All Forum Posts by: Bill Thompson

I use a service called EZLandlord forms (www.ezlandlordforms.com).  I highly recommend them.  The service supplies leases and other rental forms that conform to the laws in each state.  The forms allow you to easily customize the lease to suite your specific needs.  You do have to pay for the service but if you have more than a couple of leases to manage it's worth it.

I am curious as to whether Marina secured the maximum allowable security deposit from the Section 8 tenant.  I won't rent to any tenant without a full security deposit.  Most of my tenants are unsubsidized, but I find that tenants on the lower end of income spectrum tend to better care of unit because of the security deposit.  They need that money back!  The Section 8 tenant typically pays the security deposit out of their own pocket so this is a good way to make sure they have some skin in the game.

Another thought is market to Section 8 tenants that work for a living.  I hate to generalize but I find there is a big distinction folks who need financial assistance because they have a low wage job and those that are completely dependent on the government.... accountability mindset vs. entitlement mindset.  I pull credit reports on all applicants, including Section 8.  Why pull the credit report since the Section 8 tenant pays only a small portion of the rent?  The answer is I want to see a pattern of accountability.  Bad credit typically means denied application for my units. 

Be careful with this one.  Is the $900 you recovered really worth the being sued for twice the amount of deposit plus attorney fees?  It would be a shame if you end up with a $10,000 legal bill if a court decides you didn't handle the security deposit correctly.

To echo what Jeff said, private lending is relationship based... you borrow from people you know.  Private lenders may or may not be in the business of making loans.  The terms are whatever you negotiate based upon your relationship.  If the source of your private money is not a seasoned lender / real estate professional it is up to you to impose discipline on both the borrowing transaction and your real estate project.  We have all heard stories about well intentioned investors getting into trouble by being too loose with "aunt Sally's" money.  You should always use an attorney to formally document your private money transactions and consider using a third party servicer to ensure payments are made according to the provisions of the note.  On the real estate side of the equation, your private lender may not be able to provide the same level of oversight that a hard money lender typically does, so be careful.

A hard money lender on the other hand is in the business of making loans.  Just like a bank they will not lend to you if your deal does not pencil-out with a viable exit strategy.  Moreover, they will impose discipline on the construction / rehab process by advancing funds according to construction draws, requiring routine inspections, checking for adequate insurance coverage, checking mechanics liens, etc. 

The differences between private lenders and hard money lenders can be very drastic.  However, if you want to do a lot of transactions, you will probably need to use both... a lot.

Sergey, if you need to move fast, hard money is your best option. A hard money lender will require you to have skin in the game so expect come up with 30% of ARV out of your own pocket.

Yes, hard money is very expensive but totally worth it for buying distressed properties.  I find that distressed properties tend to get snapped-up quickly by bottom feeders looking for a deal.  Have you ever lost a deal to a so-called cash buyer?  Many of the cash buyers out there are not sitting on a ton of cash... they use hard money.  Do yourself a favor and establish a relationship with a reputable hard money lender. They can provide proof of funds letters so that you can make strong cash offers on prospective deals.  You can use an all-cash offer as leverage to achieve a lower purchase price.  

One key point to consider is you must be able to "get in and get out" fast.  Hard money is not appropriate if you anticipating a long holding period before being able to sell or refinance-out.

There is nothing worse than chasing people for rent!  ACH is the way to go because it is so cost effective.  I use a service called PaySimple to process ACH rent payments.  

One thing I really like about online rent collection is the flexibility to set-up tailored payment schedules for my tenants.  I find that some of my tenants prefer to pay rent on the same day they are paid so its nice being able to offer weekly, bi-weekly or monthly payment schedules. 

I prefer to buy properties that are vacant.  It is much easier to do the necessary repairs / updating / remodeling when empty.  It is imperative that you understand the market and that you position the property correctly.  I live in Boston where there is a huge demand for moderately priced apartments.  I renovate to Class A/B level for properties located in Class C neighborhoods.  I have the nicest apartments in the neighborhood but don't charge top dollar for rent.  Don't get me wrong, I still make about $400 - $500 a door in cash flow but I'm not greedy about the situation because I definitely charge more $$.  The flip side is my apartments lease-up immediately and turn over is extremely low so I make up some of the difference there.  So starting off vacant can work but YOUR actual experience will be the result of supply and demand relative to price, location, type of unit, etc.  That bein said, NEVER going into any real estate venture without adequate cash reserves. 

As others have mentioned, a commercial lender will have no problem loaning to joe six pack as long as the property produces sufficient cash flow to support the debt.  The commercial lenders I deal with tend to be fairly flexible with respect to seasoning requirements as well.  The downside to going the commercial loan route is higher interest rate, closing costs and prepayment penalties.

For cash-out refinance via conventional loan, joe six-pack needs to find a lender that is "investor-friendly".  These lenders typically have seasoning requirements of at least six months and count 75% of rent as Brian Otteson mentioned. Conventional financing is the way to go if Joe six-pack's loan pencils out using 75% of rent.  In addition to local lenders and credit union, he should see what the online banks have to offer.  From personal experience I have found Quicken Loans and Roundpoint Mortgage to be investor friendly.

Hi Joel,

This is a quick story about one of my experiences.  I had just began to market a beautiful, newly renovated 3 bedroom, 2 bathroom apartment and my first applicant was a women living in a homeless shelter.  She noted on her application that she had been evicted from her last apartment.  I explained to her that the I have a standard process for qualifying tenants and that her eviction would automatically disqualify her.  She then asked for 5 minutes to explain.  She proceeded to tell me she recently got divorced and her former husband skipped town and provides no support for their three young children and that she got stuck with all of their joint financial obligations.  And that she works and makes decent money but could not stay afloat even after cutting spending to bare necessities.  Because of her income she could not qualify for any public assistance unless she became homeless.  In order to become homeless she had to get evicted.  After being evicted she was moved to a homeless shelter and was then able to qualify for temporary housing assistance payments.  The homeless shelter was a bad environment for her kids.  They immediately started doing bad in school.  The lady basically begged me to GIVE HER A SHOT.

After hearing hear story, I wanted to help.  I gave her former landlord a call.  What I heard shocked me... he corroborated her story about the circumstances of her eviction.  More importantly, he said she paid him back every cent he was owed while living in the homeless shelter.  Long story, short... I took a chance on her and she turned out to be one of my best tenants ever - she paid rent on time, kept the apartment in immaculate condition, decorated tastefully on holidays, and went above and beyond to maintain common areas.  I did end up reducing the rent I usually charge to make the numbers work for her, but that was ok with me because I was still making a reasonable profit on the unit and was doing a good deed.  It warmed my heart to watch her put her life back together and get to a point where she no longer needed public assistance.  She was on the waiting list for a very nice mixed-income housing development so when her number came up (after 2 years of waiting) she moved.  I would like to think I played a small role in stabilizing the lady's family situation by providing clean, safe housing at a price that was affordable to her when her options were limited.  The moral of the story is listen to your head, but also listen to your heart, and then do what feels right.  If the numbers work for you, taking a chance on the right person, particularly a Veteran, may provide something more rewarding than money... the opportunity to make a difference in someone's life.

Bill

Go for the dishwasher.  Not only will it enhance the marketability of the house, it's a way "greener" option in terms of saving energy and water!