All Forum Posts by: Tyson Cox

Investment Info:

Office Space buy & hold investment.

Purchase price: $267,000
Cash invested: $100,000

This purchase was made for a very specific purpose. We were currently spending $850/mo for a local 1000 sqft garage space that was being used for storage and shop purposes. We wanted an office with storage/shop that would pay for itself. We chose this home as it located in a limited commercial district which means it can house, both, office and residential units. We also liked it as it was easy to split with a daylight basement to the parking lot and a 3bed 2bath home upstairs. We have done an extensive remodel to create our storefront office and shop with storage space on the lower level and a fully renovated 3/2 home used for mid-term and short-term rentals throughout the year.

On Friday, March 1, 2024, the Alaska House of Representatives House Labor & Commerce Committee had a first hearing for HB262. What is HB262, and why post about it on BP? HB262 states:

"An Act relating to increases in rent for dwelling units; and providing for an effective date."

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:
* Section 1. AS 34.03.020 is amended by adding a new subsection to read:
(f) While rent for a dwelling unit is current, a landlord may not increase rent for the dwelling unit unless the landlord gives written notice to the tenant at least 90 days before the date of the increase specified in the notice. Upon termination, either by a landlord or by the expiration of the term, of a rental agreement or month to month tenancy for a dwelling unit whose rent is current,
(1) if notice has been given to the tenant under this subsection, the rent for the dwelling unit in a subsequent rental agreement or month to month tenancy may not exceed the amount charged under the terminated or expired rental agreement or month to month tenancy until after the date of the increase specified in the notice; or
(2) if notice has not been given to the tenant under this subsection, the rent for the dwelling unit in a subsequent rental agreement or month to month tenancy may not exceed the amount charged under the terminated or expired rental agreement or month to month tenancy until 90 days after the date the rental agreement was terminated or expired.
* Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to read:
APPLICABILITY. This Act applies to a rental agreement that is entered into on or after the effective date of this Act.
* Sec. 3. This Act takes effect immediately under AS 01.10.070(c)."

Analysis:
Sect (f) - Right now only a 30 day notice is required by policy (not statute) in Alaska to raise rent on a month to month rental or end of lease agreement. Alaska Housing Finance Corporation (AHFC - AK sect 8 provider) requires a 60 day notice for increase in rent. The low income population the drafters are trying to help are already, in large, being given 60 day notices as most utilize the AK sect 8 voucher system. Why is this needed?

Sect (f)(1) - This would require Landlords to keep rent at the current, lower rate for 90 days even if the current Tenant does not accept the increase and decides to move. Landlords would be required to rent to a new Tenant at the current, lower rent for 90 days, then an increase could be established. What if the new Tenant also decides the new, higher rent is too much? Do Landlords have to wait another 90 days? How would this work for AHFC (sect 8) voucher Tenants if the program requires a 12 month lease at move-in?

Sect (f)(2) - The drafters are doubling-down by adding that Landlords would not be able to raise rent until 90 days after any termination of tenancy or expired agreement if notice had not been previously given. This would also include any new Tenants just as above in sect (f)(1). They are calling this a "Rent Stabilization Bill", but I hear RENT CONTROL.

If you live in and/or invest in Alaska please consider contacting your state legislators to let them know how this will not only negatively affect you, but how it will adversely affect Tenants. Rents will be higher (unless they set some rent cap) because Landlords will raise rents when possible to prolong the need for any increases on current Tenants to avoid the 90 day rule. Less sect 8 Tenants will be rented to because Landlords will not be willing to wait 90 days to get a higher rent or to sign a year lease at the current, lower rent amount when costs continue to rise. This legislation will not accomplish the desired outcome of less homelessness in Alaska as stated by Rep Andy Josephson (Anchorage - D) staffer during the hearing. This bill will actually harm our most vulnerable, those disabled and elderly, by discouraging Landlords from signing 12 month leases with Tenants who utilize the AHFC (sect 8) programs.

Alaska House Bill 262

FHA loans can be a great way to start investing with a low downpayment. Do you find that you are able to cash flow even with the high FHA fees and larger payment with less down? I'm curious because we are looking to diversify into Anchorage from the peninsula, but interest rates right now are quite the deterrent. I am assuming your net monthly profits would look similar to my 20% down with 6%+ interest rates in today's Anchorage area market. TIA for any insight.

 Kenai works very similarly. We started putting in meters in 2006-2007 and have enjoyed the cost savings for many years now. Metering out of a flat fee is usually beneficial. We continue to look for properties to purchase that have not been metered as this is a great way to force higher monthly income through expense savings :)

 It really depends on your goal. If your goal is to make a little extra money when your not there, 0-1 TV would probably be fine. I'm sure some folks are on the same page with you about TV viewing. If your goal is to turn this into a business while getting to also stay there, than TV's are a must. As long as you are not crossing a moral line (that would be an entirely different thread), I'm guessing stats would tell you most people prefer to have TV's in STRs.

..........Just a thought: If I were staying in your STR my objective would be to see the area and not really watch TV, but if unexpected weather made it so we had to stay in I would be upset that a TV was not part of the rental.

Damian,

Do you have the availability to spend a bit more and purchase a 2-4 unit building? Are there small multifamily buildings for sale in your area? Do they possibly cashflow better?

I ask these questions because this has been the case for my area of the Kenai Peninsula in Alaska for more than 15 years. I have many times been able to purchase a 4plex for a bit more (fractionally more downpayment) than a SFH. I have found that these small multi-units cashflow better and are less risky as it is unlikely the property will ever be without at least a couple of renters.

Try not to get too discouraged. When my wife and I finally decided to pull the trigger, it took over 18 months to find an investment that we felt would work. Also remember that all it takes for most okay deals to become great deals is time. I have heard many folks over the years say that they felt they paid too much for a property, but within 5 years it was the best deal they had ever made due to either rising sale prices or increased rents, or often both :) 

The biggest issue right now is that there are very few quality homes available for purchase in the Kenai/Soldotna areas. I would assume the same issue is happening in Homer. I have seen that homes on the Kenai River do very well in the summer and winter. The problem is they are very pricey ($900k-$1.5M) for the older, well maintained and well located properties.

Alaska has a great commercial property loan through AHFC with excellent terms. They are currently at 5%-5.5% amortized for 30 years. You do have to keep reserves with them for $350-$375 per year per door and they take longer to close. They will lump multiple properties together to get 5+ units if the buildings are within a certain proximity (in Soldotna it was several miles). To date we have done three of these loans. Private message me if you would like to discuss this more :) 

Give me a call. I would be happy to discuss some of the specifics of the deal.

We have 48 units throughout the Kenai & Soldotna areas. All are rented and all are paying on time, minus the one or two who regularly pay a few days late. My real concern is what might happen this winter. With the possibility of unemployment benefits going back down and a federal push to mandate no evictions again, landlords may be stuck with nonpaying tenants for an extended period of time. I hope this will not happen, but I am preparing.