If you don’t qualify for a home loan because you don’t make enough to pay the mortgage, there are ways to creatively do it. Creative landlording is essential to gain maximum personal satisfaction and financial profit.
Today, Clint Coons of Anderson Business Advisors talks to Danielle Villegas, an artist and landlord who shares some of her real estate investing strategies, including how she takes investments and maximizes their value.
Danielle spent years struggling as a film and theater artist. She set her sights on home ownership and managed to become a landlord. Over time, Danielle developed a unique housing model for an underserved growing population.
Highlights/Topics:
- First Home: Make sure it includes rental rooms to earn extra income
- House Hacking: Don’t pay your own rent or mortgage if you don’t have to
- Financial Adviser: Danielle learned how the rich get richer and other tricks/tools
- Creative Financing: Refi made all the difference and cut mortgage in half to be profitable
- When selecting renters/tenants:
- Priority #1: Make sure they have at least one job to pay the rent
- Priority #2: Offer furnished rooms/rentals because it’s easier to move them out
- Weekly, monthly, or longer? Danielle rents out space weekly to make more money
- Private vs. Shared Space: People need own space, common space is wasted money
- Where Danielle tends to find tenants – she advertises mostly on Craigslist
- Potential Tenants: Let them tell you what you want/need to know to minimize risk
- Used or Not: Make money with rooms not used, won’t be used, used for something else
- It’s not just about the money: Make a difference – it’s very rewarding
Resources:
Anderson Advisors Tax and Asset Protection Event
Full Episode Transcript:
Clint: Welcome, everyone. Hi, it’s Clint Coons here. I’ve got a very special guest who actually happens to be a client that I wanted to bring on and share with you some of her investing strategies when it comes to real estate investing. It’s not very often that I’m speaking with a client, talking about structuring, and I hear something that just resonates. It’s so different from what I typically hear when it comes to working with real estate investors. I thought that you all would like to hear from her as well about the way in which she’s been able to take investments and really maximize their value.
Some of you may say, well, I’ve heard about that before but it was new to me. Those of you that haven’t, I wanted to share. I’m going to do that by inviting Danielle Villegas, who is (as I said) a client, she’s a landlord. She’s really found success with her investing and I want you to learn about that. Danielle, thanks for joining me.
Danielle: Hey, good to be here.
Clint: Absolutely. Okay. On your website, it states that you’re a creative landlord. What made you come up with that term?
Danielle: Well, I was an art student. My dad was a real estate investor, but he also worked a 40+ hour job his whole life. I saw how those rentals boosted his income and kept him going. I have had rentals in my mind for a long time. But when I decided to go to art school, I realized that I might not be able to ever afford to buy a house. I just expected to live a life below the fray.
Clint: Yeah, as an art student.
Danielle: Yeah, exactly. I racked up student loan debt and I did all these kinds of things. Eventually, though, there was an opportunity when I had a real job for a while. I was able to qualify for a home. Of course, it was during that time when they were giving out loans left and right, which was super good. But I was still making the money. I legitimately qualified and was able to purchase a home.
When I bought the home, what was in the back of my head the whole time was, make sure you’ve got rental rooms. Because as an artist, I’m not making very much money. I want to be able to do my artwork. Having that extra income is just tremendously important.
Clint: You got this house, it was your first property and of course the mortgage is pretty big and the income is going to be difficult to support that mortgage, so a lot of people are familiar with the term house hack. Is that how you first started out getting into this great strategy we’re going to be talking about?
Danielle: Yeah, more or less. Actually, while I was in college, I rented a little place, like a little farmworker shack in the outskirts of Los Angeles. I bought a trailer for $500 and pulled it up on my land, and that trailer, the rental money I got from that, actually paid most of my rent.
I was already conditioned to not paying my own rent if I don’t have to, or my own mortgage. When I first bought the house, I could actually afford it. That job went away and I actually became a financial adviser with a mutual life insurance company where I learned a lot more of how the rich get richer and all those tricks and tools of the trade.
I was a great salesperson, but I was selling to people like me who were artists who could not afford the big-buck things. I was one of the top salespeople in the company, however, because I was selling little policies, it never proved financially viable for me. Eventually, I ended up leaving that. You’re absolutely right that when I left—this is right after the economic fall hit and everything—I was in deep doo-doo. I had refi-ed. I’d spend money building this business that was no longer really supporting me. I needed to make sure that that mortgage was being paid.
I started renting rooms to the easiest people I could, which at that time were 20-something-year-old guys. I had three rooms in the basement and I just started renting those rooms just to pay for the mortgage. That’s why I talk about creative. If you don’t qualify for the loan because you have to be making certain things or what they’re counting isn’t working, back off and figure out how to do that and give them what they want. There are ways to do that very creatively.
Creative financing with that was how I got the refi, and the refi made all the difference. It cut my mortgage in half. I was then able to start being profitable.
Clint: You talk about renting first off to 20-something-year-old guys. Is that a demographic you’re still looking towards or for?
Danielle: No, they were quick and easy. You could rent a room for $500 and they came, they did their thing, and then they went. It’s easy to get those guys because they’re always looking for places. I didn’t ask a lot of money for down payments, on deposits, and things like that. I just needed the money. I’d get them in and I was doing weekly.
I found out that if I could charge weekly, which a lot of people actually are really okay with, that when you add up those weeks, they end up giving you more money than just what you say. Like $200 a week, people think it’s $800. No, it’s $866. That little bit of extra money is helpful. It does end up adding up in the long run. It’s those pennies and those savings things they ended up allowing me to keep building.
Clint: You start out with house hacking, and now you’ve become a landlord. In your landlording, what you’re doing, from what you describe, is you’re not just renting out the house, you’re renting out rooms in the house to tenants. So a) I want to find out how you find those people, and then b) you’re renting it out at a weekly rate. Because you essentially collect extra months’ worth of rent when you break it down weekly versus doing it monthly.
Danielle: Right. The first year or so or first couple of years I was really getting these young guys, which ended up being a huge headache after a while. But once again, I had to pay that mortgage so it was really important that I got the money in there, and I did. I was able to manage them enough, but I had to kick guys out, there were drugs, all sorts of stuff. But because they were kids, I mean it was just a little easier to deal with them. I was still living in the house, but they were in the basement. Then I had the house proper which was upstairs.
Eventually, I started renting the room upstairs as well. There are so many people warning everybody about tenants and I get it. I get that tenants are really important. I have learned over time how to choose those tenants and what helps me is it’s nice if they have a job. The number one thing is if they have a job. A lot of them have two jobs because, in this economy, a lot of people have to have two jobs just to get by.
And also furnished. It’s easier to move somebody out when they don’t bring a bunch of furniture and stuff. It’s much nicer when they come with a backpack and their computer or whatever. You’d be surprised how many people just have their belongings in a bag or in their car, are able to consolidate, have stuff in storage or whatever, and are willing to take a nice furnished place where everything is paid for. All the utilities, WiFi, I provide cooking stuff, dinnerware, and linens. I don’t buy these all new, folks. I go to the thrift store and I look for really good deals on stuff, and so I have a big storage of new sheets and I make sure everything’s clean and all that.
I mean, I’m not going to spend $25 or $30 on a sheet set when I can get it for $5. Once again, it’s these little things that end up adding up to a lot more money at the end of the month in your savings
Clint: In traditional shared housing arrangements, people will rent out a room and then they have shared facilities. You share the kitchen, you share a bathroom maybe, but you did it a little differently with yours.
Danielle: Over time, I did. Now, when I first started renting rooms, I had a laundry room downstairs, which I converted immediately into a kitchen. There was a kitchen and a bathroom down there, which meant that they didn’t ever need to come upstairs. They had their own entrance, they had their own kitchen, and they had their own bathroom. I was never living with them.
Later on, when I started renting the room upstairs in my space, I had a couple of really successful tenants and these were generally ones that I rent it on a weekly type basis. Because I didn’t want to get stuck with anybody for an extended period of time. I furnished executive rental with everything is taken care of and I would get a lot of people from out of town who are maybe doing residencies, coming to visit their folks, or whatever. I would just take temporary people, then charge a fairly higher weekly rate, and collect that money. Those people tend to be pretty solid.
Clint: How do you find the tenants that you’re going to put in your houses?
Danielle: Okay. I no longer do anybody in their 20s really anymore because they’re just too flighty. Oddly enough, what has happened over these last five years or so, I mean this homeless situation that we have all over the country is really affecting a lot of people. It’s affecting a lot of “regular Joes” that work full time, or they have one or two jobs that are still having a difficult time. Whether it’s because they have a bad credit record or whatever. They’re having a difficult time putting out the three times the rent or whatever it is.
There’s just a huge population that is not qualifying, is unable to, or whatever for traditional housing and rental places. There are tons of people out there. I’ll tell you who I’m getting. Who I’m actually getting lately is a lot of people in their 50s and 60s. I used to get a lot of 20s and 30s answering and then slowly over time the age has gone up. I have also become a little bit more picky about who I’m going to take. Like I said, I generally don’t take 20-somethings because they don’t stay.
In my houses, what I have done is any time I can give a person their own things like their own bathroom or their own kitchenette, I do that because you can charge more money. The more they have their own place, with their own stuff, and their own privacy, even if it’s an 11×11 foot room with a kitchenette and a bathroom attached to it, that room is more coveted than sharing a double-size room for some people. People need their own space. I’ve been able to thus far put kitchenettes in rooms and also try to add bathrooms where I can.
Clint: Do they have common spaces they share or did you break them all up so there’s really not any common space?
Danielle: I have discovered that common space is a waste of your money. When you get tenants who have jobs and have wives, they come and they do their thing in their room, they make use of those facilities, and then they’re out the door. The more common space you have, the more chance you have for the interaction of tenants, which is sometimes great, but it’s also sometimes detrimental if people are getting along or if people are bringing friends over and stuff. The more people you have, the more difficult it is to keep everybody happy.
I broke up all my houses so that I have divvied up the whole space, which means that living rooms become studio apartments. I popped a little kitchen into a corner of it and then figured out the bathroom situation. Like I said, I try to give everybody as much of their own stuff as possible. You get top dollar for when they get their own space. When they get their own space, they generally are going to pay more. I keep my places clean. I keep them quiet. They’re all working. I also keep in communication with them enough so that I know what’s going on.
Since many of them are paying me weekly or they’re paying every two weeks, I often do their paycheck. If they get paid every other Friday, I say okay, you’re going to pay me every other Friday then. That way you know if they lose their jobs. If something happened, you know much quicker than waiting until the end of the month to not get your money.
Clint: How are you finding the tenants then? Where do you advertise?
Danielle: I’m about 95% Craigslist.
Clint: Craigslist, and what is your ad? What do the typical ads say to find someone like this?
Danielle: If it’s a shared situation, we’re going to be sharing a bathroom or sharing a kitchen, then I will post in shared, but I will also post in sublets and temporary. In the sublets and temporary, often there’s nurses and stuff, and there are some that don’t mind sharing a kitchenette or kitchen with somebody. Sublets and temporary. I will do executive furnished units, blah, blah, blah. A lot of it is how you describe it as well.
I don’t put a ton of pictures. I find that pictures can cut your throat sometimes. A lot of people are like why don’t you post so many pictures? Well, I tell you what, people don’t like yellow curtains and actually those curtains aren’t even in the room anymore, but I had a picture of it so I put them up and that lost a tenant. I put a minimal amount of pictures and real clean. I actually do lifestyle pictures like feely pictures rather than literal pictures. That’s helpful.
Clint: Okay, so when you’re conversing with them, do you advertise that it’s a weekly rental, or do you say it’s a long term rental but you pay weekly?
Danielle: What I normally do is I’d say the rate is calculated weekly. However, I have a three-month minimum. Rate is calculated weekly, although I have a three-month minimum. Sometimes, a kitchenette can be provided for an additional fee. There’s more money for throwing in a refrigerator and a microwave or whatever. Basically, this is how I do it. I think it’s really important. People don’t answer the phone on the ads on Craigslist in case you were wondering.
There are a thousand ads in Craigslist and it’s mostly to rental companies. Most of them do not answer the phone. They’re leaving messages. I answer the phone. I actually answer the phone. The first thing I do when I talk to a potential client is I throw the ball in their court. I say, hi, tell me a little bit about yourself, your situation, and what you’re looking for? Then I just shut up.
Clint: Let them talk.
Danielle: They generally will tell you exactly where they are. I found that this little trick saves me tons of time. Have your red flag radar on to remember what they said and to catch any contradictions when they actually come to talk to you to meet you. Because if there’s contradictions, then there’s problems. But the more they talk the better you listen and you can actually piece together the story better. That’s going to minimize your risk.
Clint: Give me an example of one of your homes. On average, how many rooms do you have in it now? What does it generate per month?
Danielle: The first house that I got was technically a three-bedroom, two-bath, and it had a basement with a bedroom in it. It had an office and a weird living room thing. I sliced that up. I made two two-room units in the basement that share a kitchen and bath. The house proper, I was able to actually keep. There was a little wooden shed in the corner outside, which I added a bathroom too and a kitchenette, and that’s its own unit. Then I built a two-story tiny home in the backyard, fully hooked up.
That house generates about $6200 a month. I have, like I said, 17 doors in three properties, and I average about $1000 a month per tenant.
Clint: Wow. When you’re looking for a property, are there certain characteristics you’re looking for when you’re going to buy a new home to make sure that it fits your model?
Danielle: The first house I purchased legitimately, I was actually making money and I bought it. The second house that I bought, I actually bought through an ad on Craigslist. That was one of these lease-to-own deals. I called the number and it was brand new, out of the chute wholesaler—a kid who was trying to wholesale. He had found this guy and I was actually able to get an owner-finance property just a couple of years ago. That was a cute little two-bedroom, one-bath house, but it had a garage with an office next door to it that was the same size as the house. When I went through it, I saw at least five units there.
I was able to convert that little two-bedroom, one-bath, 800 square foot house. Making the garage into another unit and above the garage into another unit. I’m not bankable. I had to go commercial and I had a really good guy over here who was able to—based on the fact that I was making income from these other houses—leverage that and also borrow money out of the equity of one of the houses to put on the down. I was able to get another big house to do this whole situation with. There are other ways of getting things besides traditional lending. A lot is just digging, digging, and more digging.
Clint: If somebody wanted to get started doing this with their existing house or maybe they’re just investing on the coast where things are more expensive, what would you want to leave with them if they’re considering this? What are some salient points they got to know?
Danielle: When I talk to people about this, I tell people what I do. They go wow, that sounds really great. But I could never live with anybody. My first response to that is you don’t have to live with anybody. There are ways to carve out the house inexpensively so that you can actually be pulling money in from the corners of your house that you don’t use, that you didn’t think of using, or that were being used for something else.
I think it’s a real shame right now how many people have so much extra room in their house that they could be renting out to people who actually need it. We’re not doing that. I know that the money is an object like, I can’t afford a remodel. That’s going to cost $30,000 or $40,000. Yes, it could. It absolutely could cost $30,000 or $40000. But if you have time and you have some skills or ways of making relationships with people who actually can work for you, that’s another way of doing things.
I’ve been able to have my own crew for the last few years. I did not pay for any of my modifications or remodeling the traditional way. I couldn’t afford it. I was basically going by the skin of my teeth and a little bit of rental income. But I tell you what, finding a carpenter who’s down on his luck and is living in his truck or who is about to live in this truck would surely do some trade work. I’m not saying everybody should do that because I think you need to have some skills and some experience to do that. But I’ve also learned the hard way. But I’m proof that it can be done.
Clint: If people want to see the idea to get the concept behind it, you created a website called artoflandlording.com. You’ve got pictures up there of your homes. Definitely, you should go take a look at it so it gives you inspiration for ideas of how you can take your property, carve it up into these little niche spaces for people, and then maximize the revenue from those properties.
Danielle: Yeah, I just created that website not too long ago. I really want to share what I’ve learned. I’m totally open to helping people out. I actually have helped quite a few people out, whether it’s just to figure out how to buy their first home. The different kinds of options on how to do that. Whether it be wholesale or traditional. It just depends on what situation you’re in. Leveraging, I think, is really important to understand that concept. Know that if you have something of value that there are ways to leverage it. There’s a lot to it, and I definitely am open to sharing all my tricks of the trade.
I want people to be successful and there’s plenty of room out there. There’s a lot of people that need housing. I think, ultimately, that’s really the most important thing. I never looked at myself as a professional landlord. I always used to call myself an accidental landlord. But in a way, my realization is that it’s become a service, that it is a service, and that it’s actually the people that I care about. It’s not just the money.
It’s deeper, and I think in this economy, with the way things are in the world, I feel like I’m making a difference. It’s very rewarding. I certainly am up for helping people who also have an interest in doing things this way.
Clint: Great. They contact you through your site. I see it’s got artoflandlord@gmail.com. There’s your phone number there. I want to thank you for taking the time to come on here and share with us your story. Like I said, when I first started working with you, I was just so amazed from where you started to where you’ve come with your investing. Really, it’s an inspiration.
For people who are thinking about getting started in real estate or struggling and wondering how they could make more money, I mean it’s out there. If you just look at your investments from a different perspective and you bring that.
Danielle: Well, thanks so much for having me on. Like I said, I’m at this point now where I’m getting ready to retire. Literally, I’ve been doing this for less than 10 years. I’ve had the two houses for three years. I literally have three guys outside painting this house right now as we speak. I have a roof upstairs that’s getting done in a couple of days by the husband of my cleaning girl.
If you’ve got any kind of skills or you just want to learn about what the possibilities are, give me a call, shoot me an email. I’m happy to help. I like helping.
Clint: Great. Well, thanks for coming on. I appreciate it, Danielle.
Danielle: Thank you, Clint.
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