it’s all good and gravy when things are

going well but when you get into stuff

like evictions when you get into stuff

like tenant disputes you want to know

what is the local landlord tenant law

some zip codes that we invest in require

rental license not knowing that you

could have potential surprises or

roadblocks not that it’s impossible to

get one but if you don’t underwrite that

into your deal to get that rental

license you can find yourself in a bind

i think these small expenses and just

following the rules usually doesn’t cost

that much time or money but breaking

them opens up a whole can of worms that

can really come back around and bite

you welcome back to our special podcast

series The 20-minute Investor where we

bring you actionable nuggets and

insights from our real estate investing

journeys in bite-sized 20-minute

episodes i’m Aaron Amin my wife and I

built a portfolio of eight cash flowing

rentals across three states while

working full-time and raising a young

family and I’m Nathan i’m a husband a

father a tech executive who built a

portfolio of cash flowing rentals across

two states from over 2,000 m away

together we co-founded the Remote Real

Estate Academy where we coach investors

on how to build their own portfolios of

cash flowing rentals from anywhere in

the world today we’re jumping into

mistake number four from our remote

rental cash flow checklist email series

this mistake is overlooking inspections

and legalities it’s a kind of mistake

that doesn’t show up right away but when

it does it can cost you big we’ve both

seen deals that look great on paper fall

apart because someone skipped proper due

diligence either on the property itself

or on local rental laws and when that

happens you’re not just dealing with

expenses you’re dealing with stress

delays and sometimes even legal action

so today we’re going to jump into what

the most common oversightes are and how

to avoid them so Nathan I know you know

your market St louis inside and out so

why don’t we maybe start with just what

are some of the common I guess

regulations or rules that are specific

to your market that we can maybe

extrapolate out to help other people

look for i know four zip codes like the

back of my hand in St louis i don’t know

the St louis market because it is huge

but I think that’s maybe to the point

because when we say market market means

a lot of things and often times people

say I pick Indianapolis or whatever

that’s my market and from neighborhood

to neighborhood street to street zip

code to zip code things are tremendously

different and I think we talked about

this in the past but that’s potentially

mistake number one and it’s relevant for

me specifically like in St louis because

depending on which zip code or which

town these properties are in there are

different local regulations that I was

not aware of like some zip codes that we

invest in when we started obviously now

I do know but um some zip codes that we

invest in require a rental license not

knowing that you could have potential

surprises or roadblocks not that it’s

impossible to get one but if you don’t

underwrite that into your deal or if you

don’t expect and plan for whatever is

needed be it process time paperwork

signatures to get that rental license

you can find yourself in a bind there

are some zip codes that require you have

this rental license and that’s about it

as soon as you have it you’re good you

renew it every so often once a year two

three years four years whatever it is in

other zip codes we have the requirements

to have a rental license and that comes

with a city inspection of your property

every single year or every other year or

every time your tenant turns or you

change tenants in the property and with

those inspections typically come

findings right the railing to your

stairs to the front door is not secure

you got to fix that and then here comes

kind of surprise expenses things like

that so yeah knowing your market’s

important knowing being laser focused on

your neighborhood zip codes or

submarkets is critically important and

for reasons like I just mentioned yeah

absolutely it’s so true that within

especially bigger cities there are

typically multiple jurisdictions i’ll

use Las Vegas as an example there is a

good port so it all falls within Clark

County which has their own overlays and

regulations but there’s actually a

pretty big difference in being part of

the actual city of Las Vegas which is

pretty small the city of Las Vegas

itself versus being outside of city of

Las Vegas just under normal Clark County

regulations and so there’s different

there’s even some different zoning laws

there’s some different like conditional

use depending on what you’re using your

property for there’s thankfully no like

major big licensing issues when it comes

to just running standard rental

properties but you have to be aware of

those distinctions and which

jurisdiction you are being governed

under especially because it’s all good

and gravy when things are going well but

when you get into stuff like evictions

when you get into stuff like tenant

disputes you want to know what is the

local landlord tenant law another good

example is Seattle in Washington state

okay so we own properties in central

Washington state which is already pretty

highly regulated by comparison to most

other states but Seattle and King County

has a ton of overlays on top of that

Washington state law and stuff like

evictions are almost impossible

comically impossible in the Seattle area

and there’s interesting scenarios where

you can basically end up like paying a

ton of fees for your tenant if you

wrongfully evict them you can get on the

hook for thousands and thousands of

dollars if you’re not playing by a very

specific set of rules and I know I’m

focusing more on like the downside case

of what can go wrong but part to

Nathan’s point it’s like those rental

licenses that’s a good example of

something that if you’re doing it right

and you’re just following the rules

maybe it’s a hundred bucks or 200 bucks

a year in one of the markets I’m in in

Iowa it’s $50 every two years so it’s a

very negligible expense to file the

paperwork to have your rental license

but if you don’t do that the fines for

operating illegally are pretty high

they’re hundreds of dollars so they’re

probably 10x what the license fee is

itself and then of course if anything

happens that should have been regulated

under that agreement and you weren’t

properly licensed then you’re going to

expose yourself to a ton of extra

liability so it just goes to show I

think these small expenses and just

following the rules usually doesn’t cost

that much time or money but breaking

them opens up a whole can of worms that

can really come back around to bite you

yeah and it’s not only that it’s also

not knowing those local rules and

regulations right could potentially

result in you not being able to operate

the property that you’ve just purchased

i’m sure are at least aware of how more

and more jurisdictions cities counties

towns whatever are limiting or setting

quotas on how many properties can be

used for Airbnb so that’s short-term but

similar regulations exist for regular

rentals where these jurisdictions are

trying to promote home ownership for

local populations they set quotas on

number of rentals that can operate in

that jurisdiction and if you buy a

property not knowing that and you apply

for your license and they say sorry

we’ve reached our quota then you’re

screwed you just property that you can’t

operate as a rental so then what you got

to offload it and that comes with a

bunch of fees so it’s yeah those are the

things that are very important to know

before pulling the trigger and

purchasing something yeah some of these

can even be deal killers like you said

so god forbid you buy a property

assuming that you can operate it a

certain way and then you find out that

some law or regulation that you were

unaware of prevents you from doing so

that’s like another kind of worst case

scenario then you have a property that

you have no use for especially if it’s

remotely purchased it’s not like you’re

going to go move into it but so yeah

there’s those kind of like different

levels of severity right there’s the

deal killer there’s stuff that can

really upend your entire plan and then

there’s the compliance and ongoing

regulation stuff some of which is it can

be like a minor annoyance if you have to

file paperwork once a year and you’re

not paying attention but that can also

really like if your home is cash flowing

a couple hundred bucks a month in net

profit and you get slapped with a $500

fine that you could have avoided it can

really erode your margin just by being

careless and not paying attention to

some of this stuff so there’s a range of

consequences and the worst case ones are

more rare but you got to know where

you’re investing and what the rules are

most people think I’m full of crap when

I say that I can operate and grow my

portfolio in an average of 20 minutes

per day so instead of asking you to take

my word for it I sat down with my

business partner Nathan and we ran

through our entire 20-minute investor

strategy in a free workshop we go

through all the different workflows

software and tools we use to stay in

control of our portfolios so we can

focus on what matters most to us you can

watch the entire workshop and download

our workflows for free at

20minutinvestor.com again that’s

20inutinvestor.com and back to the show

the other big one I think is property

management laws how you can legally

operate as a property manager differs

state-bystate in some states in many of

them you’re required to actually be a

licensed broker in order to legally

operate a property management business

unless you are self-managing your own

properties right and that’s actually

important to know too because some

property managers might be running a

smaller operation like maybe they only

manage 20 or 30 doors and they’re flying

under the radar but they’re not licensed

and so they might be the greatest people

in the world but if you work with them

you’re going to have to understand the

risk that essentially they’re going

outside of the boundaries of what’s

legal and just being aware before you

take risks like that is also an

important thing to pay attention to yeah

100%

is Missouri one of those states where

you have to be a licensed broker

that is a great question i honestly

don’t know i want to say no because most

of the property managers I’ve worked

with and first of all there’s a lot of

property managers in the market but I

don’t know if that’s any indication

don’t know primarily because every

single property manager that I’ve worked

with are these fairly typical one-stop

shops where they do property management

they do their realtors so they have a

brokerage and they do some of the

maintenance and repair work not the

specialized electrical like big stuff

but they’ll do basic maintenance and

repairs realtors so brokerage there and

then property management so maybe

through that they’re licensed but I

don’t know yeah and I’d have to look at

the spread of how common it is but I

first encountered this in Iowa that was

the place where I learned that okay

there were property management companies

that were operating that were not

disclosing the fact that they weren’t

actually operating as licensed brokers

or paying to be part of you could

approach a operating brokerage right and

say hey I want to become part of the

property management arm of this business

and you could pay them a fee to

basically leverage their license but

there were a lot of people in the market

that were basically not operating that

way and not being transparent about that

so it’s just another kind a flag again

the risk of getting caught in that

scenario is very low unless something

very bad happens but nonetheless you

just want to know if you’re playing by

the rules or not and if you’re not you

have to accept the risk of what may come

if you choose to do so yeah and I just

did a quick Google search according to

the Googles of the world in Missouri

where St louis is yes you do need a real

estate broker’s license to operate a

property management company yep so

there’s one to look out for another

thing that is less regulatory and more

just about knowing your market is and

the other topic of this course too was

was inspections and understanding like

what are the localized potential risks

or things to look out for some cities

basement don’t even exist and others

there are basements there’s different

types of foundations there’s different

weather related concerns and things that

you might want to homes are built

different ways in different places and

so really understanding like what’s

normal and what’s not in your area and

I’ll admit this is not something that

I’m the best at like when it comes to

inspections i rely pretty heavily on my

property managers my agents and others

to help act as a check and balance to

tell me what those things are but I

think Nathan you’re a lot better at this

than I am when it comes to inspections

right that’s a pretty important part of

the process when you’re buying a new

property and so what are some of the

things that you look for and especially

like maybe under the lens of localized

to your market yeah so I look at those

like inspections and inspection findings

in two different buckets they’re the

things that are personal to me the

investor that are important to me to

either help me make a decision one way

or the other and the other things that I

look at are things that are more typical

of the markets that I operate in just

like you a lot of this I rely on my

property manager and my agent who

typically walk the properties with the

inspector so I get the inspector’s

viewpoint my agents viewpoint and my

property manager’s viewpoint as they’re

walking the property together for

instance and this is why knowing your

market’s important there are things

where I operate for example in the

Midwest hail is fairly common so roof

damage is a thing knowing the state of

your roof out in the Midwest where I

invest is particularly important i

wouldn’t say the same for example where

I reside in California because we don’t

get a lot of hail in California you look

at how old your roof is and all that but

you don’t look at it the same way

another example in the market I operate

in is a lot of the main sewer lines for

these rentals into the city sewer line

are very old because a lot of these

properties are old so I made that

mistake once or twice when we started

but I used to not do sewer inspections

as part of the inspections now I do

because the sewer lines are old and

that’s something important to look at to

understand whether or not you to just

take it into consideration when you’re

analyzing and looking at a property so

those are some examples of the market

specific things some of the examples

that are more specific to me the

investor is any finding in like an

inspection that could potentially turn

into a large

um construction project so things like

foundation problems or things like

needing to replace the plumbing in the

house and potentially in concrete floors

because there are basements in St louis

things like very old electric i’m not

talking about just the panel but like

wiring that’s just way too old or things

like that because these are old

properties i typically don’t want to

touch right because I don’t have the

time this is the 20-minute investor so I

got 20 minutes a day to put into this no

more so I don’t want to turn into a

construction project manager for these

large things so I look out for those and

then there’s just some other things that

I want to be aware of that either come

across through the inspection or it’s a

combination of the inspection and my

property manager’s feedback when they

walk the property with the inspector is

what have they seen in the property that

will require being done for the property

to be able to rent at market or for the

property to pass a local rental license

inspection and things like that so it’s

kind of those two lenses that I look at

and pay attention to when I look at

inspections but one thing that maybe

generally about inspections because we

I’ve heard this a lot helping up others

getting started is that people tend to

freak out when they get the inspection

report back because it’s 72 pages long

and all that a lot of those pages are

just disclosures and disclaimers and

generalities and things like that but

also note that people should expect

stuff to come back and they should be

ready there’s no inspection that will

ever come back clean that’s just the

nature of the business you can always

find something a lot of these inspectors

being an inspector is a side gig to

their main job so they want to find

things that will need repair fixing so

on and so forth and I’m not saying this

in a nefarious way but you can always

find stuff i’ve had folks in the academy

and other places come to me and say “Oh

is it normal that there’s 12 findings on

this report?” Yes it’s normal especially

if they’re older homes that were rentals

and things like that so I just call that

out as well I guess maybe an obvious but

yeah yeah and it ties back to the last

lesson about financial analysis and

making sure that you’re budgeting

properly for expenses when you get an

inspection report back you do have a

choice whether to deal with the stuff

that you find or not deal with it and

financially on your spreadsheet if you

want a higher return sometimes your mind

might trick you into thinking “This is

going to cost $1,800 to deal with i

don’t want to do that right now.” Maybe

it’s not urgent i’ll push it off because

I want a higher cash on cash return in

year one people can convince themselves

of these things to try and make the

numbers work but ultimately everything

you defer will typically end up coming

back in greater force in the long run

and to your point it’s like working with

your property manager and say “Hey what

do I need to do to get this into not

only a safe environment but also drive

the market rents that we’re hoping to

get.” And those two usually go hand in

hand right you want it to be safe and

make sure that your liability risk is

covered and that your tenants are going

to be comfortable but then also like

maybe what are some things you can do

paint touch-ups other things to make it

look and present well so that somebody

would be proud to live there and

therefore likely pay slightly higher

rent so there are those multiple

dimensions yeah the localized weather

related risks and the sewer one i think

that’s several of our students have

encountered that in the last year or so

and sometimes that one can get pretty

expensive so that’s a great call out as

well yeah I say you touched on this but

the way I look at it and framed

inspections in my mind is I’m looking at

the inspection as an opportunity it’s an

opportunity to know what I’m walking

into it’s an opportunity to back out of

a deal because if you have an inspection

contingency in your contract and your

inspection comes back with absolutely

nothing on it then you can’t use that

contingency to back out of the deal

however if your inspection report comes

back with something on it which will

always be the case even if there’s

chipped paint in the bathroom that is

legally good enough to say “Not good for

me i want to back out of this deal for

whatever reason.” And you can i don’t

recommend people back out just on

principle because you’re going to ruin

your relationship with your agent but it

is an opportunity to back out of a deal

so I view it that way it’s also an

opportunity to negotiate with the seller

because that doesn’t mean you have to do

all this let’s say you have to replace

the roof you could tell the seller

listen I’ll buy the property like this

but you got to fix the roof first or

give me a big haircut right so I view

the inspection as an opportunity yeah

yeah and to that point too um speaking

of red flags right it’s like you might

really like the property emotionally it

might check all the boxes it’s in a

great location but if you uncover

something on that inspection report that

is major or structural or could have

like long lasting implications 5 10

years from now and you’re a buy and hold

investor removing yourself from the

emotions of wanting the deal to work and

being able to walk away or at least have

a sobering assessment of whether that’s

the right decision for you long term

like you said it’s an opportunity to

reflect and make sure that you’re making

the right decision before you cross into

that largely irreversible territory of

taking ownership and actually purchasing

it good stuff we’re right at the

20-minute mark here hopefully I think we

all learned something nathan learned

something about St louis today i learned

a lot and we’ll be back next time with

mistake number five from our email

course so thanks Nathan we’ll catch you

next time yeah take care

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