yeah, no, I love how you mentioned the lease audit and really knowing what's going on in your units. And yeah, it is probably easier to negotiate when you have smaller buildings for sure. And even a single in, think of single family investing, just knowing how your tenants feel about the property, if they're gonna stay, leave, how they're liking it, that will leave you prepared so that you can you know, get that unit filled, or make some adjustments, make some repairs, whatever needs to be done there. So getting ahead of it for sure. Some other things that come to mind when I think of how to increase my net income in the properties that I have? You know, I don't know if you allow pets, but it's been great for me to, you know, pet proof my investment, but also allow pets, it sets me above some other landlords that don't allow it and also increases my cash flow right to the bottom line. Because even without the pets, I know, I'm cash flowing, so then the pets just create more cash flow. And hopefully, I will more than offset the additional repairs that are incurred because of that. Other things are just knowing when to refinance, and when to not refinance. And so we all know refinance helps you renegotiate loan terms, that can certainly help your bottom line, if you think about if you're going down an interest rate, or going up in loan terms, that will directly affect your cash flow and how much you profit from that property. Some of the things are making sure you are charging market rent, and making sure if you get into a property and let's say it's under rented, then definitely jumping that up. And that current tenant may leave. They may not like that increase, but planning for that, and making sure you're at least at market rent, and then having the rehab level back that up so that you can charge market rent. So those are all things that come to my mind when I think about, you know, we don't want to just be landlords who are just charging, you know, bottom dollar rent, we want to be landlords who are charging the most that we can that is ethical. And that gives somebody safe, affordable housing, but let us profit the most off of it. 

Charles Carillo  42:20  

Yeah, let me just add a couple things. That's fantastic. A lot of great information there. Yet perfect, you want to charge the market, we want to increase that we want to renew leases, they know there's going to be when they renew your lease, there's they know there's going to be an increase unless you're like in a COVID here, there's gonna be an increase in rent. And they're, they're looking forward to it, but they're expecting it, let's say, right. And so if you're paying for water, put a lot of water saving devices into the property. And that can be showerheads, like the dollar, right, if you buy a whole bunch of them, you can put them on there. Now obviously, if someone goes and changes them, it but let's say the majority people aren't going to do that, right. And you would like to turn down water pressure, different places like underneath saying stuff like this water saving faucets. There's a number of ways of doing that. If you put hookups into a basement for washer and dryer. That's something that charges you, you can hook up your thing there 2530 bucks a month for that coin operated washer and dryer and it's even valuable in three family properties. It's not money, huge moneymakers, but I've bought them before us off of like Craigslist, picked them up, threw them in the bottom, and hadn't plumbed them. Put, you know it's already in the basement. So your plumbing is already there, bring your plumber in, and haven't thrown it in there. And now you're charging a little bit of money. And most of that's gonna be profit. And that's gonna be another and now they're not gonna be doing tons of washes every day and every week, but it's something where they probably won't buy another one if they just have to go downstairs and do it. I've you know, when I've had those and properties that I've rented, been attended to, I've never gone to like a laundromat or anything. So you just go downstairs and you can utilize it. It's very convenient. It's very nice. So these are all different things that you can add on, like you said, the pet fees, that's fantastic, especially if your property is ready for that. Um, that can be a little you have to have a process and a system in place for how you're going to vet that pet. And that's going to be a little bit more difficult because every dog is fantastic only to hear from the owner. And then the other thing too is to know your insurance. I when I used to rent people to call and be like, Yeah, you know, I've got because it'd be like it's usually pit bulls and Rottweilers. No one really wants German Shepherds, but it's usually pit bulls and Rottweilers. And your insurance will not cover that. And they're very expensive. I didn't, I didn't watch an episode on my podcast about it. And it's like, it's a huge litigation thing for lawyers, huge income. So it's something that you've got to watch out for. And I've talked to you on the phone. He's a really friendly Rottweiler. I mean, you can play with him, like my insurance company is not going to come out to the property and play with the dog. Like I just can't do it. It's blacklisted by it. And it's just you have to know it. And people beyond you have to be upfront with them. You have to make sure that you're charging for that. If you see people bringing a dog on or bringing their boyfriend on the property and stuff like that, you just have to be proactive as a property manager, you can't just let Hey, now they've got a chihuahua in there and now they've brought their boyfriend well get an application on the boyfriend. Find out how to charge the dog, you know what I mean? So we need to be proactive landlords because little by little Everybody talks in the property, and they're talking more than you're talking to them. So it's something that they're going to know, hey, he didn't say anything when I brought the ballgame, or he didn't do well. If you say, hey, you know, you put down your foot, make sure you're collecting all the different late fees and stuff like this, when they're required to be charged, be fair and honest with your tenants. But also, you don't get to put your foot down. When there is a, when there's something that's out of normal, like, hey, you know, you call me if there's a problem. And I'll come over and fix it, right. But if it's, you know, when it comes to rent, when it comes to, there are things I expected the same way. And usually, when we're talking about things like the water, saving stuff, and putting in toilets and stuff like that, usually that stuff is less expensive than the nice stuff that uses a lot more water. So as being a consciences landlord, when you're doing repairs, and you use a cheap toilet or cheaper, less expensive toilet, they're usually going to spend less water. So it's usually a win win when you're going through and kind of making the property now, your partner can do it right off the bat. But when there's an issue, when you're turning a unit, when you see a problem, you can then you know, take it work on it. And so that's why little by little, because the whole process takes years to get your property to how you really want it.

Dalyn Hazell  46:29  

Yeah. Excellent. So yeah, just a recap, in this episode, we've talked about how to analyze potential investment in terms of the market, and gather the data on that, and then turn that into actual profits. So what we look for, as far as how to route and how to manage that asset as it goes forward. So it's been very educational for me, thank you for sharing your knowledge. For this last part of the show, we're going to ask the same three questions we do to each guest. This is called the triple threat. And the first question is, what is the app tool or resource that has been the biggest game changer in your business? Charles?

Charles Carillo  47:11  

Personally, I think it would be Trello. I use Trello, every hour of the day that I'm awake for my personal stuff and slack for slack for as I guess we're talking as a company.

Dalyn Hazell  47:22  

Yeah, those are two great tools for sure. Question two, what has been the biggest learning less than in the last year for you.

Charles Carillo  47:30  

Learning lesson is that, I think real estate just changes very slowly. And you're worried about your market changing, but it takes a while for that to happen. And by the time so if you're thinking, hey, it's going to be like the next day or that it's not like the stock market, it's very different. When something happens, it takes months and months for sellers to get on board with that. And if it goes the other way, buyers get on board with that.

Dalyn Hazell  47:54  

Yeah, good point. Question three, this podcast is all about helping others achieve freedom with real estate investing, whether that's financial, lifestyle, or otherwise. So what does freedom mean to you?

Charles Carillo  48:06  

Freedom's ability of doing what I want, when I want and being able to kind of really sculpt my schedule, so that I can work. And also I can work when I need to. And when I'd like to, and I think having freedom the older I get, I think freedom is more important than any other aspect. And that's why I love real estate and what it affords me. Yes,

Dalyn Hazell  48:27  

That's the common answer I hear from each guest. Great, well, you've been a wealth of knowledge, too. As Charles, working listeners learn more about you and your work.

Charles Carillo  48:38  

So if what I do is I do a free 30 minute call for anybody that's interested in being an active investor and or a passive investor. And I can give you a web, my web address, it's called schedule Charles calm, and I'll go directly to my webpage, Charles carrillo.com, to a page where you can set up a 30 minute call with me at your convenience. And, you know, we can talk about kind of if you're interested in getting involved in real estate, you're interested in growing your real estate you're interested in taking to the next level, or you're kind of I don't know what how to start and we can talk to you any level about that. It'll be one on one with me, and hopefully I can point you in the right direction over that. 30 minutes.

Dalyn Hazell  49:13  

Awesome. That's scheduled Charles calm. Well, thank you, Charles. And hope you have a great rest of your weekend.

Charles Carillo  49:20  

Thank you so much. Have a great rest of your day.

Outro  49:22  

Thank you for listening to the real estate investing for Freedom podcast. If you enjoyed the show, please subscribe and leave us a review and tune in next week for the next episode.