Building wealth w/ 4 rentals in San Jose.

[Andrew Koster]

I am going to try and keep this somewhat short yet detailed as much as possible. My family's portfolio includes three homes located in Little Portugal in San Jose. The first unit is a 2/1 SFH on .40 of an acre with a basement. The second unit is a duplex with a 3/2 and a 2/2 both with attached garages. The third unit is a 2/1 SFH with a detached garage. These three properties are all next to each other which makes them convenient to manage but I live in Northern California. We have a renter moving back to Germany after 15 yrs on the first property. His rent has been at $1200, way below market value. The 2/2 of the duplex has been empty for 20+ years. It is like a time capsule. My grandma has lived on the 3/2 side of the duplex since my grandpa built the home. We are currently looking to move her up to where I live near Chico, CA and get both units in the duplex renting. The third unit is under housing authority and has been for a very long time. The rent on this unit is also well below the market rent at $1200 as well.

I am trying really hard to figure out what our best investment strategy is. All of the homes are currently in my grandma's name in a revocable trust but she does not want to deal with the homes anymore after my grandpa passed. I would really like to get multiple doors on the .40 acre parcel long term but we would likely need to pull equity out of the other properties to construct this option. It just seems like a lot of undeveloped land that can be taken advantage of with the renter moving out at the end of the month.  I would like to talk to someone who understands the Bay Area market well and provide my family with good feedback and suggestions on our journey, any references for an investment strategist are welcomed. Thank you in advance.

[Nathan Gesner]

Quote from @Andrew Koster:

I am going to try and keep this somewhat short yet detailed as much as possible. My family's portfolio includes three homes located in Little Portugal in San Jose. The first unit is a 2/1 SFH on .40 of an acre with a basement. The second unit is a duplex with a 3/2 and a 2/2 both with attached garages. The third unit is a 2/1 SFH with a detached garage. These three properties are all next to each other which makes them convenient to manage but I live in Northern California. We have a renter moving back to Germany after 15 yrs on the first property. His rent has been at $1200, way below market value. The 2/2 of the duplex has been empty for 20+ years. It is like a time capsule. My grandma has lived on the 3/2 side of the duplex since my grandpa built the home. We are currently looking to move her up to where I live near Chico, CA and get both units in the duplex renting. The third unit is under housing authority and has been for a very long time. The rent on this unit is also well below the market rent at $1200 as well.

I am trying really hard to figure out what our best investment strategy is. All of the homes are currently in my grandma's name in a revocable trust but she does not want to deal with the homes anymore after my grandpa passed. I would really like to get multiple doors on the .40 acre parcel long term but we would likely need to pull equity out of the other properties to construct this option. It just seems like a lot of undeveloped land that can be taken advantage of with the renter moving out at the end of the month.  I would like to talk to someone who understands the Bay Area market well and provide my family with good feedback and suggestions on our journey, any references for an investment strategist are welcomed. Thank you in advance.

Managing property on your own is easy . . . until it's not.

You have lost tens of thousands, maybe hundreds of thousands, on these properties by leaving people way below market. You're literally living on good luck right now. All it takes is one bad tenant to trash your property or sour your taste for real estate investing. You may even think you've had good fortune because you kept the rents low, but that's not true. A large percentage of below-market tenants will still trash the property, stop paying rent, or otherwise make your life miserable.

the price of a good property manager is worth it. They can get your rents to market rate, keep an eye on the property, find better renters, etc. It may cost you $200 per rental but the increase in market rates will probably put hundreds or thousands more into your pocket every month. 

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!