Three Things That Will Cost Vallejo Real Estate Investors Money
It takes money to make money, and this is certainly true for real estate investing. But Vallejo’s real estate market presents to investors its own set of challenges that could wind up costing them in the long run. Our guest today is Doug Brien, CEO of Mynd Property Management, who will discuss with us the top three things that could cost you money when investing in Vallejo
Alex Osenenko: Boys and girls, I'm Alex Osenenko with Mynd Property Management. Today, we're talking about investing and Vallejo rental property management. It's a very important subject for those of you that are interested or considering investing or already have investments.
I have a guest today that will help me unpack some of the specifics within the market and give all of us the advice we need to make the decision one way or the other. My guest today is Doug Brien. Doug, how are you?
Doug Brien: I'm doing well, Alex. How are you?
Alex Osenenko: Great, great. So Doug is the current CEO of Mynd Property Management, but I think even more important for this particular topic—as we're speaking of the specific city of Vallejo—is his previous life. He was a founder and CEO of a company called Waypoint which purchased over 750 homes in Vallejo. So that gives him just a tiny bit of experience within the area. And so we're going to just try to extract some of that and throw some nuggets of wisdom your way. They'll help you not to make mistakes that they have made in the area. So the topic today is: the top three things you see, in your experience, that will cost Vallejo real estate investors money.
Doug Brien: Well, this is a good one because I don't know anybody who invests in real estate who isn't focused on making money. So you have got to know what is going to cost you money. I know that's how I think about real estate investing. Look, I think with Vallejo there are some specific things you have got to be careful of.
One is: this is a part of the Bay Area that was built up in the early 1900s. There's a lot of older inventory. And so, I think getting professional inspections, thoroughly evaluating your electrical system and the plumbing. In particular, watching out for galvanized plumbing, which can get corroded and cause problems and can be quite expensive to replace with copper plumbing.
Alex Osenenko: As somebody who is not as avid of an investor as potentially you are or some people watching, how would you go about discovering whether this particular house has galvanized plumbing or not?
Doug Brien: Well, I would recommend hiring a professional inspector, like using a contractor or some resources from a property management company to get a professional. But, if you just want to know on your own, the easiest way to find out is to go under the house.You can typically see what kind of plumbing is running and you're going to typically see one of two things—silver galvanized or bronze-ish copper. You want to see copper. That means that you're not going to have that corrosion problem. So, really understanding the asset and all the costs that are going to need to go into that property to make it a sound investment property—that's one place where we have lost money.The other is evictions. You know, there's a very diverse group of people from all different socio-economic levels that want to live in Vallejo. And so it's really important to know who you're letting into your house and having very strict standardized criteria that you want your renter to meet. And this is, I think, a good reason to look into professional third-party property management because they're professionals and have the standards that are best for the market. And what that does is it enhances your chances of bringing someone on as a resident that can pay the rent and take care of your house.
If you find yourself in a situation where someone is in your home and they can't pay and sometimes you are following up with them to collect the rent and they get unhappy and they start damaging your property and, all of a sudden, you are trying to evict—evictions in California can take 3, 4, 6 months or longer, and a lot of legal costs involved. So, having unqualified people in your house is the second way that I see people lose money.And related to that is just delinquency. Again, this is a blue collar area. If you don't have someone in your investment property that can pay, you end up with situations where they get behind and they want to make partial payments. You really have to navigate that carefully.
Some residents are very good at playing this game of telling really compelling, sad stories. And look, there are real things that happen, for sure, but, as as an investor, you have got to be really careful because you're in this investment to make money and collect rent. Be fair to people, of course, but delinquency and bad debt—lost rent collection—can be a challenge in Vallejo if you let the wrong people in. So, those are the three things to watch out for.
Alex Osenenko: Gotcha. So to recap: renovations, understanding the makeup of the house, the asset, itself, being smart about what you're buying and then estimating what it is going to cost you to bring it to a condition where you can rent it out to a quality tenant. Speaking of quality tenants, evictions and delinquencies will cost you money, heartache and ruin your potential for this investment property.
Doug Brien: And Alex, one point to the eviction thing that I would recommend—and I'm just remembering this as you said it—avoid evictions at all costs. I think a lot of investors get caught up in the principle of something like, “hey, so I'm going to evict them.” At waypoint, we got to the point, after experiencing time-consuming, drawn-out, expensive evictions—you hate to do it, but sometimes it makes sense to go to someone who owes you a couple thousand bucks and say “I will pay you $1,000” and eliminate this bad debt so it's not on their credit history. Pay them and eliminate their debt to get them to agree to move out. You hate to do it, it seems like the wrong thing to do, but sometimes it's actually a smart thing to do because you get your property back and it ends up costing way less. We call it CASH FOR KEYS. We hate to do it in this scenario, but I would always keep it in mind because, as an investor, you have got to look at what it's going to cost you to evict someone. It is expensive.
Alex Osenenko: So just get the right tenant. Don't fall in the trap of Fair Housing issues. The recommendation here is to hire somebody who can place a quality resident. That will mean everything to you and your investment and eventually your return.
So Doug, thanks a lot for helping us cover this important subject. Those of you who are still watching, go to Mynd.co, M-Y-N-D dot CO. Doug and I have done a number of these interviews. If you are serious about potentially investing in or putting your money into Vallejo—it’s a great place, but you need to know the underwater stuff and the above stuff and the good and the bad. And so, we cover a lot of that at mynd.co. Thanks a lot for watching and Doug, thank you for your time.
Doug Brien: Thanks, Alex.
Every real estate investor will inevitably incur certain costs when renting a property. But a block-to-block, house-to-house market like Vallejo had its own particular set of challenges that can end up costing investors even more.
As many homes in Vallejo are from the turn of the twentieth century, it is best to have an up-front understanding of what repairs and renovations will be needed for the property to be move-in ready. Likewise, with a diverse socio-economic pool of potential tenants, and as evictions can quickly become quite expensive, having some strict criteria for potential tenants, or simply hiring a property manager to mitigate such scenarios can absolutely save you in the long run. You can learn more about how much a property management company will charge to determine if that might fit within your strategy or you can choose to self manage and put that money elsewhere!
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How to Pick the Best, Most Qualified Resident for Your Rental Property
Discover the top 3 tips to ensure high-quality tenants are chosen for your residential rental property while still in compliance with fair housing laws. Learn about tenant screening, establishing criteria and fair housing laws.
Fair Access in Renting (F.A.I.R.): Portland Requirements for Tenant Screening
Explore all about the requirements for tenant screening in Portland, regarding the Fair Access in Renting, or F.A.I.R. Ordinance. They cover resident screening and advertising, as well as security deposit management.
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In the meantime, learn more about ways to start with a smaller downpayment here.