How does a person become a real estate investor? What does it take to get into real estate investing? What are the things that no one tells you? These are the questions every new investor wonders.
Today, we are interviewing Art Warshaw, who has been investing in real estate since 1985. Art owns multiple properties in the state of Maryland and has a vast knowledge of the real estate industry.
Art will be talking to us about how he got started in real estate and what it takes to become financially independent through real estate.
Also, if you are just hearing of financial independence (FI,) you should read, “What is FI?” to familiarize yourself.
Hi Art, tell me about yourself:
My name is Art Warshaw and I’m married to my wife Bonnie and have 7 children. I’m a 1980 graduate of Towson University with a B.S degree in business with concentrations in management and finance. Upon graduation I worked as a parts manager for a small semi-trailer dealership.
During this time I did some post graduate work at Loyola University in the MBA program. After almost 5 years I left the trucking industry and went into Real Estate as a sales agent.
Additionally, I was licensed as a Realtor in 1985 and bought my first home in August of 1985. Early on, I heard of the wealth-building opportunities in real estate investing and immediately started buying properties.
In 5 years I purchased 5 properties, including a 4 unit apartment building. I was recognized as the top producing agent at the Catonsville Long and Foster office in 1985 and 1986. I joined Re/Max in 1987.
In 1990, I heard of a way to make money from a golf cart and joined a multi-level marketing organization called NuSkin International. I left Real estate and pursued this new venture on a full-time basis.
After paying my dues for 5 years and scraping by through the help of family, I eventually met with great success. After maintaining this business for a number of years, I sold this business in 2006.
Tell us about your real estate investing growth:
In 2001, I became a real estate investor with my brother Dave. Since then we have acquired 105 rental units which we own under three different LLCs.
Also, we have purchased raw land and had it rezoned. Afterwards, we resold it.We have also acquired, renovated, and sold approximately 10 houses.
I have continued to add to my personal real estate portfolio with the purchase of an Ocean City vacation home used for rental as well as an additional 6 apartment property acquired in 2013.
How did you first get started with real estate investing?
I was talking with someone about developing a second income stream while pursuing an MBA. An epiphany came to my mind during a statistics class that I should at age 28 go into the real estate business.
After that, I dropped the class and went and got my R.E. license. In the next few months, interest rates dropped from 11% to 9% and everyone started buying houses. I was in front of the wave. Nine months after starting I quit my full-time job to go full time as a RE agent.
How many properties do you own?
17, a combination of one single family detached house, 6 townhouses, several small multi family properties and three small apartment complexes (21 unit, 22 unit and a 44 unit) – total of 115 units.
Are your properties in one area or spread out?
All but one are within 15 minutes of my home. Most are concentrated within a 3 miles radius.
What kind of financing do you use?
Initially, we bought using 30 year fixed rate mortgages in our own names. The larger properties were financed using commercial loans which we have recently converted to 10-20 year fixed rate loans.
How do you get the financing?
Some through lenders I worked with in my capacity as an agent. More recently we hired a capital acquisition firm and they prepared a marketing package to a number of lenders and then we negotiated terms with the best three to get the best deal.
How is your real estate investing team set up (realtor, accountant, contractor, etc.)?
I’m the real estate agent and investor. My brother is a mechanical engineer by training.
Additionally, we have a CPA, a couple of different attorneys based on the issue, a handyman who is an independent contractor who has his own crew. Home Inspector and a lead and mold testing company. HVAC contractor, plumber, and electricians.
How did you find the people on your team?
Handyman I found on an internet advertising forum about 14 years ago. CPA was a referral to my brother. One Attorney I knew through a title company and we were referred to an attorney who specializes in rent court cases.
My home inspector was referred by someone my brother knew. The lead and mold company we used so long I don’t remember. My plumber I knew from an athletic association. HVAC contractor I met while working on a renovation project.
In other words, I met most of these people through personal contacts or referrals.
How do you utilize them?
CPA for tax questions and tax prep. Rental attorney to make sure we are in compliance with current landlord tenant law. Home Inspector for local jurisdiction rental property inspections.
Lead and mold company for those specific inspections. Our handyman does all of our renovation and turnover work. We also use him to do punch list maintenance items. My brother has HVAC licensing and can repair and service HVAC systems.
Do you use property managers?
No, we self manage.
How do you handle renter’s insurance?
Written into the lease – tenant has to verify coverage as part of move in. They get their own policy.
How do you keep all your real estate organized?
Financially, through Quicken. Leases and documents are all in my computer in MS Word.
Equally important, we have three LLC’s. One apartment complex and a number of the smaller properties are titled in one. Two other apartment complexes have their own LLC.
Lastly, I have pictures for advertising properties on my computer and have a folder for each apartment.
How do you accept payments?
Cash, check, money order, Venmo, PayPal, Cashapp, Zelle, Apple Pay, Google Pay. Probably 30% electronic at this point and 60% checks.
What type of contract do you use? Where did you get your contracts from?
We got a lease from a guy I knew, modified it and had our rental attorney update it. Sales and purchase contracts I get through the local Board of Realtors.
How do you perform background and/or credit checks?
I am set up through mrlandlord.com to run Transunion credit reports on my computer. Also, I use Maryland Judiciary Case Search for background checks.
Do all your contracts stay the same or do you make changes based on other factors?
Our properties are in two different counties and the leases are different. Our attorney modified our existing lease when one county made significant legal changes.
Also, we modify infrequently when we run into something that we want to be part of the lease e.g. pet clause.
What is your process if someone does not pay?
We contact them via text, phone call or email to get an update. If they get more then a month and a half behind we typically file in rent court to start the eviction process.
What is your process to evict tenants?
File in rent court, go to court, file a warrant of restitution after week, call the constable and schedule the eviction.
Fortunately, we don’t have to do this very often.
What system do you use to buy more properties?
I search the MLS to look for opportunities. We are now on the radar of multi family brokers and they call me with possible deals. I keep those relationships going by answering the phone when they call,
If a tenant does not pay a utility bill and it gets shut off, does that affect you as the landlord?
No.
Do you collect a security deposit and first/last month’s rent?
Yes, size depends on credit score. For example, if someone has no credit or has a score of 600 or higher we collect one month’s rent as the security deposit. Contrary, for credit scores between 400-599, we collect two month’s rent as the security deposit.
In your experience is the security deposit normally returned?
Yes, most of the time. However, there are usually a couple of small deductions for cleaning or minor damages.
We want to thank Art Warshaw for this informative interview. Let’s review some takeaways.
In conclusion, here are three takeaways from this interview that you should remember when investing in real estate:
- You can protect yourself by putting your investments in a LLC.
- Real estate investors rely on their team, so ensure that you surround yourself with others that can help you achieve success.
- Successful investors screen their tenants to protect their investments better.
We would like to thank Art for taking the time to be interviewed today. We hope this helps the financial independence community build the confidence they need to start building wealth and investing in real estate.
