All Forum Posts by: Ben Zimmerman

I'll admit, I stopped reading your novels after this post.  While multifamily certainly has it's pros/cons, It is not necessarily the be all end all investment strategy.  For example your raving about how you grew your 1.95m in a 20 year timespan is far from impressive.  That gain comes out to a relatively meager 8.71% annualized return.  A solid investment for sure, but that's basically what you would have gotten had you just sunk your 1.95m into the stock market over those 20yrs.

As for the OP's post about what is the most under realized opportunity, I would say its a toss up between STR and rent by room methods (which includes house hacking your primary residence).

People are quickly catching on to just how profitable STR rentals can be. Depending on location, the average monthly income can often 2x or more what you could otherwise collect if instead you had rented it out on a long term basis. 2x'ing your income obviously significantly changes the long term projected ROI on single family homes. The drawback being that it often requires managing cleaning services and has a much higher initial startup cost since you're going to need to fully furnish the STR with high enough quality furniture that won't easily get destroyed. This additional upfront cost of furniture greatly increases the total down payment funds necessary to get up and running with a new rental.

The alternative best option in my opinion, is to buy 4-5 bedroom houses and rent by the room.  Select a home near the entertainment district or college campuses that is nice but simple and not easily destroyed (no carpet, instead use a sturdy laminate/tile ect).  This can also often roughly 2x the income of what a house could otherwise generate had it instead been rented to one family long term.  It has the added benefit of not needing to furnish the house, but does have the drawback of requiring more time finding/screening tenants as now you have 5x the tenants you previously had.  While scaling a rent by the room business to dozens or hundreds of properties can be difficult due to the time consuming nature of constantly screening tenants, it can be a fantastic way for most people to get their foot in the door with investing in real estate.  And since I would guess 90%+ of BP members never own more than 2 rentals, this can be a great way to maximize their funds.

So for the record, you are not able to explain why this person is statistically more likely to cause issues, or why your financial screening techniques are relevant for someone who is prepaying??  That's too bad, because I was rather looking forward to you attempting to justify running a credit check on someone who is paying cash.

 Go ahead and name one legitimate reason that you think that this person is statistically more likely to cause issues than any other random tenant.  I eagerly await your answer.  I've had doctors trash a place, and section 8 tenants treat the place better than I would have.  

I've seen multiple people in this thread comment about how he could potentially be a drug dealer since he has extra cash.  There are hundreds of plausible explanations why he has extra cash.  To simply jump to conclusions and assume that he is a drug dealer since he has extra cash means I must be El Chapo himself.  Covid and a recent divorce are completely legitimate reasons for someone's situation to have been turned upside down.  For all you know he was a successful baker who lost his business when the government shut him down, and his vindictive wife ruined his credit via joint accounts.  Those people not commenting about him being a drug dealer, are instead simply parroting "screening requirements are requirements", even though the screening requirements that this tenant fails are not currently applicable since he is prepaying rent in full, and therefor his other financials are completely irrelevant.  

I mean do you honestly think that screening a credit score and income requirements means that the person is more likely to treat the property well?  Those screening requirements are there to make sure the rent gets paid on time, and nothing more.  If you wanted to screen how well someone might potentially take care of the house, you would instead do things like look inside their car when they come to check out your rental.  Is there mounds of trash and fast food boxes left inside the car?  Or do they keep their car relatively clean.  Does he have children?  And if so how well behaved are the kids.  Does he have a new live in girlfriend that will also be on the lease?  Drive past his current residence and see is the lawn mowed and well kept?  Did you call their landlord from the 2nd to last place he lived and ask for a recommendation?  (2nd to last since if they are actually a bad tenant the last landlord will likely just lie and give them a glowing review, anything just to get them out of his rental).

You're only argument is "that's not how it's usually done, and something feels fishy".  Covid has had millions of people unemployed, and a divorce can easily screw with a credit score.  There really isn't anything fishy about it.  He is offering the money up front because he knows that based on his current situation of being unemployed, that no landlord will ever accept his application...ever....period....end of story.  So the only way for him to find lodging is to incentivize the landlord and simply prepay the rent, thus showing that even though he is unemployed he is not a financial risk.

In landlording there is really only two risks a tenant poses.  That they won't pay, or that they will cause damage to the property.  In this situation you are 100% shielded from the first risk, and seem to be inventing reasons why this person might, potentially, theoretically, maybe be more likely to cause other issues. 

In todays current society of eviction moratoriums, stimulus checks, rampant unemployment, and deadbeat tenants, would I be willing to dig a little deeper into his screening if I was 100% guaranteed to get my money in full?  You better believe I would!!!!

Q:  Why do you have a screening criteria of 2x rent and 650 credit score in the first place?  

A:  To make sure that they are capable of paying the rent, in this case the rent is already 100% paid.  So what exactly is the problem?!?!

When you go to buy a car, if you finance it the dealership is going to run your credit and financials.  But if you pay cash the dealership isn't going to screen you, because there's nothing to screen... They already have their money!  This is no different.

It astounds me that people don't want to accept cold hard cash.  Who cares what their income is if you already have 100% of the owed money in your pocket.  We've had over a year+ of people being unemployed due to mandated shutdowns, deadbeat tenants not paying rent because of eviction moratoriums, and you are 100% shielded from this and still don't know if it's a good deal?

At the end of the 1 year simply ask for proof of income and have him go through the screening process again or you simply non-renew his lease and find someone else that meets your original screening criteria.  Easy peasy.

I couldn't find it, but there was a post similar to this one, asking if anyone had ever had any negative experiences with accepting 1yr prepaids, it was a very popular thread and of the dozens of responses of people that had accepted the prepaid rent, not a single one of them had any significant issues with the tenant.  In fact most of them in retrospect thought it was the greatest thing ever since they never had to worry if the tenant was actually going to pay on the 1st or not.

As for illicit activities, y'all are some judgmental folk if you think that anyone with a little bit of savings is inherently selling drugs.  And if you are so overly concerned about a meth lab in the basement, it's not like it's that difficult to do a home inspection every few months.  "I need to check the batteries in the fire alarms and change the filters," gets me into a house whenever I feel like it.

Check your local statutes concerning prepaid rents, typically you need to hold it in a separate bank account and slowly transfer it each month as you 'earn' it.  If laws allow it, also add a clause that says any prepaid rents may be used for rent, or any other sums due under the lease.  That way the prepaid rent can be used for excessive damages should they immediately mess your place up (unlikely they damage it, but best to still cover your bases).

I'm a bit of a credit card aficionado. First off you could probably still apply for a business credit card if you wanted to. A common misconception is that you need a formal business structure such as an LLC in order to get a business credit card, but all you actually need....is a business. This could be in the form of rental properties held in your personal name, driving part time for Uber, babysitting on the weekends, all of these examples are businesses and are eligible to apply for business credit cards.

I'm not a fan of the Bank Cash+ card, 5% in two categories sounds promising, but the categories are pretty niche, and change every 3 months.  You get another 2% category that is much broader, but ultimately there will be plenty of purchases that will only get you their basic 1%.  Worse yet, since these categories constantly change, if you don't go in and update your choice every 3 months, you only get the flat 1% cashback.  If the categories were fixed so you could manage your purchases better it would be a much better card.

Vantage West Credit Union CC lets you pick a 5% category that does not rotate.  Good choices could be either utilities, or hardware/home improvement stores.  The down side is that the 5% is capped at $1500 total spend quarterly which may not be near enough depending on the scale of your business. 

The best universal card is probably the AOD Visa Signature Credit Card.  The card offers a flat 3% cashback on ALL purchases.  You do have to become a member of the credit union first, which can be done by joining one of their eligible 'groups'.  I paid $5 for a subscription to join the Northeast Alabama Bicycle Association to get my card and then once they gave me the credit card I simply cancelled my bike membership since the subscription is otherwise a monthly cost.  But I honestly don't think they verify and ask for any proof that you are in fact part of one of the groups so you could probably just pick any random group during the signup process and say you are a part of that group.  (I'm not advocating lying on a credit card application, especially when its already super easy to just join the bike club for 1 month).

The notion that your own home does not generate income is silly, unless of course you plan on being homeless.  Your home generates the income of whatever you would otherwise be paying in rent due to the fact that everything in life has an opportunity cost.  Please show me this overwhelming evidence of yours that 'owning your home is a bad investment'.  If you are geographically stable, then owning will always beat renting in the long run.

If you don't own your own home then realistically you only have two options.

1. Be homeless

2. Rent, and give your hard earned money to your landlord so he can make a profit.

So either you spend your hard earned money paying down the mortgage on your own home, while gaining equity, tax benefits, and appreciation, or you can simply give your money away to your landlord and receive no economic benefits whatsoever.  It never ceases to amaze me how a bunch of people who realize there is great wealth to be made by owning a home and renting it to people, will suddenly in the same sentence advocate that they themselves should rent instead of own their own home.  

But if you are in fact dead set on renting instead of owning, I'll gladly rent you any of my properties so I can profit off of your ideology.

Insurance is a scam, don't fall for it.

This is a true story:  The 17 year old HVAC goes out in the middle of the summer.  You place a call to your insurance provider and they tell you that a service member will be out next Tuesday to access the situation at the cost of a $99 deductible.  You look up the reviews for the company that your insurance provider is sending to inspect the HVAC and find out that this company has a 2 star average review.  After all, the insurance company only cares that the issue is resolved cheaply.  The technician doesn't arrive on Tuesday, and instead calls to reschedule to Thursday (remember those 2 stars?).  On Thursday he verifies the unit is in fact broken and is not repairable and will need to be replaced.  On the following Monday he submits his assessment back to the insurance company for their approval.  

The insurance company doesn't like the sound of replacing an entire HVAC, so they reject his proposed plans and instead send a second technician to evaluate the HVAC machine.  Another week passes and this second technician has evaluated the machine and feels confident he can repair this 17year old HVAC machine instead of replacing it.  The insurance company is overjoyed and gives this second technician the go ahead to repair the machine.  

A few days pass as the technician orders the required parts to make the repairs, and once the parts have arrived he calls to set up an appointment to actually fix the thing and in the meantime a few more days pass.  The technician comes out and Frankenstein's your 17yr old HVAC machine back together and gets it working.  Your happy the machine is finally running again but are surprised when the insurance company tells you they are only covering 1/3 of the expenses, because things like freon, freon disposal, and a host of other services are not covered under your insurance policy.  Pissed off you have no choice but to pay for 2/3 of the cost.

A month later, this Frankenstein'd 17 yr old machine dies out again and the insurance company wants another $99 deposit to come take a look at it a second time.  

Meanwhile your tenant is pissed off because it took 3 weeks for the AC to get fixed the first time, and is demanding he not be charged for those weeks as the house was effectively unlivable without AC during the summer months.  So you lost 3 weeks worth of rent, a $99 deposit, payed 2/3 of the cost of repair, and still have a broken machine because it should have been replaced and not repaired.


Conversely you could have just skipped the insurance altogether and had the HVAC properly replaced by competent technicians a day or two after it broke and gone about your merry way avoiding all of the mess.

Personally I have all of my SFR tenants take care of their own yard, any MF I contract out to ensure that standards are kept. If you find a reliable long term tenant in a MF that is willing to do it for reduced rent that's fine, I just don't feel like renegotiating lawn maintenance every time someone moves out.

However I would never give them my own lawnmower to use.  If there was an accident, the tenant could say that you never trained them on how to properly use the mower and try to sue.  They could also simply run off with your mower when they leave unless your contract states the make/model of the mower in question.  They could argue that since you are providing the mower, that you are also responsible for providing the gas and mower repair unless your contract is iron clad.  Simply put there's too many things to potentially go wrong when you get on of "those" tenants.... You know the ones I'm talking about.  If they want to take care of the lawn for reduced rent, let them provide their own equipment.

As to the original question, your monthly savings is probably in line with what can be expected, monthly savings for future repairs is great, but the bigger issue is what are your CURRENT reserves.  I think most people will set aside some money for repairs, but may stretch themselves too thin after paying the down payment and closing costs such that if an unexpected expense pops up right away, they don't have a good way to pay for it.  

There's no magic number, but I would want at minimum 6months rent + 10k in liquid/semi liquid funds.

A threat of a lawsuit is drastically different than an actual lawsuit.  People threaten various things all the time, but their follow through generally sucks.  99% of stuff like this is nothing more than posturing and no lawsuit is ever filed.  In this case even if the tenant really wanted to sue, it would be in small claims court as there isn't enough money involved for a lawyer to get involved.  If the glass was broken from the inside out, and both the cops and PM company think the tenant is responsible, then there is roughly a 0% chance you would lose in court.

Personally I would stick to my guns and make the tenant pay, and then non-renew them when their lease is up.  There isn't enough money in the world to make me want to put up with needless drama that tenants like this create.

Maybe you should educate those CAR lawyers who apparently were incorrect and don't know basic law matters as they seem to be under the assumption that this contract is still valid.