Episode 30: Other Salisbury Adventures - A Business In A Box
Summary
As a former business consultant, I specialized in helping business owners zero in on what the best way to balance profit, time and talent. But as a landlord, it's the only job in which you can: have no background in landlording or rentals, no money in the bank, no experience with tenants (or customer service), no business experience whatsoever, and no experience in operating a business. And unfortunately, sometimes folks can get thrown into landlording with little or no warning. Landlording IS a business. In today's episode, we explore Jen's "Business-In-A-Box" and how to get your business of landlording set up. All this and more in today's episode of My Life As a Landlord!
Listen to full episode :
Full Episode Transcription
Welcome to My Life as a Landlord, where we untangle all things housing and educate the curious. If
you're looking for some entertainment with some honest, awkward conversations, you've come to the
right show. I'm your host, Dr. Jennifer Salisbury. This is my life as a landlord. Welcome to it.
Hello. Hello. Here we go. Welcome to my life as landlord. I am your host and guru, Dr. Jen Salisbury. Thank
you so much for joining us this week. Super excited to have you. Today's episode is another Salisbury
adventure. For those of you who are just getting started with the podcast, we have five podcast topics on
a rotating basis and they're pretty predictable. We start with landlord issues, tenant perspective, real
estate development, real estate investment and then other Salisbury adventures. And each topic rotates
each Saturday before it's published. This week is business in a box. Last week was real estate investor.
Next week is landlord topic again. Predictable. So I'm talking to all of you landlords out there 1s with my
business consultant hat on. I can't help but be a business strategist. This is my guidance to you as a life
coach, a business coach to you as a landlord. Now, landlord as a business is the only job which you
can have. Absolutely no background in landlording or rentals, no money in the bank, terrible credit, no
experience with tenants, no business experience whatsoever. You could be an employee your entire life
with absolutely zero budgeting experience and no experience owning a home and get thrown in as a
landlord with little or no warning. And for fun, this can occur 1s away from your home state. Like
you're not geographically in the same location. Landlording can throw you curveballs like no other
industry I've ever seen. It's absolutely amazing. But one thing that is vital for all of you to know it,
landlording is a business. So today's episode is called Business in a box. It is the business 101 on how
do you actually know? Like where do you even start with businesses? Now, this is going to be generic to
really any business and this is kind of the stuff that I would teach a business consultant in a variety of
industries. This was not just in rentals, but then I'm going to turn it to rentals specifically and I'm
going to help you as a landlord figure out some very important factors. That you need to not only
figure out how to get this information, but how to keep it updated, 1s really on a rotating basis. 1s We'll
talk more about it. But if you have been an employee your entire life and something tragic happens and
you end up inheriting a rental, maybe out of state, maybe nearby regard list, it can be a frightening and
overwhelming thing. And I'm talking to all my newbie landlords out here because it is scary. It's really
scary because you hear about nightmare tenants. You hear about tenants trashing your units. And I'm
really hoping that with the lessons of my podcast, I can help you get educated, get prepared, and
minimize the heartache and the recovery with proper landlording and proper tenant screening and
knowing the rules in your area and all the different topics of the podcast. But at the end of the day, your
landlord business is just that. It's a business. Now, when I was a business consultant, I mentioned already
I had many former or transitioned employees. They needed a very simple way to express business. And
so I remember one day, I just sort of drew this on one of my whiteboards. Those of you who know me
know I have whiteboards absolutely everywhere. And I drew on the whiteboard a square. And I put
two arrows going in and two arrows going out. Now, the square is your business. Whatever the industry
is, it can be a generic business. We're talking about landlording. But into that box, into the square, you
put money in, knowing you're going to get money out. And then you also put effort in, non monetary
effort with some reward, some non money reward out. Whether it's significance or pride or whatever, you
get some other reward out. And as you grow, your business, that square, whatever is in the box grows. It
can grow in the form of vehicles, equipment, leases, property, whatever it might be. The business part
grows, so the box gets bigger. Then, of course, you add employees, you add vendors. It gets a lot more
complicated and how you can understand what is going on inside that box. Inside your business is. 1s
The financials. And the financials can be really overwhelming, can be really hard to understand. And so
let's talk about what goes in the box and what comes out of the box when you are talking about rentals.
So let's talk about the money, the money going in first. When you screen your tenants, there are some
aspects that you might have to spend money on. You might have to pull court records in Canada. You
have to pay for credit reports just as an idea for tenant screening. You might have to spend some money
to get, I had said criminal records, but same thing. You might have to buy some documents. There's some
things that you need to spend money on and it's part of the expense of your business. Also you've got to
pay for repairs, pay for trouble calls inevitably you've got to maintain your asset. And so if you've got a
broken handrail or a broken stair tread, guess what? You've got to have that repaired. That's a safety
issue. Maintenance, annual maintenance, weekly maintenance. You've got to have the dumpster tipped if
you've got a dumpster at your property. Snow removal if that's included, or lawn maintenance. All that is
you paying money into the box. The box that is your business. Also you can put utilities in there,
mortgages. There are a number of items that you are paying in to the business. Now let's talk about the
money out. What do you get out of the business? That is money. Now, it's true you collect rents, but the
rents also go in the box. 1s The money out that you would see would be the rent, less your expenses.
Okay? Now, I'm very much simplifying this for the sake of this podcast, but money in, money out.
Money in is what you pay in. Money out is what you get. Ideally, the money out should be higher than
the money in. And if that's not the case for the long haul, that means that you're losing money and that's
bad. Ultimately, you want your business to succeed. You want your business to provide money out and
other non monetary rewards. So let's talk about the non money aspect that goes into your business.
When you put your effort in, there's a lot of items that are not necessarily paid for, such as the effort in
screening tenants or the quick engagement for trouble calls. Now, I self manage my rentals. If you've got
a property manager, the effort that goes into the box is your level of care to make sure that the property
manager is engaging quickly. Right? This is part of that. You could be employing folks. You can make
sure that you've got a game plan if a fridge dies. Like, for example, for us, we always have a spare fridge.
Somebody in our rental fleet. When we're in Canada, somebody somewhere has a spare fridge in their
garage or their shop just in case we need it, and we just hold onto it just in case. Because the worst case
we can do is lose a fridge. And within three days you've got to now replace all the food in the fridge.
That's super bad for a tenant. 1s But you've got to be prepared and being prepared with money and with
effort, that is part of preparing in your business. That is part of the effort that you put in to your business.
And then the rewards, the non monetary rewards that you get out. I have had tenants when we sign the
lease and we do move in inspections, I have had tenants cry, both male and female. They cry because
they have never had a rental, they've never been trusted or they've never had an opportunity to have a
rental or they are so excited about the opportunity, the location maybe they can have a dog for the first
time because we are pet friendly. But the joy that goes into providing someone's home is pretty. That has
nothing to do with money. The other significance that I get for 1s the non monetary part of it is the
number one reason that we lose tenants is that they buy a house. Number one reason. It doesn't happen
often, but it happens enough that when someone says hey, we've bought a house. 1s I know I've
succeeded as a landlord because as a landlord, I know I'm only helping the tenant along their way. We
are helping them along their journey, their life journey. They're very likely not going to be with us
forever. They're only going to be with us for a chapter. Now, do I have long term tenants that have been
with me a very long time? The answer is yes. The majority of my tenants, though, stay with us 1-5
years, whatever it might be, and then they move on. They either move on to a new location, maybe
they've outgrown the space, maybe they've bought something. But that support of helping people along
has nothing to do with money. It's the significance knowing, wow, we've helped these people and we've
set them up. And incidentally, one of the things that people call us when they buy a house is they will
frequently either phone me or Mike and they'll say, what was the color of the paint on the walls in the
unit? Because one of the things that I'm going to talk about in future podcasts is the standardization of as
many materials as you possibly can standardize. One of the standard things that we have in every single
unit we have ever made, ever, is the paint on the walls. Every single unit, including the house we live in
now, the condos that we just built, all of our rentals, they all have a color on the wall named Slinky. And
it doesn't matter 1s when a tenant changes out, we know that Slinky who's got slinky, and we can paint
the paint. And so that's the number one thing the departing tenants always ask, what's the color of the
paint on the walls? And we always have a laugh about that because it's another one of the significant
things that we always have a chuckle and go, it's so funny that people enjoy the color of the paint on the
wall. That has nothing to do with money, has nothing to do with us being landlords. It just has to do with
us preparing as landlords and business owners that we know ultimately that tenant is going to leave and
that we have to recover our unit. We're being smart about it. And it's a color that they seem to like. So
there you go. In your business, you put money in and you'll get money out. In theory, like, that's ideal,
that's what a business is. Otherwise it's called a charity and you're going to go broke. So money in,
money out should be more effort in and then rewards out significant out. 1s And as you develop your
business in a box, one of the biggest things that you need to know as a Landlord is your numbers. Now, if
you are a brand newbie landlord and you are listening to this for the first time, and you've never put a
budget together, the call to Action I'm about to tell you is for you. And even if you are an experienced
landlord, you should probably grab a Pen and paper. You Can Pause the podcast and grab A Pen and
paper right now. Go ahead and do it. Okay, you have got to know your numbers. This is a business.
Landlording is a business. And as a business, you must know your numbers. So the first thing we're
going to do is we're going to calculate two things. The first thing we're going to do is calculate the value
in your asset, whatever it is. Let's say you have a Duplex. Let's just throw it out there. You've got A
duplex, the duplex. You need to know two things for yourself. To calculate the value of this duplex, the
first thing you need to know is the approximate value of the property. Now you can get comps from a
realtor. There's a couple of different Things you can do if you had an appraisal of your property. Or you
can look at the tax assessment, but the tax assessment may not be accurate to what the value can be. Or
you can look at the insured replacement value. Now, all of these values are going to be different, but it
will give you a ball park idea of what the property, what this Duplex that you own is worth. Okay, so let's
say it's worth $400,000. That's just a nondescript number. I'm just saying 400,000. Okay? The second
thing you need to know is the mortgage Amount. Like right now, if I were to say, what's the mortgage
value for your property? How would you get that? And if you're savvy, you can say, oh, I get the
mortgage statement every month, or I can log into the bank, or whoever's got the note, I can see the
balance of it and bingo. So you need the approximate value of the property, the mortgage value, and the
difference in between. So let's say the mortgage value is let's just say it's nice and perfectly round
number. Let's say it's 200,000. So your approximate value in this scenario is 400,000. Your mortgage
value is 200,000, giving you an equity value of 200,000. That's the difference. So you have 200,000
sitting there. Now, I'm going to go even one step further and go, we're talking about a duplex. Cut that in
half with two units, 200,002 units. Right now, the value of your property is 100,000 in equity. Sorry? The
equity in your property is 100,000 per unit. Okay? That's the first thing you're going to calculate. You
just did one of the very simple calculations of your business. 1s Let's do the second one. We're going to
figure out the cash flow of your rental. And in this I'm only saying you have one rental, it's a duplex.
You've got two tenants, they're both paid. You do not have any vacancies. I'm just giving you a scenario
here, a very simple scenario, which, of course, this is a snapshot, okay? So let's say your rents per unit,
whatever your rent is, let's say they're renting for $1,000 per unit. Let's just say, which means your
revenue is $2,000 per month. Now, I am throwing out these arbitrary numbers, trying to make them
simple. So $2,000 per month in revenue. Now, let's talk about the other aspect of cash flow. You've got
your revenue, and then you have your expenses. This is where you've got to do your homework, and
you've got to keep your homework updated. You've got to keep your budget updated as you progress
throughout the year. You've got to add up your expenses of the property, meaning mortgage, including
the interest. If you have a line of credit, you've got to have the balance and the payment of that. All
utilities, including garbage, electric, water, sewer, Internet. Snow removal, anything that is utility
based, that telephone, cable, Netflix, anything that you're providing as a part of the rent. You've got to
make sure that you've got them all broken out. It may be have we have gas in some of our rentals and so
we have a gas bill every month. Property taxes is included as well. Insurance, repairs, management,
cleaning, advertising. See how this is adding up? So you've got to have your specific list of expenses.
And as a landlord, you've got to know your numbers. You've got to know when something is wrong.
Maybe you've got a water leak. The water bill has doubled in the past month. Like, what's going on? Is
somebody washing their cars? Did we break a pipe? What's going on? You've got to know your numbers.
And so let's say your expenses of your property goes up. Let's say it totals, let's say $1,500. So you've got
your two units renting at $1,000 each, $2,000 in revenue. Then you've got $1,500 in expenses just
throwing it out there, leaving $500 per month cash flow for your property. Now, I'm going to go one step
further. You knew I would. $500 per month. But you've got two units $250 per month per unit is what
you are making on your property at the moment. Okay? So in this calculation, because, again,
landlording is a business in this calculation, not only did you figure out the equity value that's going on
right now, which will change as the property ages, especially if you leave the mortgage alone. And
there's some tricks that will play around with the mortgage as we move forward, but as the property
appreciates. And you're doing your maintenance as a landlord, which you need to budget for if you're
doing all of the things that you should, your value of the property should go up somewhere around 3%
per year, year over year. There obviously are differences, right? If there's a recession that hits like we saw
in 2008, 910, obviously year over year, and those three years is not the same. However, if you look at the
last 20 years, that is approximately correct. Okay, I know that was a lot of work, but what we did is
created the cash flow card. We created a cash flow card for your duplex. If you own more rentals or
different kinds of rentals, you rinse and repeat and you do the same thing for every property. And if you
are Savvy business owner, which I'm hoping that you're becoming, you will add it all up and you will say
at the end of the day, the entire value is this. All of my mortgages add up to this. My collective equity is
this. And my cash flow per month per unit overall is this. And I think I'm hoping that I've walked you
through this well enough that in a simple way, you can set this up now, very soon we have a paid aspect
coming where it's a membership aspect coming to this podcast very soon. And in that I'm going to do
step by step deep dive things like for tenant screening and for budgeting and for all kinds of things. And
in that paid area, you're going to be able to learn a heck of a lot more than just the gloss over that. I've
given you the business in a box in this podcast. So just a preview that is coming. 1s But I hope that you
have gotten some glimpse, even a simple one, about how Landlording can be set up as a business. Now,
1s I really appreciate your thoughts on this and questions. You can ask me questions in the Facebook
group and maybe I missed something. It is entirely possible. There are a lot of experienced Landlords out
there and you've got a different perspective. Please share your story with me. I love hearing other
perspectives of it, and I love it when people are educated and wise and especially are teaching me stuff. I
think that's pretty cool. Remember, I do take new podcast ideas from questions and comments from the
different topics and the most asked question or topic. I will form a podcast around it. I want to provide
value to you as my listener, and so help me do that by making some comments in our Facebook Group
My Life as a Landlord. Next week's topic is about Landlording. Ironically, this was another Salisbury
adventure, but next week, we're going to be talking about Landlording. There has been so many questions
about the very first episode. Episode One was Landlording the Rules part One Next week's episode.
Coming up landlord the Rules, part two. You want more? I'm going to give it to you. We'll see you then.
Thanks for listening. Thank you for joining us this week. To view the complete show notes and all the
links mentioned in today's episode, visit our website at www.mylifeasalandlord.com If you're looking for
educational resources for getting into real estate, investing, becoming a landlord, or even a better tenant,
then I have a page on my website to get you started looking for a solution to the pickle that you're in. I
have suggestions for that too. You can throw your situation on my Facebook Group My Life as a
Landlord, and let our community help you with solutions. Also, before you go, make sure you subscribe
to the podcast so you can receive new episodes right when they're released. You can either subscribe
right now in the app you're listening to this podcast on, or you can sign up at www.mylifeasalandlord.com
Thank you again for joining me, Dr. Jennifer Salisbury, in this episode of My Life as a Landlord.
I'll see you next time.