Entering Low income rental market in Griffin GA

[Carl Pickens]

Hello,

I currently have 3 properties under contract in Griffin Ga.

1) quadraplex at 60k, fully occupied at 390 per month 

2) single family at 18k, occupied paying 425

3) single family at 19.5k occupied paying 500

The properties are in decent shape, if anything maybe 3k in deferred maintenance on each single family, (probably needs new roof, but could also be put off for a couple years if needed)

I have owned another property in the same town renting at 850 for five years, so I do have some experience but I expect this deal to be much more management intensive, (different income bracket and therefore different tenants)

Financing: Getting a "bridge loan" using equity in the rental I currently own to provide the downpayment. 

75% LTV

6% interest

15 year term

3-year balloon 

good relationship with the bank (small community bank)

Expenses: 

1800 a year in taxes across all three properties 

I still need to get a quote but budgeting for around 2500-3k in insurance (conservative estimate)

principal and mortgage payment: 900 per month 

Bottom line: 2485 in gross rents, around 1300 in PITI, so 1185 net per month before maintenance and vacany (which I'm struggling to quantify)

Seeking any advice: 

I've talked to other investors in the area who have large numbers of these houses, and they say to count on spending around 2k per house whenever someone moves, but at the same time they have tenants who will stay for years at the time as long as rent is kept at or slightly below market (which all of the ones I have under contract are).

I have no illusions about what I'm getting into, I am intimately familiar with the demographic that rents these houses. I realize this will be more of a business that an investment and am prepared to devote the time needed to manage it correctly. 

Any advice about how to screen tenants? 

How to get the biggest bang for my buck on maintenance? 

How to incentivize tenants to simply not move out? 

What am I not thinking of? 

[Laticia Braxton]

Hello Carl.  The good news is, you seem to already be aware that this will definitely not be a cake walk LOL!  A few things...I managed an apartment community of over 700 units and 20% of the property was Section 8 for over five years, so I am qualified to give you a little advice here.  Now that we have that out of the way...RUNNNN FOREST RUNNN!!

No..seriously... :-)  When dealing with lower income tenants, you will most likely be spending about what the other investors warned you of at each turnover - you will be replacing carpet, you will be painting, you will be paying for deep cleaning of your stovetops, ovens and refrigerators so get yourself a great cleaning company now.  You should also do REGULAR exterminations in each of your units, especially your quad, even if there are no issues at this time (we did it as preventive maintenance). Monthly exterminations will also give you a chance to learn the condition of each unit (make sure your exterminator documents any cleaning issues on each service ticket). 

Regarding screening, you need to run credit & background checks as you would do for any other unit. Verify previous rental history. You may need to be a little more lax than you would be in an A, B or C class neighborhood simply because in a lower income bracket, many have bad credit. The rental history should weigh more heavily than overall credit score, in your approval decision. Bad credit is simply the nature of the beast you're dealing with.

Maintenance - you should get at least two reliable, professional maintenance people and pay him/her per call and remember you will need someone to be on-call for any after-hours emergencies at all of your units. Get referrals from other investors in your area if possible or place an ad on Craigslist .  Incentivize the maintenance people as much as you can so you're not dealing with lazy people who don't get things done or who don't make correct repairs. 

Incentivizing tenants to not move out- this one is tough...you could offer them something small, maybe a gift card at lease renewal or you could be generous and offer free rent for the last month of the lease (near offer it at the start of the lease).

All in all, you just need to remember that you probably may be spending a little more time with chasing rent and filing in rent court. You may also be spending more at turnover do