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Interview with Karen Rittenhouse

how to become a landlord

Today we are interviewing Karen Rittenhouse. Karen has been investing in real estate full-time since January 2005. She has purchased hundreds of homes, opened a full-service real estate company, a property management company, a coaching/training business, and has written several books on real estate.

Welcome Karen and thank you for taking the time to speak with me today. Can you please tell us about yourself, what you do now, your companies, the books you’ve written, etc.?

Hello! And thank you for the opportunity to talk about real estate. This is such a great time to be investing and I absolutely believe every person needs at least 5 single family rental properties to secure their retirement.

Right now in our business, I handle a lot of our marketing. I blog, write articles for real estate publications and, as you mentioned, I’ve written three books, The Essential Handbook for Buying a Home, The Essential Handbook for Selling a Home, and The Essential Handbook for Landlords.

The first book, the one on buying, I wrote when our youngest and his wife were buying their first home out of state. He would email a question, I would respond with a long answer. About the third email I thought, “He’s asking the very same questions all of our buyers ask. I need to write out the process in an easy to follow format, so we can hand these out to our buyers at the beginning of the process.” And so I did. The last one, the one for landlords, I wrote with our coaching students in mind. You only need to purchase your very first investment property to become a landlord and most investors fall into the landlording business quite unprepared!

As far as our companies, as you mentioned, we started investing full time in January 2005. We still have that company and today it focuses primarily on renovating and selling properties with a goal to pay off our portfolio. We also have a wholesale division, a full service real estate brokerage, a property management company, and a coaching/training business.

We did not start out with all of this in mind! Our only original goal was to secure our retirement. As the business progressed over time, however, all of the other divisions/focuses grew out of what we were doing quite naturally.

Now, let’s go back to before 2005, what initially inspired you to become a real estate investor?

real estate investing

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My children had left home and my new focus became retirement – how would I ever be able to afford it and would I ever be able to quit working.

Since I would be working for years to come anyway, I really wanted to make every hour count. So, I started reading about and studying the wealthy – how did they create their wealth and how did they become generationally wealthy? Over and over, I ran into real estate. Having purchased two houses in my lifetime, I knew I could do it and decided that maybe owning rental houses would be the way to go.

I discussed with my husband that we should probably own five rental properties for retirement. In my mind, they would each be generating anywhere from $1000 – $2000 per month in rent by the time we retired, meaning we’d have $5000 – $10,000 per month passive income by the time we stopped working. How great would that be?

He agreed and we started looking at for-sale-by-owner properties and trying to learn neighborhood property values in our spare time. It took about three years to buy our first five rental properties and I really felt that we had accomplished something important.

At that time, Jim and I both worked in commission sales. Because commission means that if you don’t work, you don’t get paid, we rarely took time off. One year, we went all out and took an entire week off to visit family in Seattle. When we got back from our wonderful time away, our commission for the month was at zero. However… our rent checks were in the mail. Light bulb moment for both of us – What if we were focusing on the wrong end of our income? After all, these rent checks came in no matter where we were. We could be in the Bahamas, in the hospital, sitting on the couch watching soap operas! These little oil wells just keep pumping.

We decided right then that we were young enough and healthy enough to try one more venture. And so, after some discussion, we agreed that I would quit my W-2 job and try this real estate thing full time. Jim made enough to pay all of our bills and we figured that, if buying real estate didn’t work out, I could always go back to another W-2 job.

We had no idea what “the real estate thing” we were jumping into was, how we would know if it was working, or really even what we were looking for. In my mind, I wanted to get to retirement faster and perhaps create an even better retirement for the two of us. How? I had no idea. Income for today? I never even considered that this new venture would create income now. Perhaps, that’s one of the reasons we’ve been successful – we had no high expectations and certainly never considered real estate investing as a way to get rich quick.

Can you tell us about your first real estate deal?

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I was terrified. And, because I didn’t know what I was doing and didn’t really want a seller to say “yes”, in the beginning I made very low ball offers. Ignorance is not always a bad thing.

We had begun a little bit of marketing to get the phone to ring – walked neighborhoods putting out flyers, had magnets on our cars, and put an ad in the local Nickel Paper – a three line ad was only $265 for a year! I had questionnaires printed out and stacked by the phone so, if a seller did call, I’d know what questions to ask.

Almost the very first call was a woman calling from out of state. Turns out, her son lived near us and had taken down our phone number from the magnets on my car doors while parked at a grocery store. As it turned out, the condo she was selling was in our neighborhood!

It was vacant and had been on the market with a real estate agent for a year. I asked for the property details and promised to call her back. After doing my due diligence, I called and offered her 65 cents on the dollar. She said, “Honey, I’ve owned this condo for six years and I still owe more on it than that!” I told her that I totally understood, that I was not going to be her best offer but that I was one solution, and she was welcome to call back anytime if she had more questions during her selling process.

I was so relieved that she didn’t take my offer. That night, she called back. She asked if we did the deal, how it would take place. I explained it to her, told her we would close with our attorney, and that she would have to write me a check for the difference between what I was offering and what she still owed. She thanked me and hung up.

The next day, she called back and accepted my offer. I had never even seen the property and was scared to death. Later that day, I met her son at the property to check it out. It was immaculate – all new carpets and paint, all appliances including washer and dryer, a 2 story living area with a 2 story stone fireplace, an upstairs office area that overlooked the living area below. It was amazing. Because it was my very first deal and the seller actually paid me to take it off her hands, I took this as a sign that I was heading down the right investment path!

Do you focus on any particular real estate investing strategy?

real estate investing strategy

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Single family homes is our primary focus. Naturally, you can’t learn or become skilled in all the strategies at once. As an investor picks a strategy that is of interest to them, they should study and learn that specific strategy until they are comfortable with it, and add more as they go.

We focus on neighborhoods, areas where we want to own, rather than on a specific type of investment strategy, like foreclosures or probate. Because we focus on geographic areas rather than on a specific strategy, we have become skilled in just about every buying strategy possible.

With marketing, you never know what deal you’re going to run across or who is going to call, so our goal is to present an offer, a solution, to anyone who comes to us.

Our belief is to focus on the customer and what they need or want, then to create a solution to their situation. If you can solve your client’s problem, they are happy to work with you. If you focus on just one strategy, like foreclosures or probates, too many deals come to you that you have to pass on because they just don’t fit those narrow models.

We are part of a group of investors so, when new investors join, they are able to learn with the deals they can handle and pass on the ones they can’t. As they grow in experience and knowledge, the deals they are able to complete on their own expands.

How do you find motivated sellers?

motivated seller leads

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Our preferred method for finding sellers is direct mail marketing. With direct mail, we target only the houses we want to buy in the neighborhoods where we want to own. It’s probably the most costly form of marketing, but, when the phone rings, we know we’re interested in the property because the caller received our mailing. It’s expensive, but it produces the highest quality leads.

With so much competition, what makes a motivated seller want to deal with you and not someone else?

Communication. It’s vitally important to be a good communicator. To be a good communicator, you must be a good listener. Starting out, I really knew nothing about this business other than I wanted to be in it. I quickly discovered that I wasn’t selling anything so, without a “pitch” to present, I didn’t know how to talk to the sellers. What I learned quickly was that most of my time was spent listening to them. The great thing was, they all had a different need and they were only too willing to tell me what that need was. All I needed to do was craft a solution for them, and they were thrilled to work with me. It’s that simple: listen to what they need, figure a way to make it happen.

What key things do you look for in an investment and what criteria do you use to determine how much to offer for a property?

Well, it has to make us money. If there’s no profit in the deal, we walk. How do we determine how much to offer? It depends, which I know is a terrible answer, but it’s true. Location, quality, condition, appreciation potential, and how we’re going to buy and sell all play a part in our offer. If we have to pay for funding to buy a property, we are forced to offer less. If the seller is willing to finance, we can offer more.

One thing we have done from the beginning is to demand profit the day we buy. Because we never speculate on the future, we made it through the recent economic downturn basically unscathed. We never count on appreciation, for example, because we have no idea what the future real estate market will do. Like anyone who’s been in this business over the past 10 years, we feel like we have a pretty decent understanding of real estate cycles, but who knows when another Katrina or 911 might hit.

So, we buy conservatively. All purchases must have equity and cash flow from the day we close. For flips, we must have a large ARV profit potential and know that, if for some reason it doesn’t sell, we can put in a tenant. With every purchase, we prefer to have several viable exit strategies.

Be conservative.

What were your goals when you first got started and how did they change as you became more successful?

real estate investing goals

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My first goal was five rental properties. That happened over three years and we both still had full-time W-2 jobs. My next goal was to secure our retirement so I quit my W-2 job to focus more time and energy on securing a better (or sooner) retirement. Two years later, we had 25 properties and I was convinced that was enough. I wanted to stop and work toward paying those off. My husband was convinced that this business had amazing potential and decided to quit his W-2 job at that time to put his full effort into real estate.

When he quit, we hired our first assistant, purchased an office space to get the business out of our home, and the business made its first huge leap. We had trouble keeping up and quickly brought in another full-time person to help out. Over the next year, we realized that we needed help owning and operating a company, which this had become. And so we found a business coach.

The first time we sat down to create goals and actually write them out on paper, we weren’t good at it, at all. In fact, the first time we wrote out goals, we accomplished our one, three, and five year goals all within the first six months! If you don’t have a plan and written goals, you’ll never know how much you can accomplish, or whether or not you’re getting anywhere.

By year three, we were far better at estimating what we would do over a given 12 month time frame. Our goals, our vision, and our conversation are on a completely different plane than when we started out. It takes time to morph from a W-2 mentality to that of an entrepreneur and business owner. If your thinking doesn’t progress, your business will not succeed.

So it sounds like establishing goals really helped you to focus and to take your business to another level. Can please expand a little bit more on this?

Naturally, when we started out, we had no idea how limited our understanding was. We absolutely understood that we had no real estate experience or training, but I cannot over emphasize the statement “you don’t know what you don’t know.”

When I quit my job, our only plan was to secure retirement. We didn’t even know what that meant or how we’d know if we’d done it. About six months into it, we purchased an extensive online business plan. We worked on it diligently for three months. It asked for a lot of numbers that we totally guessed on just to have something to fill in. The plan asked a ton of questions that we would never have thought to consider on our own.

The great thing about completing this exercise was that it made us think. It made us ask ourselves important questions about going forward. It made us think through scenarios and possibilities in our minds. And, significantly, it gave us a graph that we could refer to over and over as a guide. We could learn, for example, from the guessed numbers we had plugged in, how accurate or how far off they were. And because we had it spelled out in the beginning, we learned to accurately gauge going forward. Having so much written down really made us pay attention which caused us to be aware of much we would have missed without the business plan.

Our only exit strategy starting out was, if this doesn’t work, we’ll each get another W-2 job. We had nothing at the time, so we had nothing to lose.

We have since shifted our focus from acquiring properties to paying off what we own. I work a totally flexible schedule already. I don’t know if Jim will ever stop. He completely loves what we do.

What big mistakes have you made or seen others make?

big mistakes in real estate investing

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Hmmmmm. The biggest mistake I’ve seen in others over the years (over and over again) is getting impatient and getting distracted. Too many have unrealistic hopes about real estate investing being a fast or easy means to wealth. It is neither. Yes, you can create long term, generational wealth as well as a huge income, but it takes time and a lot of effort. Starting out, neither one of us took a day off for over two and a half years and we were working at least 12 hours a day. Plus, we were spending nothing except on the business – no movies, no dinners out, no new clothes, nothing. We had a goal and we stuck to it.

I have seen many, many over the years drop out when they follow the next “shiny object” that comes along. Before you know it, they’re caught up in some multi-level marketing business that takes all their time and effort and they confidently state that real estate investing didn’t work, blaming it on the economy, their local market, lenders, anything but their own lack of focus.

Stay focused. In the past, it was not unusual for a job to last 25 years or more. Why do we now think we can amass tremendous wealth in two to three years?

What was your most challenging deal and what did you learn from it?

Isn’t every deal a challenge? Now, there’s a valuable lesson! If you don’t want to be surprised when you’re in the middle of a deal, then expect to be surprised. Because surprises happen – with pretty much every single one. And, they’re all different so, no matter how prepared you think you are – surprise! Something unexpected pops up once again.

Just know that you won’t be able to see everything going in. Repair costs will be higher than you budget for. Closing will take longer than promised. You’ll have to make unexpected concessions to get the property closed. Contractors will disappoint. Don’t even get me started on what can trip you up on the funding side.

But, if you buy right, it’s all worth it. Just determine not to get stopped. Keep jumping over the hurdles one at a time. Eventually, you’ll find yourself crossing the finish line with a big smile on your face.

What advice would you give to a new investor?

Find a coach/mentor in your area to whom you can turn for guidance. Make sure they are successfully doing what you want to do and, if possible, talk with others they’ve helped.

This is not a solo business. You need attorneys, CPAs (knowledgeable in real estate investing), sub-contractors, real estate agents, title companies, inspectors, appraisers, on and on. Find someone who’s walked through the mine field before you, who can give you a hand to save you both time and money. Should you pay them for their time? Absolutely. If they’re willing to share with you what they’ve learned over the years, they’ve paid for their skills one way or another and what you will gain from them is worth paying for. If they’re not worth paying, they’re not worth following.

Is there anything else you’d like to share with our readers before we go?

Buy real estate. If you haven’t started yet, start. If you’re buying, buy more. If you don’t, 10 years will have passed and you’ll be kicking yourself for not buying all you could today.

It’s a worn out cliché that “there’s never been a better time to buy real estate”, but it’s true. And I believe it’s always true. Sure, you have to adjust your methods and your exit strategies depending upon the market, but they’re not making any more real estate and everyone works, shops, and lives somewhere. If you don’t own it, someone will.

Get an education, hook up with a mentor, and buy real estate.

Here’s wishing you tremendous real estate investing success!

Karen Rittenhouse

karen rittenhouseKaren Rittenhouse has been investing in real estate full time since January 2005. In that time, she has purchased hundreds of single family properties, opened a full-service real estate company, a property management company, a coaching/training business, and written three books on real estate, The Essential Handbook for Buying a Home, The Essential Handbook for Selling a Home, and The Essential Handbook for Landlords.

Facebook: http://www.facebook.com/karen.rittenhouse

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