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Rudy Ringel: What Is The Worst Property You’ve Ever Inspected?

Rudy Ringel is a long time real estate investor in the Dallas area. We had a great conversation about:

– using your 401k for real estate investing
– the rent price that creates the greatest demand
– how to keep repair costs down
– the tax benefits of real estate investing
– what to look for in inspections

In addition to being an investor, Rudy is also in inspector for residential, multi-family, and commercial properties. Check out his web site DFWinspector.com.

For fun and out of curiosity I asked Rudy, “What is the worst property you have ever inspected?” His answer will surprise you!

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Transcription by SpeechPad

Damon: Hey, everybody. Welcome to Eyes on Investors. I’ve got a new interview here for you. My guest today is Rudy Ringel. He is an investor and an inspector up in the Dallas area. He’s been investing in real estate since the mid 1980s, and we had a great conversation about what to do with retirement funds, whether you should leave them in the stock market or take them out and put them in real estate. We talked a lot about inspections and what inspectors look for and how, as investors, we can benefit from that. Great conversation, lots of great ideas. I hope you enjoy it.

Do you have rent houses in the Dallas area up there?

Rudy: Yes, I have a couple in McKinney and two in Fort Worth that I just bought. I just closed on one this past Wednesday.

Damon: Oh, cool.

Rudy: So I just closed on another, it’s my own little discovery of a niche market of renting to college students, renting the bedrooms out, almost like having a 3-plex. You have a three bedroom. You rent out three bedrooms, individual leases, individual renters. Then they have all the common areas, the regular common areas of the house to share. Hopefully, you get somebody that they know each other somehow. So anyway, I did that for my daughter, and then this other house came up that was up the street. It sounded like a pretty good deal, and it was four or five houses away. So we went and looked at it and bought it. So now, I’m in the process of renovating it and getting it all painted and getting it ready. School was just out, but it’s going to start again real soon, so everybody’s looking for a place to live next fall.

Damon: Yeah, they get ready weeks in advance.

Rudy: So I’ve got to really hustle.

Damon: Yeah. So where do you advertise properties that are for students? Are there directories that the students are all looking in?

Rudy: Yes, but the best one is word of mouth and a sign in the yard. It’s real simple. Most of it’s word of mouth. You usually find one or two students, and they have another friend. Or maybe there might be a threesome or foursome of friends that are living in one place, but now they don’t want to live there anymore. So now they want to . . . these are walking distance to campus. It’s two blocks off the campus.

Damon: That sounds like a good location.

Rudy: So, I have been getting a lot of calls from people that live further out that have to drive back and forth to campus, and now they’re looking to move in closer.

Damon: That’s cool. Do the rents work out better? If you get three students in a three bedroom house, let’s say, compare that to if you just have a family living in there and you just charge one rent. Can you actually make more by the three students than just the single family?

Rudy: Yeah, kind of. You have to take into consideration, too, that I’m paying all the bills. I’m including the gas and electric. The first year I had the one. I just guesstimated what the electric bill was going to be for the summer. It really kind of makes it up. So over time, three tenants or four tenants, about $50 or $75 of their monthly payment is actually going towards expenses.

Damon: So you just have to factor that in.

Rudy: But to answer your original question, yeah, you can get more for the house if you do it individually like that as opposed to just trying to rent it out to a family or just one tenant. These houses would probably rent for maybe $1,200, and I’m getting closer to $2,000.

Damon: Okay. Per student?

Rudy: No, no. Total a month. It’s roughly $600 or $700 per bedroom per student.

Damon: Okay. I got you.

Rudy: That’s pretty much the going rate. If you were to get an apartment or if you could find a one bedroom apartment for yourself, it would cost upwards of $700 to $800 for a one bedroom apartment. So this is really kind of a big deal for them.

Damon: Yeah, it sounds like a really good deal. That’s good. So is a downside to that that there’s a little bit more turnover than you’d usually have?

Rudy: Correct. Well, it’s almost annual I guess. Well, to give you an example, I have two students that are in their second year now. They’ll be there another year. For the one house, I only have to find one more roommate, which they found. They knew somebody that wanted to move in with them and they did. So I didn’t have to do anything.

Damon: That’s nice.

Rudy: Yeah. So the new house, we just closed on it this past week. I put a sign in the yard. I’ve been getting calls. I probably have five or six people ready to call back to see. A lot of them are, “I have two roommates, or I can get two other people. I know another person.” Everybody knows somebody that’s looking for a place to live. So that’s the easy part about renting to students. You don’t really have to worry about credit checks and background checks. If they lose their job, then you’re 100% vacant. So, it’s kind of like the best of both worlds with multi-family only in a single family. The best thing about multi-family is the economy is scaled. You’d have so many more tenants and income so that whenever you have one tenant move out, you’re not vacant.

Damon: Right. You still have all the cash flow from the other tenants. So the students, yeah, I can see that. If you’ve got three or four student in a single property and one has to move out, you’ve still got the others there, and chances are you’ll get another one coming in.

Rudy: Right. And like I said, they all know people that are looking for places to live. Another aspect about that, too, is I have their parents on as the responsible party. They’re students and they don’t work. They have to try and show somehow that they have money to pay for the monthly rent. So I have the parents on as a co-lessee. I call them a responsible party signer, and they sign on with it also. So they’re more or less a guarantee. They’re like a guarantor.

Damon: That makes sense.

Rudy: I figured that out all by myself. That works out really well. So I have the parents. Then, because it’s usually not co-ed . . . it hasn’t been co-ed. I’ve been renting mostly to female college students. I learned that from my daughter, because my daughter was the first one. She was one of my first tenants. So she told me to try and rent only to girls, because all the boys have all the parties.

Damon: Yeah, I was going to say, I bet the girls are not as hard on their apartments.

Rudy: Girls are not difficult to deal with. Boys, they don’t even clean. They don’t do anything to the house. She said to try and rent it to girls, and I said, “Okay, that sounds good.” So anyway, the parents are kind of reassured too. I have a little clause in the lease, too, that says only one person can live in a bedroom. No roommates.

Damon: Yeah, that’ll help the parents feel better.

Rudy: The parents kind of know that their daughter is going to be living with another TCU student, so nobody off the street is coming in to live that isn’t a student or might be a guy. Anyway, it kind of gives them that reassurance. They also have a monitored alarm system for safety. So anyway, those are all included in all the monthly rent.

Damon: Okay. So that’s an interesting model. That was really interesting and cool to find out about. You mentioned you do have some other single family properties that you rent out. I’m curious on that, what was the first property that you bought? How long ago was it and what was it?

Rudy: The first rental was in California.

Damon: Oh really?

Rudy: It was in Eagle Rock, California. My wife and I used to live up and down the Stanford Valley. That’s where I got my start in contracting and inspecting. So yeah, it was a little bungalow, maybe two bedrooms, just really run down. I think it was $170,000.

It was 1985 dollars, so it was pretty expensive, and you couldn’t live in it. This was Los Angeles. This was the kind of property you get in Los Angeles. [inaudible 11:02] $5,000, and you can’t live in the house because it’s just so bad. So I bought it and we renovated it. Actually, we were going to rent it out, but then we renovated it and decided to flip it. We just put it right back on the market and sold it. We didn’t hold it for that long.

Damon: Did it work out for you? Were you able to sell it for more than you bought it plus all your fix-up costs?

Rudy: Yeah. We made a little bit of a profit. I think we made something like $25,000.

Damon: Okay. So that was your first experience. It wasn’t a total killer deal, but it worked out okay.

Rudy: Yeah. It was definitely a learning experience.

Damon: Yeah. So what motivated you to go buy that property? What was going on through your mind?

Rudy: Well, we wanted to start getting some real estate in a portfolio for a retirement portfolio, which is what I’m still doing today. Only at that time, we just didn’t really have a plan and didn’t really know that much about it. I went through all the tapes and DVDs. Well, at that time, it was VHS tapes and cassette tapes from Carleton Sheets. Del names off all those things.

Damon: Yeah, he lists them all off.

Rudy: Carleton Sheets and . . . I can’t remember all of them. Yeah, I had a bunch of those that I kind of learned how to buy a property like that and what to do with it next. I remember he had a little checklist. This was at the same time that I was getting into home inspection. At that time, I was still a general contractor, and I was doing remodeling. I had a kitchen and bath remodeling business in the Burbank, Glendale, Pasadena area. So anyway, that’s kind of when I started getting into working more with real estate realtors and inspecting houses for other people who were thinking about buying. If you remember, back in the mid ’80s, nobody really knew what a home inspection was. Why do I need a home inspection? I’ll just have my Uncle Bob come by and look at it. He’s an electrician or something.

So that was kind of the attitude back then, and that’s when I got started in home inspections. I remember Carleton Sheets had this inspection sheet. When you go to look at a property, this is what you want to look at. You check off the windows and the carpet. What does the bathroom look like? Do I need to do anything to this or paint that room or whatever? So he had a checklist that I started using in the home inspections. It was one of my first home inspection checklists. This was back when everything was handwritten. I first got started in taking photos in home inspections with just a little 110 camera. So I . . .

Damon: Whoops. Rudy, it looks like your video froze there for a minute. The last thing I heard was you took a little camera.

Rudy: Yeah. We’re having Internet connection problems. Are you reading me okay?

Damon: Yeah, it’s coming through okay now.

Rudy: Yeah. So anyway, I took a little camera with actual film, and then went to one-hour photo and got the one-hour photos done, and then I would tape them on the page. It was really like the first digital photos with little arrows. This is broken, this doesn’t work.

Damon: That’s awesome.

Rudy: That was the beginning of that, and that was in California with a handful of properties that we first bought there.

Damon: That’s cool. So when did you move to the Dallas area and start investing there?

Rudy: My wife and I moved here in ’95, and we moved to McKinney. I wanted to try and average a house a year initially. I went to a few more seminars and boot camps trying to figure out how to do all of this. I went to one that was more . . . I can’t remember the guy’s name, but it was more oriented towards buying and holding and renting them out and building up a portfolio of rent houses and retiring on the income. Because, eventually, they’ll start to pay themselves down, and hopefully you’ll have a better cash flow, in say 10 years or so, by holding the property and then just renting it out. So that kind of got started in McKinney.

Then my wife and I bought a house. We were buying a couple of houses at a time, and then we bought and sold a lot of them. So I would buy the house and sell it almost right away. I remember one house that I bought was a little bit more than I was used to buying. I was trying to buy $75,000 fix-it. So this house was much more. It was closer to $130,000 or $140,000. If I was going to rent it, I was going to need about $1,200 or $1300 a month in rent just to make mortgage, and maybe we have a couple hundred dollars in cash left.

So, once I realized that, I had a much more difficult time finding a good tenant that was willing to pay that much money in a monthly payment. We found out through this house that you want to try and keep your target rent at just under $1,000 if you can. If it’s possible to rent the house out for $975, then rent it out for $975, or buy houses that you can rent out for $975.

Damon: Is that because . . .

Rudy: Try not to break that $1,000 a month, because, usually, people that can afford $1200, $1300, $1400 in monthly rent can probably afford to buy a house. That’s kind of the problem I was running into. So the people who wanted to rent my – I called it the big house – the people that wanted to rent the big house were generally small families. They were in the middle of building their next house. They’re building their next house, so they needed something for three, four, five, six months.

Damon: So they weren’t going to stay for years.

Rudy: That’s all they needed. Meanwhile, I had houses that were renting around $800, $900 a month that I’ve had those renters for 3 or 4 years. They’ve been the same people. Every year, I just raise the rent maybe $10, $20, a couple percent. You kind of learn the hard way that once you get up into the $1,300 or $1,400 and up rental bracket, the dynamics change. So I sold that house.

Damon: Okay. That wasn’t going to work too well for you. So you kind of learned that just by trial and error. As you got that house, you realized, hey, there’s not as much demand for it, and the people that are applying aren’t going to be here very long. So let’s go with the smaller homes where I can rent for less.

Rudy: Right. Then Lifestyles came along and Del came along. I’m sitting in the two day and I’m going, “Yeah, yeah. You’re right. You’re right.”

Damon: You can relate to that. Yeah. I think he even pulls up on the MLS how many properties are for rent in the different price points, and you get up over $1,000 a month, and there are properties that are sitting there. Nobody’s renting them.

Rudy: Yeah, they’ll sit there for months.

Damon: Yeah, exactly. So, with the investing that you’re doing currently, what kind of financing are you getting? How are you financing your properties?

Rudy: This latest one we paid cash for.

Damon: That’s the student one you just bought?

Rudy: Yes, the one in Fort Worth. So we paid cash out of a 401K stock market fund. We’re trying to get out of the cash business and get into something that you have a little bit more control over. You don’t have any control over the piece of paper that you hold in your hand from some other company. You just don’t have any control over it.

Damon: So did you just sell . . . you had stock or something in there, you sold it, cashed it out, and went and put it into a house?

Rudy: Yes.

Damon: That’s interesting. Did you calculate, look at the difference, if I leave it in that account what it’s going to . . . project what it’ll grow versus if I take it and invest it in real estate what it will grow, what’s the difference there?

Rudy: Yeah. If you want to roll the dice and find out . . . who knows what the stock market and the values are going to be even six months from now. Companies are going to be taken over and their stocks are going to be liquidated, and then you’re out. That’s the nice thing about real estate is it’s never worth zero. It’s kind of like gold. You never lose your entire investment.

Damon: Because there’s a physical asset.

Rudy: Yeah. You can hold something in your hand. The 401Ks and the stock market, all the stuff that we used to be involved in, you just can’t trust it. You take $100,000 and you invest it in a house, it’s a whole lump sum of $100,000, and it’s paying you back every month, say $1,000. You’re making $1,000 back every month regardless. As opposed to maybe contributing $1,000 to a 401K plan that’s not paying you every month $1,000. So, all I have is taxes . . . just basic hard expenses like taxes, utilities, and maintenance, general maintenance.

Damon: But there’s no mortgage payment, because you bought it with cash.

Rudy: There’s no mortgage. That’s all cash flow minus maybe a couple hundred dollars a month if you want to put it in a reserve, which I have done also. You put maybe a couple hundred dollars a month in a reserve account for improvements or unforeseen repairs. It’s kind of like a warranty program.

Damon: Right, your self-funded warranty.

Rudy: Self-funded warranty program that you only pay for if needed. When you compare those types of returns, there’s just no comparison. You can’t find it anywhere else.

Damon: Yeah. It’s an interesting comparison you draw where, on the one hand, the retirement account, you’re pumping money into it every month trying to build it up, whereas with an investment property . . .

Rudy: Hoping it will be there.

Damon: Yeah, hoping it will be there. It’s an asset you can’t control, so you keep dumping money into it, whereas an investment property, your experience is that you put the money into it and then it starts paying you back and paying you back and paying you back. Are you finding that the tax benefits of having it in real estate versus a stock market account or something like that, are you finding a benefit there, too?

Rudy: Well, yeah. It’s called depreciation. You can depreciate the asset where you can’t depreciate anything else, so that’s just part of your . . . you can still kind of zero it out at the end of the year as far as the income goes. The income that I make all year long because of the depreciation can pretty much zero it out.

Damon: So you end up having no income tax essentially, because you’re writing off through depreciation and stuff.

Rudy: Right. That and any expenses. You reach a point where you don’t really have that much repair expense. Once I get through this first month, I’ll do all my spending on this property in the next month and then I’ll be done.

Damon: Yeah, that’s a really good point, because what a lot of people ask me and other investors is, “How do I deal with an expensive repair that comes up? What if the A/C goes out, for example?” And the answer is what you just said. When you buy the property, fix it, make sure it’s working and it’s going to work for the next 5 or 10 years, and you don’t have to worry about it.

Rudy: Right. I go through, and if I have a 12-year-old, 13-year-old, 14-year-old A/C unit, I’ll just replace it.

Damon: Yeah, because you know it’s going to . . .

Rudy: If I have a 12-year-old water heater that might be in the attic and, God forbid, something happens to this water heater over the weekend while my tenants are away, nobody knows that it’s leaking. So it causes thousands of dollars worth of damage because a pipe broke or something happened where it started leaking. Rather than having to deal with getting a plumber out there on a Sunday morning because my good tenant that I’m trying to keep and keep happy, try to make them happy . . . that’s why if you have a tenant for three or four years, because you treat them like humans and you’re nice to them. So Sunday morning, they call me up and say, “Hey, I don’t have any hot water.” So it’s like, “Oh no, what do I do?” So then it’s panic time.

So in order to avoid stuff like that, you go into the house and you evaluate the water heater and the furnace, especially the furnace, because you can kind of do without an air conditioner. If the air conditioner breaks in the middle of summer, really, you could do without it. But in the middle of January, your furnace goes out. You’re talking about your property that the pipes are going to freeze because there’s no heat. Your tenant is going to be really mad because they don’t have any heat. You can’t live without heat, especially in north Dallas, because the weather can be so extreme.

So anyway, you want to look at things like that, and that’s what I do in my home inspection too. Whenever I do a home inspection for somebody buying a house, I’ll tell them that this water heater’s 15 years old. It’s working okay, and it’s kind of installed okay. Most of them are not. The furnace might be an old standing pilot light type furnace where it doesn’t even have an automatic igniter. That’s an old furnace. So just replace it. Furnaces are not that expensive, and neither are water heaters. I just bought a water heater at Home Depot for $185, $190, electric water heater. I could have probably had it installed for another $180, $200. So it’s not that big of an expense.

Damon: Right. So just get it done when you buy the property. Factor that into your costs of repairs and whatever to get the property up to the level it needs to be in and you don’t have to worry about big expensive repairs and, as you said, unhappy tenants when things break.

Rudy: Right. You want to try to avoid that.

Damon: Yeah. So, when you go and do an inspection, what are the types of stuff that you’re looking for? Obviously, like you just said, you’re looking for what’s the age of, say, the water heater and giving the new homeowner that information. But what else are you looking for?

Rudy: Well, that and the roof. All the big, I call them the big ticket items. You want to try to get a handle on the foundation and the roof, the exterior, the envelope. The exterior walls, windows, doors, those are big ticket items. If they’re not right, they can cost you money in the end. If you have leaky windows and single pane windows that are not very energy efficient, you’re going to have higher energy bills. You’ll have higher possibility of water leaks in doors. If doors are not sealed properly, you’ll have water coming in around the weather stripping, or because it’s not closing properly.

Then, of course, the roof. I’ll give you my opinion on roofs in a minute. I’ll just tell you, this roof is reaching the end of its useful life and you’re going to have to do something. If you don’t do something about it now, then you’ll have to do something about it later whenever you go to sell, because it’s going to be an issue. So a lot of times, I’ll tell a prospective buyer, “Yeah, you can probably get another five years or so out of the roof. It’ll probably be okay. Maybe you could pray for a hail storm.”

Damon: So the insurance would cover it.

Rudy: Or a small tornado.

Damon: Yeah, one just enough to damage the roof and nothing else.

Rudy: Just enough to do roof damage. Then, maybe, you might be able to get a little help from the insurance company on replacing it. But sometime in the near future, you’re going to have to replace it. On the other hand, a lot of times, you’ll find a roof that has just been replaced a couple years ago because of a hail storm. But they still have problems with them. A lot of times, they just don’t install it properly. It’s the same problem I have with air conditioners and water heaters and roofs too. I don’t know where they’re finding these roofers. They’re just not doing a good job.

Damon: Are you finding that when you’re inspecting older homes that it’s a bigger problem than with newer homes, or are you still seeing issues with newer homes?

Rudy: Yeah.

Damon: Really?

Rudy: Yeah. Newer homes, I just inspected a new home that was probably $300,000. New house, 3,500 square feet maybe. I thought, well, it’s a new house. I like doing new houses, and recently I haven’t been, because I’ve just been going to a lot of foreclosures and empty houses and bank owned properties because that’s pretty much all that’s selling right now. So here’s this builder. He finally found a buyer for this house. It’s been finished for a year, and he finally found one. So anyway, the buyer hired me to do the home inspection. I do an inspection on it. I spent almost more time on that house than I did on an older house that was 20 years old. It had so many problems. They forgot to insulate part of the attic. Some of the shingles were just installed wrong. They just installed them wrong. Just very basic things that they didn’t do. They had water heaters up in the attic without pans. You’re supposed to put a pan under the water heater, especially if you have it up in the attic. They just had the water heater sitting in the attic.

Damon: Wow. Any small leak and it’s going straight down through the ceiling.

Rudy: I couldn’t believe it. I think, also, one of the problems with that is that the house was out in the county. I won’t tell you what county it was, but it was out in the county. So it’s not in the city jurisdiction of building. So they only have to go through so many inspections, and the builder gets a slide. It doesn’t have that many inspectors, like you would, say maybe, in Frisco or Plano or the City of Dallas, the City of Fort Worth. You have to jump through hoops to build a house in those cities. But whenever you build out in the country, pretty much anything goes.

Damon: And you see probably anything.

Rudy: If you’re out in the country, then definitely get a home inspection.

Damon: Yeah. So I’m curious, what is the worst condition property you’ve ever inspected? What did you see? What was it like?

Rudy: I don’t know. That’s tough, because . I’ve seen . . .

Damon: You’ve seen everything.

Rudy: I’ve been doing this since the late ’80s, and I’ve seen an awful lot of really bad houses. I remember one that I did that was . . . I think it was a HUD owned home that didn’t have a roof.

Damon: Oh really?

Rudy: The roof was gone. Somehow it blew off or a portion of it blew off, and nobody ever fixed it. Meanwhile, this house sat vacant, sat empty. It was like the people just left. They packed up their bathroom bag full of bathroom stuff and a change of socks and left.

Damon: So all their furniture was there.

Rudy: Yeah, everything. The newspaper was on the counter. It was like somebody just up and left. So anyway, over time, this was probably over a year that the rain was coming in, and it ruined the whole house. The whole house was just completely watered. This was just as I was starting to get into mold, mold remediation, and mold assessment. So the house was just full of mold. Now I have a breathing apparatus, like a face mask with filters on it. If I run into a situation like that, I can put the mask on right away, and I can still continue to walk around. I couldn’t spend 10 minute in that house. It was that bad. I started getting a headache, and my eyes were watering. This house has mold in it. So that was a really bad house.

Damon: Wow. Yeah, I can imagine that would be crazy. Was somebody actually buying it and they were paying you to do the inspection?

Rudy: Yeah. Somebody was going to buy it, and I think I told them I could get them a good deal on a bulldozer.

Damon: Yeah. You just didn’t see a way to salvage that.

Rudy: It was not savable. It just needed to be wrecking balled. I don’t even think I finished. Once I got inside and I started evaluating the exterior, I couldn’t stay inside. I just told them, “I can’t finish this report.”

Damon: Yeah. Wow. So, just so we can get it into the transcript, I want to make sure that people know, your company is called DFWinspectors.com. Is that correct?

Rudy: It’s one inspector.

Damon: DFWinspector.com, singular. Do you just do single family properties, or do you inspect more?

Rudy: I pretty much inspect everything.

Damon: Commercial, retail . . .

Rudy: Multi-family. I just did a chain of Boston Market restaurants.

Damon: Oh really? Interesting.

Rudy: The guy was buying three Boston Market restaurants in the DFW area, so I did those for him. I just treat it like a really big home inspection.

Damon: I’m curious about that. If you’re in a restaurant or that kind of commercial retail space, are there different things that you have to look for in the plumbing? Like, is the plumbing different than it would be in a house?

Rudy: No, not really. It’s like for apartment buildings and apartment complexes and multi-family. I just treat them as a really big home inspection. It’s pretty much the same. The only thing that you run into differently with an apartment complex is how it’s heated and cooled, because a lot of times they’ll have a boiler and what they call a two pipe chiller system with a cooling tower outside. So it gets pretty technical, but it’s a different of heating and cooling. Usually older apartment complexes are heated and cooled like that. It’s kind of a central heating and cooling plant, and it’s cold or hot water out to the apartments. So anyway, that and commercial pool equipment. I’ll inspect swimming pools and pool equipment.

Roofing is a little bit different in commercial, because they use different materials and different methods for roofing and construction. So a lot of time, you’ll see steel trusses. So there are a lot of different things in structure in larger buildings like that. I’ve done, I think it was a five-story office complex. I think it was 60,000 square feet. 10,000 square feet per floor, so six floors. [inaudible 39:45] It takes a couple days to do that.

Damon: A couple days. I was going to ask. It sounds like that would be a major job, because you look at everything, don’t you? You run the water on every sink, you flush the toilet, you look at every wall, every window. Pretty extensive.

Rudy: Yeah. I do that on home inspection. I do that on apartment complexes. I do that on Boston Market restaurant. You go in the ladies room and, “Anybody in there?”

Damon: Yeah, make sure it’s clear.

Rudy: You check everything. The only thing I don’t look at in a restaurant, for example, would be the restaurant equipment, because usually the restaurant companies, that’s their thing. So I’m just looking at the structural aspect.

Damon: The structural parts of it.

Rudy: The structural and mechanical part. I guess apartment complexes, multi-family can all be really related to residential, just like inspecting a big house. You have attics and you have attic crawl spaces and you have a foundation. Sometimes they’re built on a pier-and-beam, and you have foundation crawl spaces and you have to inspect them. I have a couple of inspectors that work with me. My partner Gary, Lifestyles members have met him I think. So we’ll go in with a crew and get it done.

Damon: Okay. So it’s not one person doing it.

Rudy: No, it’s not just me walking around. I’d be there forever.

Damon: When you’re doing a big apartment complex, do you actually go into every single unit even if they’re occupied? Do you do that?

Rudy: Most of them. We normally don’t do . . . the only time I’ll do all of the units is usually in a smaller complex. If we’re talking about an 8-plex or a 10-plex, maybe up to about 15 units in a small apartment complex, we’ll probably go through all of them. Maybe one or two of them you can’t get into because they changed the lock. A lot of time you’ll run into what they call day sleepers.

Damon: They work all night.

Rudy: They work the night shift, and they come home. Then they lock their door from the inside. You can’t get in. So then the manager usually says, “Well, no, we can’t get in there.” That’s usually what we do for smaller ones. The larger complexes, like I’ve done 200 units. We’ll usually do 25% or so. That will kind of depend on how many buildings there are. If you have a large complex of 200, you might have 10 apartments per building, and you have 20 buildings. So you actually go around to all 20 buildings and treat them like 20 big houses, 20 10-plexes.

So, with that building in mind, you just do one building. So you label them, so Building A. You might only see three or four interiors in that building, unless there might be something. A lot of times the buyer, or sometimes they have a buyers’ group, a group of investors, will be walking around at the same time. A lot of times they’ll go in . . . I’ll say, “You go into all the vacant ones. They’re easy to get into. You don’t have to deal with anything. Just go look at the vacant ones, and if you see anything out of the ordinary or if you see any mold or something that you have a question about, then call me up. I’ll go over and take a look at it.” But I usually send them off. “You go look at all the vacant ones, and let us get back to work.”

Damon: Right. Then let us go crawl through the attic spaces.

Rudy: Right. Let me go do the crawling.

Damon: When you’re working with single family investors, people investing in houses, are you okay with them shadowing you on the inspection so they can see what’s going on?

Rudy: Oh yeah. I always recommend that.

Damon: That’s what I like to do when I have my properties inspected, because it just gives me . . . the reports are really good and they’re very detailed, but if I have also seen it firsthand, it just gives me a better feel for what I’m dealing with.

Rudy: Yeah, it’s always good to have the buyer there. If you can’t been there for the entire thing, try to maybe show up an hour late and shadow for maybe the last half of the inspection. I always recommend it, because you’d be amazed at what you learn.

Damon: Yeah. As an investor, you really do learn a lot. In fact, at this point, I don’t feel the need to shadow the inspector anymore, but I did on the first three or four properties, and I learned so much about it.

Rudy: You learn a lot.

Damon: Absolutely.

Rudy: There are two different aspects of whether or not to get an inspection. This is how I usually see it. First I see the investor on their initial homes. I might see them for their maybe first 5 or 10 houses that they buy, and then I don’t see them anymore. Then maybe six months later they’ll call me back and they’ll say, “Well, I have this house and I have that house and I have this house.” What they do is they reach a point where they don’t have the time. They don’t have the time to go there. But now, they’ve reached a point where they’re comfortable with not even visiting the property.

Damon: Right. And they get the inspection report, and because they’ve been so involved earlier, they get the inspection report. They know how to interpret it and what everything means.

Rudy: Once you reach that point, then you’re an investor, because it’s just numbers. A house is just a commodity. So if you look at the numbers and everything is equal, from your past experiences on other houses, how much you normally pay. So you say, I’m only going to pay $15,000 worth of remodeling or $10,000 worth of remodeling on this house. So if all the numbers make sense and the purchase price is right and the deal is otherwise okay and call me to go do the inspection, I’ll send you an inspection report that might be 20 some odd pages of photos and comments and this is what the roof looks like. I think you ought to replace this, and the water heater is really old. So then go through the whole report and then compare that with your idea of what you want to pay for repairs. You could make a decision from your desk. You don’t even have to go there.

Damon: Exactly.

Rudy: I have a lot of people that have now, especially in Lifestyles, because I deal with some other networks too, that have reached that point now. We saw them on the first handful of properties, and then I don’t hear from them for a while. I think maybe they’re taking a break or something. Then they call me up and they say, “This week I have this house, and then next week I have this house. And this one’s in Mesquite, and this one’s in Garland.” They’re everywhere. “This one’s in Fort Worth.” “Are you going to be there?” “No, I’m not going to be there. Just get me the report.”

Damon: Just go take care of it for me.

Rudy: Exactly. So that’s kind of the timeline of the investor. Once you’ve reached maturity, then you get to the point where you just don’t need to be there anymore, because you’re comfortable with it. You have to reach that comfort level.

Damon: Yeah, I think that’s really key. You do need to reach that comfort level, and you get to the point where it’s not an emotional decision anymore. I think a lot of first time investors feel a lot of emotion as if they were buying the house to live in. Investing is a totally different approach.

Rudy: Yeah, you have to pull yourself out and have an out of body experience.

Damon: Yeah. That’s a great way to put it.

Rudy: You have to look at yourself buying this property for somebody else. As long as you can do that and remove yourself and your own emotions and keep saying to yourself, “I am not going to live here.” So many people make that mistake. They go in and, “I want granite countertops, and I want a nice $500 cook top.” You spend all this money on stuff that . . . I always ask myself before I do any remodeling, “Am I going to be able to get more rent for the house if I do that?”

Damon: That’s a good question.

Rudy: Is it going to get me more rent, or am I going to be able to rent faster if I do that? So countertops are not [inaudible 49:43].

Damon: Absolutely. Well, this has been a great discussion, Rudy. I really appreciate your time today. I’ve learned a lot. We had a really good conversation about taking retirement funds and putting those into real estate rather than leaving them in the stock market and that sort of thing. That was really good. The things that you talked about with the inspections was really helpful, too. I think people are going to really enjoy the interview and benefit from it. So, was there anything that we didn’t cover that you feel like you’d like to share?

Rudy: Well, you brought up using the investment funds and buying the house for cash. I know there are a lot of members that have done that. What we’re going to plan on doing in the near future, the not so distant future, is to refinance it and pull the cash back out. Even if you just get a 50% loan to value, which should be easy to get. You should be able to get 50% loan to value home mortgage and pull that cash out and go [inaudible 50:59].

Damon: Exactly.

Rudy: You might have to get more of a mortgage on the next one. I think my closing costs, which it never occurred to me how much closing costs . . . I think the closing costs are like a couple hundred dollars.

Damon: When you did the cash purchase?

Rudy: The HUD sheet, because there weren’t any loan fees. There weren’t any dock fees. There weren’t any appraisals, no surveys. All those expenses that are on your closing sheet, you don’t have them.

Damon: Right. I’ve actually bought two houses with cash so far, and I find that the closings, there’s a lot less paperwork.

Rudy: It’s so much easier.

Damon: It’s so much easier. You can close so much faster, and you can get better deals, too, because a lot of the sellers want to sell for cash.

Rudy: [inaudible 51:53]

Damon: I’m sorry, you cut out. What was that?

Rudy: Less stressful.

Damon: Yes, less stressful. That’s right. Absolutely. So great advice. As I promote and explain to people what we talked about, I think that’s going to be one of the highlights. Sounds like we’ve got a buzzer going off in the other room. Hopefully that’s not coming off on the interview. Can you hear that beeping sound?

Rudy: Yeah, I hear it somewhere.

Damon: Yeah, nobody’s in there to turn it off. Oh well, these interviews aren’t perfect, right? They’re not television quality.

Rudy: Edit any of this?

Damon: That’s right. I could go back and edit, but you know, sometimes I just like it the way it is. We’ll see. Anyway, thank you, Rudy, so much. I appreciate it. If anybody wants to get an idea of your business, just go to DFWinspector.com, and they can find out what to do there, right?

Rudy: Yes. I’m also on the vendor list.

Damon: Excellent. So look for you there. Just so you know, it takes a couple weeks to get the transcript done for the interview and get published, so look for it here in a couple weeks.

Rudy: It’s also Rudy@DFWinspector is my email.

Damon: Rudy@DFWinspector.

Rudy: Rudy@DFWinspector.com.

Damon: Excellent. Thank you so much, Rudy. Appreciate it. We’ll be in touch. It was good getting to know you.

Rudy: See you.

Damon: Bye-bye.

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