All Forum Posts by: Amy Little

You're numbers aren't necessarily out of whack. Acquisition costs and large rehab costs are usually a one time thing (albeit you may have large repair costs down the road). Most investors that are buy & hold lose money the first year, especially if there is a rehab involved. Your $10K downpayment is equity so that can't be counted. What you want to look at is the monthly rent minus all expenses associated with running the property....it's that final number that you want to be positive. 

$850 (rent)

-$201(mortgage)

-taxes

-insurance

-vacancy rate

-maintenance

-capital expense

-any utilities you may cover

-lawncare, if applicable

-property mgmt

-any other expense you might have

TOTAL

- 

My experience isn't in commercial, but your dilemma interests me. I would think that he can only market your space at the locked in lease rate and re-set at the higher rate once the 2 years are up. 

I'm not a fan of the - 'pay me all your rent and get out early' since it is all baked in his favor. See if you can find out what he really wants. Does you leaving the space early give him an advantage of some sort? If so, what?(i.e., re-lease the space to more favorable rates, do something else with the space). If you can find that out, it will give you more leverage to negotiate an exit with this guy.

Like everyone else has mentioned, you'll probably end up covering the cost of the damages outside what the deposit will cover. I'd see what you can pursue in small claims court.

I live in the bay area (north bay - marin county). We have SFH here and rental properties out-of-state. For what it is worth, here are somethings to consider.

-How long do you plan on residing in the area? 

-What do you want for your exit strategy? 

-What are the rental laws in the area you are considering purchasing (make sure you fully understand)?

As you've mentioned, it is very expensive to get into the real estate market here. If you're going to be in that area for 5-10 years, it may be worth looking into. Otherwise, renting may be the better option and buy outside CA. Personally, I'd avoid a SFH and only consider a tri or quad. Multiple units will always give you a better return than SFH.

Also, you can buy a multi-unit out of state for less than 20%. I did 2 years ago and only put 10% down. I bought it as my 'second home' took out a 7 year ARM at 3.25%. I made no mention of renting out the other unit...or both for that matter.

Make sure you understand the rental laws in that area. As you may know, SF is a heavily rent controlled city. Rent control is creeping outside of the city too. We live in San Rafael and there are loads of small multi-units around us. We have decided not to buy here because it is too expensive to buy-in AND rent control has been floated around city meetings. There is no rent control in place....yet. But, I do not want to be a landlord here if that does take place.

Thank you everyone...very helpful insights!

 Thank you for the insight! To clarify - when you say you insure for market value, are you talking about the value of the $$ you have in the property?

Looking at insurance costs to see if there is a way to optimize my cash flow. Sounds like I'm taking more of a risk position if I insure for actual value. The upside being lower insurance costs; the downside is more out of pocket should disaster strike.

Although your parents cannot turn off the electricity to force an eviction. They might be able to take tenants to small claims court for back payment of utilities. They should strongly consider after the tenants are out.

I have 2 townhouses and a duplex. Although I have property, I'm still very much a newbie trying to figure everything out. On each property, the insurance I maintain is what the insurance company has quoted me for replacement value. However, financially, I am not in that much on each property.  For example, insurance on duplex is for $150K for rebuild value costing $1400 annually; my personal financial investment is only $23K.

How do landlords assess the type of insurance coverage for their property? (i.e., only insure for the amount of money you have in the place OR for the replacement value). What are the pros/cons?

Thank you

The 8-10% is market. However, the more doors you have, you can typically get the lower end of that range. Just negotiate with property mgmt company.