All Forum Posts by: Bill S.

@Masyn Grant Barney so I think you are bit jaded in your statement that a 4-plex sells for $1M and only rents for $4800 per month. We have similar numbers here in Denver for the sale prices of 4-plexes but our rents would be in the $6k per month if you picked the correct property, offered the right amenities, and marketed it correctly. While this is not a huge cashflow generator, it's much less in the red than you indicated. In addition, right now you can probably find one for less than $1M if you also negotiate hard on some overpriced listings that have sat on the market.

I think you are falling victim to negative thinking and bad press. I would encourage you to investigating some of the deals that have sold and learn how those folks are making them work in your market. Sure some will just be stupid money and some will not cash flow and the owners don't care. At the same time you should be able to find a few deals that people have made work and you can see what can they did to make them work.

@Meghan Begue - I have investigated moving to STR to increase cashflow. I cannot get over the hump with that, more time, more work and more costs for me and I can't convince myself that the juice is worth the squeeze. My suggestion is to focus on loan paydown, property appreciation, and tax benefits rather than the cash flow or lack there of from the investment. There are still several powerful wealth generators from a long term rental and cash flow is not the only one.

Also, I have heard that after you have built enough equity, you can refi out of the VA loan into conventional financing and then use your VA benefit again. Check this out with your lender but that might be the best way to approach the acquisition of future properties vs using cashflow to save up for another down payment.

@Clare Cui so I don't have an answer. Generally speaking, I avoid co-signers. If I allow them, they must own real estate and have impeccable credit. It has been my experience that problem children will present themselves in the screening process if properly screened. My advise would be to do more phone calls to past job references and living situations and ask open ended questions. If you are careful and listen well you will be able to see through the smoke and mirrors to the real applicant. Also the market has softened and it take longer to fill vacancies. Be patient. The days of posting on Friday and having an approved applicant by Sat pm are gone for the time being. Stay the course and look at upping your marketing approach. Get better pictures, stage the space and make sure it looks and smells great.

@Shane O'Neill Boulder and East Knoxville. You are in two completely different worlds. I don't really have anything to say but good luck to you.

@Sara Valentine shame on you for not requiring the tenants to abide by the lease. You now have a "situation" do deal with.

Now to the situation. How can you prevent them from DIY? You can't. If the lawn is in good shape minus normal wear and tear when you get the property back. Who cares what it looked like for months up to that point?

Per Colorado law, your lease can give you up to 60 days to return the deposit (which it should if it was drafted by a competent landlord attorney). You should know by then if the sod sticks or not. That said, you are far too concerned about a small patch of grass. Let it go, if it's gone when you get the place back, fix it and charge them. You will have to demonstrate to the court that the costs were reasonable. What is "reasonable" depends on the judge hearing the case. If what is there when they give you property back is good, no harm no foul.

In the future, your lease should strictly prohibit animals that are not on the lease (which should already be in your lease). Beginning and end of story. If they want to keep the animal pay the lease break fee and find a place that takes pets. Otherwise the pet is gone. Being kind and generous will only cost you money not to mention heart ache. Case and point being this post.

@Shane Petersen from my experience, your best bet is to find and insurance broker that sells SafeCo. They will also have other companies that they can place the policy with. What makes you unhappy with the current company? If it's just the cost, insurance costs have soared and some companies have completely withdrawn from the state. I have seen my rates double in the past 5 years. I also had some property I had to find different carriers for as well as having them remove the roof from coverage and other lame games.

@Joe Fish how that is handled is up to the employing broker you work under. Most of the big name brands want no part of property management. Some will allow you to manage properties that you own 100%. You have to ask as different offices of the same brand have different rules.

In Colorado, it is legal for you to manage your own properties without a real estate license. If you have a license you must have a trust account for your tenant's security deposit. If your "property management company" has a different ownership than the properties it manages, then the property management company must have a licensed broker (independent or employing) running the operations. This is if you own 50% of this deal and your best buddy from college owns the other 50% and you are 100% owner of the PM company, it is my understanding that you must be a licensed broker to manage the property. I am using the  legal state defined terms for "broker". The first 2 years out you can only be a "broker associate" like you mentioned.

@Farnaz Z. so... it's complicated. While it appears to be a clear cut case of negligence, getting financial relief can be more challenging. Clearly you are unhappy. You have called and they have stonewalled according to your accounting.

If this tenant, in fact, had no previous evictions, would your opinion of the PM change? Eviction records are challenging as there is no clearing house for them like there is with say credit reports. What was their credit like? I find it very difficult to believe that a tenant had 4 prior evictions and you got them out in 3 months. With that many prior evictions, your PM was very on top of it. Most people with that many evictions never pay (they are professional scammers), and then use the court system to stall and stretch out the whole process. Unless you ran a full credit, criminal, and eviction check using the tenants SSN and drivers license (which you must have their permission to do) you can't be sure that the records you are viewing are in fact one and the same person who was your tenant. Easy results are not equal to accurate results.

The best relief is usually accomplished in person. Sit down and meet with the PM company and LISTEN to their side of the story.

I would say that being out $10k is probably on the low side for most full blown evictions where the unit was "trashed". While this is a significant sum, trashing a unit by damaging the paint and flooring can easily result in expenses over $10k plus the lost rent, court and attorney costs. 

The only thing that you have said that makes me question the PM outright was the lack of a key for the sheriff to gain entry. The PM should have had a key to the unit, but again, that might not be the PM's fault if the tenant changed the locks against the provisions of the lease.

How is it that you consider the tenant to be "judgement proof"? It's not that hard to get a judgement. The challenging part usually is collecting on that judgement. After you get the judgement you have to garnish their wages to collect which means you have to follow them from job to job to collect. You can even get judgements against someone on disability or social security but you can't garnish that those to collect your funds.

Once you dig into it. It really boils down to time. How much time do you have to chase the money from the PM or from the tenant? How much is your time and mental energy worth to you?

If you have the time and desire. Got to the wall with the tenant. What you don't get from them, go after the PM for in the same manner. 

Small claims is the best approach which has a limit of $7,500 in Colorado. If you sue for more than that, you have to hire an attorney and would likely end up paying the attorney more that you collected no matter who you sue.

With small claims it is set up for you to go mano a mano with the people that owe you money. You will have to appear in court (probably multiple times) and you said you are out of state. Think about the travel time and expenses. The people I know who are successful at the process are those that do it often and know and understand the system. Just learning the process takes a good bit of time and effort. Generally, you pursue the first one out of principle and apply the learning to subsequent cases. After about 3 or 4 you are at break even. After that, you know the process and can actually make it worth your while to pursue collectable tenants for the money they owe you.

The alternate option with the PM is to first threaten them with reporting to the Real Estate Commission and then if they don't play ball actually report them to the commission. I have been audited by the commission (the result was minimal issues to address) and it is no fun. It costs money to defend against the commission as I hired an attorney help me and it was worth it.

The final alternate approach to the PM company is also to threaten and again if no traction is made to contact the state attorney general about their business practices. The Colorado attorney general recently collected a $1M settlement with no admission of guilt from a large Boulder property management company. This was related to how the PM company treated tenants so you might not get as much traction with the AG's office since you are not a tenant.

Finally, you are obviously hurt and angry and want to be made whole. I can easily construct a scenario where the PM did absolutely nothing wrong despite your current perception. My advise is to get as close to seeing the PMs side of the situation as you can before you take any action against them. Of the PMs in the world, 10% are great, 80% are adequate, and 10% are bad and deserve to be spanked and put out of business. In my mind, nothing you have said, definitively puts them in the bottom 10%. It's possible, but it's also possible that is not the case. Consider the downside (what if you take them to court and end up with nothing) before you jump in the deep end.

I hope this situation resolves itself for you and doesn't put you off of investing in real estate. This is a bump. There will be others as well. No matter the track you take, note your lessons learned and apply them to the next situation and move forward.

You asked what I would do in your shoes. Meet with the PM and see it from there perspective. If they did not come of as 100% criminal, I would move on and mark up as a learning experience.

So one of the purported benefits of having title in an LLC is that it makes it more difficult for someone to determine how much the value there is if they were to sue you. For example someone trips and falls and hires the "strong arm" to get them "the money they are owed" the strong arm does a quick asset search of what is owned by the property owner (the LLC) and nothing shows up. The strong arm then tells the slip and fall sorry "no case". It think it is a bit overstated as there are ways of finding out. It takes a bit of time but unless you have some great legal advise and follow it precisely, the promised anonymity is not there in most cases.

@Derick Jennings welcome. Lots of good info here and at a good price too. If you have questions, search the forums as most questions have been asked already. After that, get out and meet some folks at the local meetups.