Retire With Real Estate – Missy McCall-Hammonds

[Recorded introduction: Welcome to the FlipNerd.com podcast. This is your host, Mike Hambright. And on this show, I will introduce you to VIPs in the real estate investing industry, as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level.

We have three new shows each week, which are available in the iTunes store. Or by visiting FlipNerd.com. So, without further ado, let’s get started.]

Mike: Hey, it’s Mike Hambright. Welcome back for another FlipNerd “VIP”
show. Today, I have with me Missy McCall Hammonds who is a savvy woman real estate investor who teaches people to retire with real estate. And in fact, did the same thing.

She was able to leave the corporate world far behind. And so, we’re going to talk a little bit more about her story and how she teaches others to invest in real estate, so they can leave their jobs their well.

Before we get started, let’s take a moment to recognize our sponsors.

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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.

Mike: Hey, Missy, welcome to the show. You there?

Missy: Yes, I am. Thank you.

Mike: Welcome to the show. Tell us a little bit about your story. I know that you, like me, were a corporate schlep and were able to use real estate to kind of leave that all behind.

Missy: I was able to live in four exciting cities in six years. And when I left corporate America, they transferred me back to Cincinnati, Ohio, where my home is. And I didn’t want to leave and see four more cities in six years. So, it took me about a year to leave my corporate job once I started my real estate investing.

Mike: Yeah, yeah, okay. So, you started buying properties and before, you could kind of see that “Hey, if I put some focus on this, I can make this work.”

Missy: Absolutely. I thought I was going to buy houses and sell them to and create first-time homeowners. And I found that I was at a sheriff’s sale bidding one week, and I bought a ten-family apartment building that I thought was a four-plex because there were four doors on it.
So that day, I also became a landlord. And what I discovered was that the depreciation offsetting my income was really exciting. So I started collecting houses. I would sell one and keep one and sell one and keep one. And today, I have about 150 properties of my own.

Mike: That’s awesome. And in that process, you also started managing for other folks as well, is that right?

Missy: I did. We love to rehab. And as we all know, the market kind of crashed about five years ago. [inaudible at 00:03:45]. About seven years ago, I decided that it might be fun to work with investors. And I’ve discovered that they really don’t care what color the carpet or the walls are. They care about what color the money is that you make them.
So we started taking our homes that we were selling to homeowners, then transferring those to investors by doing the same type of process. Looking at roofs, windows, furnaces, plumbing, electric and creating a great rehab.

And then selling it to an investor as an investment, then taking back the management. So, we got to keep rehabbing and managing properties.

Mike: I see. So, you’re kind of doing, I guess what’s typically referred to as “turn-key” rentals? You’re acquiring the property, fixing it up, getting a tenant in and then selling that to a real estate investor?

Missy: Yes.

Mike: And then continuing to manage?

Missy: Yes. And today, we manage about 650 properties in Butler County, Ohio.

Mike: Okay, wow. That’s exciting. So, what’s the population of Butler County?

Missy: It’s about 350,000. There’s about 65,000 houses in the county. So, we’re not a force to be reckoned with yet, but we’re certainly working our way there.

Mike: You’re taking over, awesome. I know you’ve written some books and some other things. Do you teach people outside of those that you sell houses to, how to invest in real estate? Are you active with that? Or are you primarily just folks that you ultimately sell houses to?

Missy: I wrote a manual called “Landlording Without Losing Your Mind”
and have promoted it for a number of years. Because I thought rehabbing was hard, but really being a landlord is the hardest job out there. I have tendency to believe the best in people. And a lot of people call that gullible. But being a landlord will teach you not to be gullible, because if you are, you’re poor.

Mike: Yeah, that’s right.

Missy: I wrote the manual to try to help raise the level of professionalism in our industry because we don’t promote ourselves well. A lot of us own one or two properties. The rent that we collect is probably mine because they’ve moved out of my property.
I wanted to teach at least the local landlords, and then I kind of spread out, how to raise the level of professionalism. How to choose good tenants, how to do background checks, how to prepare the properties so that you’re limiting your liability just by proper placement of smoke detectors, handrails at steps, using carbon monoxide detectors.
The things that, today, after 15 years, are very intuitive but are not necessarily that for the new investor.

Mike: Right. Well, do you want to talk about some of those tips? I will tell you that I have some rental properties, I don’t manage them myself. I don’t know if you’ve written a book on how to get your mind back after you’ve lost it, but if you have, I’d like to get that.
It’s one of those things where when we started, we thought that “Well, after we get above a certain amount, we’ll bring it in-house.” I think now more than ever, I have no interest in bringing them back in-house, just because I don’t want the headaches associated with it.

I’m happy to pay a very competent property manager to deal with those things for me. But like you said, a lot of folks have just a few properties or a handful or maybe one or two. Can you talk about some of the tips that you share with folks on how to not lose their mind?

Missy: I think the most important one that I discovered was just send your tenant a bill. We think because we’re professionals, the first thing you should do is pay your house payment or pay your rent. Well, tenants don’t necessarily think that way. They pay what’s in the shoe box. We teach people to get in the shoe box by sending the tenant a bill every month.
Credit card companies have mastered the fact that they take the back of the bill and prepare information to make the credit card company better. Well, we use the back of our bill to make our tenants better by giving them information about changing their furnace filters because they forget to do that, which costs us money.
Giving them tools in case they ran short on money, who the help organizations are in town that will help them. But we found, the most important tip was, again, I started out as a softie. This business has toughened me up a lot.
But I couldn’t ask for late fees when I first started being a landlord. But when you send a bill, the main computer adds that late fee and we can’t take it off. So it allowed me to collect more money than I ever had because I didn’t have to ask for a late fee or a repair that they should have done because they caused the damage. So, that would be tip number one.

Mike: All right. That’s a good one.

Missy: Tip number two is “Never show your properties.” We use a lock box system to show our properties. And the system is that we put a lock box on a door, just like a realtor does and when the potential tenant calls in, we give them the combination to see the property.
They can apply either online with us or by sending the application over by fax. Either one is timestamped. So, we’ve done two things to limit our ability to discriminate and make bad decisions.

We don’t see the tenant before we rent to them. So, we have to use their application as a tool to evaluate them to know whether or not they’re really going to be a good tenant.
Have they been evicted before? Do they have adequate income? You have to rely on the facts, not your feelings. And I think that’s really what helps us be successful.

Mike: It’s interesting that you said that because actually, my property manager gives out lock box codes. And I’ve never heard of anybody else that does that. I’ve always been a little bit nervous about it, but he has a lot of properties, I mean, a couple thousand, and said “We’ve only had a couple of issues with it after all these years.”
I think most people hear that and they think that that’s just crazy. What information do you require folks provide you before you give them a lock box number?

Missy: Their name and phone number. We can ask a million other questions. But at the end of the day, you look at your caller ID and see if it matches the phone number they’ve given you. And we limit the hours that they can go to the property.

We only allow one potential tenant at a time for safety. And to make sure one of them is not a bad person. But we found it to be very successful.

Mike: Yeah, it definitely saves time. And do you periodically change those codes or check on your properties regularly, I assume, to make sure there’s no issues?

Missy: Absolutely. And we’re a little misleading because we tell the potential tenant that we’re giving them the combination of the day. Now, it’s the same combination tomorrow but if they want the combination for tomorrow, they have to call tomorrow and get it. Which leads them to think that we are changing them every day, which we don’t. But we do check on the properties regularly.
Tenants are a lot like children. They do things like leave the lights on or can’t get the lock box back together properly. But for the most part, it’s a very successful system. And we have virtually no problems with it. Especially compared to, like your property manager, what it would cost to have someone go sit in front of the property and the potential tenant never show up.

Mike: Right, absolutely. Well, that’s two great tips. Have you got any more for us? I’m sure you’ve got a million of them.

Missy: I’ve told you how to get them in to the property and how to collect your money. But sometimes, tenants forget to call you when they’re not paying their rent. When you’re trying to reach them, a lot of times, they’ll just not answer the phone or not answer your e-mails.
We’ve found that the lock box is a very powerful tool. So, any time we’ve called a tenant a number of times and they won’t return our phone calls to tell us that they’re moving out or they forgot to pay their rent or when they’re going to pay their rent. Then we’ll just simply place an empty lock box on their door.

And it is absolutely amazing how quickly your phone starts to ring because they think you’re in their property. They’ve changed their locks, blah, blah, blah. The key is… They call you. And it’s a very cheap tool to get them to communicate with you. Because you need to know whether they’re moving out, when or if they’re going to pay their rent.

You can’t get that communication but you can put 100 messages on their door. They won’t call. Put one empty lock box and they’ll call you within 45 minutes.

Mike: That’s awesome. I’ve never heard of that one, so that’s great. Good. So, are we kind of going in the progression of from finding tenants to potentially evicting them? Where do we go from here?

Missy: Well, Ohio is a very landlord-friendly state. You teach people how to treat you is what I say. You’re teaching them the whole time that they’re your tenant, how important it is for them to pay their rent first. And you’re reinforcing that by sending them a bill, by having your communications with them.
But tempers in the tenants in the world are either bad people or have bad things happen to them. And when that happens, you have to act quickly. You need to make sure you’re using the right resources to get them out of your property.

We teach them that their integrity is really a test now. You can leave the property and leave it in good condition because you did lose your job. Or you can be a pig and make us evict you.

So, use your integrity. And we teach them that through the process. And then, if they don’t pay, then we can do all the things that Ohio lets us do like garnish wages, sweep checking accounts. Anything we can do to get our money back.

Mike: Yeah. Of course, that’s different in every state. So, that was number four. Any other tips you want to share with us. Those are the big ones, yeah.

Missy: And then, finally, it’s how you prepare your property. And from a rehab or a rental perspective, proper preparation is really important. And being a landlord for 15 years, I found that there are some things that I will never do again, which is owe my soul to the carpet man.
Because although my carpet in my home is ten years old and looks like it was put in yesterday, tenants don’t necessarily take care of things the way you or I do as homeowners. I teach people to prepare their property correctly.

Which means for example, we only use single-handle faucets. Because there is a 50 percent chance less that you’re going to have a problem because there’s only one faucet, not two. How basic.

But truly, we found that that cuts down on our service calls. We’ve eliminated carpet in all of our properties. We’re using laminate, refinishing hardwood floors, ceramic tiles in kitchens and baths. And we’re testing the new luxury vinyl tile, I think is what it’s called now.

We’re using it in all of our lower-level properties as far as in the basements, because of moisture. But we’re always testing to find the best way to limit our costs moving forward.

Mike: Yeah. So no carpet, not in bedrooms or anything.

Missy: If it’s over $150,000, we’ll put it in the master suite and that’s it. But we find people really like it because it’s so much cleaner than it is than having carpet in the property.

Mike: I can appreciate that. Can you give some advice to folks that are looking to leave their jobs or basically replace their income through rental properties? Where would you recommend they get started?

Missy: I think everyone has a different passion. Certainly holding real estate long-term and being a landlord is wealth creation. When you fix and flip, you have to constantly fix and flip. And when the market changes, you have to be ready for those changes.
I like the long-term wealth of holding property long-term. Paying off the assets as quickly as you can. Because paid-off properties, if there’s a change like a recession, really aren’t a lot of pain. But a property with a large mortgage is.
So, leverage yourself as you can, especially with Fannie Mae and Freddie Mac mortgages in the beginning. Because those are like free money.

Mike: Absolutely.

Missy: And then, after that, work at paying your properties off. And using your cash flow to do that. You can flip in-between to generate the lumps of cash to pay off those properties. And that really creates long-term wealth.

Mike: Yeah. Will you take a second to talk about the comment you just made on Fannie? I know exactly what you’re talking about, using Fannie money to buy your first few rental properties. But a lot of folks really don’t understand that that is out there.
I wasn’t able to do it myself because when I started as a real estate investor, we were full-time. So, we were new business owners self- employed, with less than two years of tax returns in our business. And by the time that we had got through two years, I had more than ten rental properties.
Can you talk a little bit about that? About the opportunity that’s available for folks?

Missy: Absolutely. Fannie Mae and Freddie Mac give you what I call the ten gold certificates. It’s kind of like “Charlie and the Chocolate Factory” that we watched as kids. There’s only ten of those certificates and they’re 30-year fixed-rate mortgages.
And today, as an investor, that rate is less than 5 percent, which is very good. I’m sure we’ll never see those kind of interest rates again in our lifetime. The key to using those loans are to get those loans before you quit your corporate job. Because they do depend on you having an income that meets their criteria, so that you can leverage yourself into those loans.
Today, if you’re a husband and wife and both of you work, they’re allowing you ten each. So, you can buy up to 20 rental properties with as little as 20 percent down on your first four, counting your primary residence. The key is when you’re financing, if you’re a husband and wife, is to make sure that your name is the only name on the mortgage.

Although you file your tax returns jointly, in Ohio you both have dower rights. You finance the Fannie Mae properties individually, so you can leverage up to 20 properties. Or at least eight with 20 percent down, and that’s great leverage.

Mike: Absolutely. Awesome. Tell us a little bit about your thoughts on using a property manager versus not? My attitude has changed on that a lot. When I first started, I thought “I don’t want to pay a percentage of this or that to somebody else.” But then I realized “Well, I don’t do the make ready’s as fast and I don’t want to even think about it anymore.”
I would never personally operate without a property manager. But I would say probably the majority of people still manage properties themselves, especially if they just have a few. Talk a little bit about your thoughts on using a property manager versus not and the pros and cons.

Missy: You’re talking to a card-carrying control freak. If I wasn’t the property manager…I think the key is understanding property management period. Even though you have a property manager manage your properties, you need a good education, a good foundation about what they’re doing. And you still need to manage them.
If you’re going to manage your own properties, there’s a lot of areas you have to be very knowledgeable in, fair housing, how to do evictions, how to do collections, how to do post-eviction collections, how to evaluate tenants, how to prepare properties.

And just like you said, it’s all about the velocity of money. If your property sits vacant for 30 days because you haven’t painted the bathroom, then you’re losing that whole month’s rent that you’re never going to get back.

Mike: That’s right.

Missy: It doesn’t mean you have to be completely hands-off. Many property managers will allow you to do part of the term if you’re so inclined. But really, you’ve got to find what you’re good at. And if you’re a good painter, then go do the painting.
But I have a tendency to believe the people that are going to make their living doing this business are better at finding the deals, selling the deals and then holding the ones they like. Which means if you spend ten hours doing that and you flip one property during that time, you’ve made enough to pay someone to paint that bathroom.
And I was the painter. So, I can tell you that it was hard to put down the paintbrush in the first couple of years. But I knew I would never grow my business to replace my income and to give me the wealth that I wanted, as long as I was doing those tasks.

But it goes back to, still, you have to manage the property manager. You can’t just say “Oh, I’ve hired someone. They’re going to do everything right.” You need to follow up on are they advertising the property properly? Have they put in the newspaper and on the Internet? And how long does it take them to process an application?

Because if it takes them three weeks…if they’re in Butler County, I’ve already rented to them. Because I processed my applications in 24 hours or less. So, you need to have to answers to those important questions. And then again, go back to what you’re really good at.
If you’re a great property manager, then be the property manager. If you’re a great deal finder, be the deal finder and hire that property manager to do the things that you’re really not good at.

Mike: Right, awesome. I know this is different in Butler County. From all areas of the country, there’s a lot of differences based on markets. But what you see happening over the next couple of years here. The rental market is really hot right now in most markets.
Unless you’re on one of the coasts and rental properties are still hard to cash flow. But if you’re in kind of the Midwest or Texas, the Southeast, a lot of parts of the country other than the coasts. What do you see happening with rental, kind of inventories, markets, rates, all those things over the next few years?

Missy: I think we’re in a very special time, especially in the Midwest. Property values are still less than build costs for the most part, and interest rates are still historically low.
Our whole ability to have a good rental property depends on those two items. If interest rates go up, all investors will lose interest in this business, the same way that the hedge funds have.

And they’re the third card, that, there’s really three legs to the stool. It’s “What are the values of the properties?” “What are the interest rates for financing those properties?” And “What are the hedge funds doing in your market?” Because they can either dilute your market or they can seek a lot of the inventory, which either makes it difficult for you or makes it difficult for the renters.

And how they play out in the next five years are really going to have an impact on landlording as a whole. It almost seems like a consolidation of the industry, the same way that we’ve seen a consolidation in banking.

For me, the ambulance business, there’s lots of businesses that have went from moms and pops, like landlording, to the big business like hedge funds. And sometimes, it’s beneficial and sometimes, it isn’t.

But certainly, the interest rates, they don’t have any place to go but up. We’re not going to see them go back down again, pretty confident of that. And housing prices, as long as there’s demand, we’re going to continue to see those go up also.

Mike: Great. Any last-minute tips you’d like to share with folks on being a landlord or anything else above and beyond what you shared today? You’ve shared so much already, so I know.

Missy: Well, I think today’s the day to buy. If you’re going to invest in real estate and hold it, buy today. Interest rates are still down, property values are still down. It’s a great time to invest in real estate. And do it now.
My only regret in real estate is that I didn’t start ten years sooner. Because then I’d be all done now.

Mike: That’s right. Awesome. Missy, thanks so much for joining us today. I definitely appreciate your time and your insights.

Missy: Thank you so much for having me.

Mike: There are some great tips there. I am going to talk to my property manager and say “Missy said to do this. Are you doing that?” Awesome. Thank you so much. We appreciate you being on.

Missy: Thank you.

Mike: Bye-bye.

Missy: Bye.

Mike: Thanks for joining us on today’s FlipNerd.com podcast. To listen to more of our shows and hear from incredible guests, please access all of our podcasts in the iTunes store. You can also watch the video versions of our shows by visiting us at FlipNerd.com.