All Forum Posts by: Bernie Neyer

Your Cap Rate is too low. Your Estimated Repairs, is that rehab to rent or your yearly calculation for repairs? Elsewhere you indicate $110 per month, which works out to be about $27.50 per door per month. Depending on where you live, that might be a little low. 

An unexpected problem just eats up your free cash for the month. Unless your buy in is lower, your income is higher, or your expenses less, I don't think you have the cash flow to make this work.

When making an offer, if you're not embarrassed by it, then it is too high. I am looking at two 4 plexes and I'm probably going to offer 25% below asking, which is 10% below county appraisal.

Some sellers are floating a sale. They don't really want to sell it, but would if they got their price. Two months isn't that long. If it had been around as long as the quads I'm looking at, 6 months, then I'd offer even less. Multifamily units are more difficult to sell than single family houses.

As stated previously, landlords don't want to scare the tenants off, but it they are under contract, they couldn't leave any way. With multifamily units, leaving doesn't present an issue. What might be occurring is that if you are unable to speak to the tenants, you can't find out what is really wrong with the property.

Have you inspected every single unit? I don't mean hired an inspector, but looked at them yourself. If not, then why not? If the seller doesn't want you to bother the tenants that is fine, but if he doesn't want you inspecting the premises, then move on. I've always said, "If someone is trying to hide, then they've got something they want to hide."

Don't get your heart set on the unit. Walk away from it. Examine other units and see if they are comparable in price and condition. Come back to it later if it is still sitting there. He may be more amenable to a more market driven price.

If you have any more questions, just ask. After all, the stupidest question is the one left unasked.

The amount of time required to establish a rental history is arbitrary. The banks simply want to know if you can manage the property. While you don't know what the actual rent would be, you can research comps and supply that research to the bank when asking for the loan. The banks are likely to discount the rental amounts and or chose the lowest one for income ratios.

You didn't indicate the amount of Principal still due, present value and the LTV. Say the value of your house hasn't increased much because of the down turn. Your value is $100K and you had an 80% LTV, but have paid that down to $40K. You now have $40K in equity you can draw on. You could actually draw that out, and use it to purchase another house. If your bank baulks at an 80% LTV for a rental and wants a 70% or 75% LTV, that could cause issues, but if not, as my bank will loan me 80% LTV, then go ahead.

Remember though, that Dodd/Frank requires banks to escrow insurance and taxes for your primary residence, but not for an investment mortgage. Escrows cost you money and you want to avoid them for investment properties.

If you have any more questions, just ask.

B. J.

I'm not a big Dave Ramsey fan, but there is something to be said about being debt free. If the refinancing results in a lower interest rate and saves you money, then it is warranted. If all you are going to do is put the money in the bank and collect a negative interest rate, that doesn't make sense.

Refinance for the lower rate if it makes sense. You can increase the loan amount and leave the money there using it as a line of credit. Write the new loan for 80% LTV ($480K) or if the bank requires 70% LTV ($420K) that is fine. They don't have to give you the full amount. Just cover the Principal due, but because the full loan amount could be $420K, you can draw on it if needed.

I did something similar on one of my places. I actually had it free and clear and got a mortgage for 80% LTV, but drew none of the money out. I owed no interest, but did have to pay the closing costs. Now I can draw on the money if needed.

If you want to know more, just ask.

B. J.

You all are going to hate me. I never put any appliances in my places. All a tenant has to do, is go to Walmart, get an air up mattress and set up shop. A month later, when they can't make rent, their gone and they leave the mattress. I've also found they don't clean them when they leave. I've had to haul them out and take a pressure washer just to clean them up.

Now everyone is going to tell me, you should of checked them first. Uh, yea, what's to check? Unless they get litigated, which many tenants avoid by just getting out, or as some landlords do, pay them to leave, there often isn't a rent record to trace. You can call past landlords listed, but there are ways around that, and trust me the tenants find those routes.

I've found that if the tenant can afford a stove and fridge, if not a washer and dryer too, they can generally afford the rent. Also, because appliances are a pain to move, they tend not to want to move, even if you raise the rent.

The only time I'd put any appliances in a place, is if it were an apartment. It is too much to get them up a flight of stairs and they are likely to hurt another tenant in the process.

Any more questions, just ask.

B. J.

There are at least two real estate investment clubs in your area that I know of. See if you can't find and join them. I've never had any luck buying from any member of a club. It is like my father always said, "Never play poker with someone you don't know. They're better than you."

However, you can learn a lot about neighborhoods and where to invest. The greater KC area is a large area encompassing 3 counties in Kansas and 3 in Missouri. There is a lot of streets to go down and don't be enthralled by modestly priced homes. Go to the nearest store and look at the windows, if there are bars there you might want to head down the road, but neighborhoods can change fast up there. One side of the street is great, the other not so.

One thing I do want to warn you about, there is a roofing company up there that does a crappy job of roofing. I can't remember their name, but their tell tale sign is no D style drip edge. Now, technically an A style with a shingle over hang is okay, but the shingle won't last long and the water will drain down the fascia.

Any more questions, just ask.

B. J.

There is a website, www.rentometer.com. You can enter some particulars into the fields and get a general idea of the rent. I didn't have an address, so I entered KCMO and your zip, it returned that you were at the bottom of the rent range. It gives $908 to $2702 as the range for the broad zip. If you enter specific data, it can give you a better idea of the rent range. It will also give specific rental houses you can compare to yours.

You can also go to Zillow. Zillow will give estimated rent for listed houses and you can drive by those for comparison. You can also search for rental offerings to see what they may be asking.

Finally, contact a manager. You live in Olathe, and it is quite a driving distance from your rental, which is in Missouri. I don't know if you're downtown or north KCMO, but the what they call the downtown area is going to have less demand and corresponding rent values.

Meet with some managers and get their perspective on what they would rent the property for. Read their contracts very carefully, and pick one. Right now, you've lost more waiting for someone to rent than you would of paid in 7 years of having someone manage them. You can still chose to manage them yourself, but their input is worth your time.

If you have any more questions, just ask.

B. J.

Jim, I'm sorry, but you are just plain wrong on 2 lbs. closed cell polyurethane foam. Closed cell does not absorb water. I refer you to www. monolithic.org. David South was spraying foam when we were both in diapers. At one time, Mr. South was spraying more foam than the rest of the installers combined and he shipped it in on rail cars.

He as a several jars with a wad of foam in them. The oldest is 40 years old and it has never absorbed a drop of water. Closed cell foam does not degrade in enclosed spaces away from sunlight. It also does not degrade over time. It is a very stable substance, witness the fact that Mr. South uses it to insulating multimillion dollar structures and he says they will last several hundred years, without much upkeep. The word every one likes now is sustainable.

3 lbs. foam can actually be used outside in direct sunlight. There is a building downtown in our city that sprayed it on 15 years ago, and it is still good. Now, open cell 1/2 lbs. foam is another matter. It needs to be enclosed, as between the walls, and can absorb water. However, I've used it with good results to insulate a rental foundation.

I'd invite everyone to search for "the R myth." This is the myth that fiberglass insulation is good. Fiberglass actually loses half of its R rating if humidity exceeds 80% as it does here. It also loses its R value as the temperature decreases. If I remember correctly at -10 an R 19 becomes like an R3.

If there are any more questions, just ask.

B. J.

There is a company out there called Ram Jack. They only deal with poured foundations or slabs. They guarantee their work for the life of the house. They give free estimates and a good place to start. I know of several people who used them and the costs were minor to what it could of costs.

I'm sorry, but I don't have a number for them, and if they aren't in your area, there are others that do the same or similar thing, so Google it. Ram Jack jacks a post into the ground down to base rock or false base rock, or mud jack to establish base rock. They then slide an metal plate under the foundation and jack up the foundation at several points to close all the cracks. You can then spackle the interior and point tuck the outside if it is brick, and no one will know there ever was a problem.

My friends had it done on their house, they had fixed the cracks inside previously, and the jacking forced all the mud back out of the cracks. They had to go back and redo their previous repair, but all the doors shut better, and they had an intermittent problem with the sewer, which cleared up after the jacking.

Any other questions, just ask.

B. J.

Being a self managed landlord, I cover the ground with a vapor barrier. It doesn't have to be 8 mils though. The Walmart window plastic works well and if you don't have dozens of people crawling on it, will last as long as the house.

I understand the tight quarters, but there are some things you should understand about vapor barriers; they don't have to be perfect, a gap here or there isn't bad; and some is better than none.

With help, you can open up the floor, which it sounds like you've done some, cut the plastic into strips and pull them from one end to the other. I have a house similar to yours that has adequate crawl space around the edge. I had to remove the floor to deal with termite damage and was able to use a PVC pipe to stretch out the plastic.

The suggestion about 2 lbs. closed cell polyurethane foam is good, but it will cost you several thousand dollars. I just sprayed the foundation of my home and it cost me $1500. 

Install vents in the foundation. Get the kind you close so you can close them up in the winter if that bothers you. Your crawl space won't dry out without air. An alternative is to create to crawl entries on opposite sides of the house and set a fan, a semi pro one at Walmart is good, to circulate air through the crawl space.

Any other questions just ask.

B. J.