All Forum Posts by: BOB CRANEY

Section 8 usually pays as good or better than market tenants so in the Baltimore market. It's one of the perks to have to work within their sometimes difficult system. Do you have any other units you could move them into while the rehab is going on. If you just want to get rid of them, you will be subject to the lease that's in place. If they are month to month, you will have to send the tenant and section 8 a 60 notice of non renewal of the lease, from the beginning of a month, certified. With that section 8 will approve the tenant to start looking for a new place. They move and you get to remodel. If it's a year lease then you wait till 60 days before lease expiration to send the notice.

i have several row homes in the city and it took me a few before i was able to tweak the systems to better overcome this issue. The flat roofs and lack of space between the roof deck and the ceiling creates a hot zone down a few feet from the ceiling. The key for me was having a system designed to handle the load and having a correctly sized return on each floor. The 3rd floor return must be high on the wall or in the ceiling to recirculate the hottest air into the system. 

Do some reading on basic HVAC design and you will learn that a larger system doesnt work better due to the fact that is does not run long enough to adequately cool the air and remove the moisture that makes you feel hot. A large system runs in short burst instead of running for longer cycles. I ended up going with a better system that can run at multiple speeds depending on the load its managing. This type of system will operate like a 2 ton a times and a 3 ton at other times due to the way its designed.  Another way to help is to close down some of the floor registers so that more air is pushed upstairs where its needed. 

In the end its difficult if not impossible to overcome poor system design and a unit that is 17 years old will not help that. 

Under no circumstances should you let a bill from your local utility other than Gas and electric get put into the tenants name. There is a very small chance that a tenant who chooses to break the lease and bust out, will ever pay a past due water/sewer bill. In the Baltimore area a water/sewer bill unpaid can become a lien against the property and it escalates rather quickly with fees and penalties. Keep Control of these types of expenses and include them as part of the rent as a separate bill you send to the tenant on a monthly or quarterly basis, whatever works with the utilities billing schedule. i word the fee in my lease as additional rent, that way i can sue in rent court if they fail to make the payment on the water/sewer or the base rent. 

i am in a similar boat as you with 12 units and 2 garages. The break is (4) 2 unit town homes and (4) 3/2 rowhomes. I bought all mine cheap and fixed them up to be nice long term rentals that could be resold if i needed to bail out for some reason. i make a small amount of money on the single units but the 2 unit are cash flowing much better and i am selling all my singles. I would recommend you find properties that are already 2 units that need work and fix them up and rent. As an example i gross over $2050 on one 2 unit that is a 2/1 in each unit. One unit rented to section 8 for $1150 and the other to market tenant for $900. Could be even better if i rented both section 8. My best 3/2 is rented for $1450 to section 8 tenant. That is a $600 a month differential for what is essentially 1 more bedroom and another kitchen. In the long run the 2 units will out cashflow any single family and allow you to paydown your loans if thats what you want to do. It would be even better with 3-4 unit properties if you can buy them right.

You should also look into section 8 tenants. They arent all bad and i was a big skeptic until i dipped my toe into the pond. They need to be managed like any other tenant but i get a premium rent of $200-400 a month per unit over market tenants when i rent section 8 and to me this is worth the additional hassle. 

Bottom line is ditch the ones not making money and buy something that makes sense from day 1 on a 20-30 year mtg so you can cashflow better and allow you to buy more and build your capital  base. Read all the articles from Jeff Brown on this site. He explains things on another level that makes sense if your in for the long game. If you dont need the income from your rentals for 10 - 15 yrs, his plans may be for you.

Trying now to sell a few of my 8 single unit rentals and redeploy any funds i can to pay down debt and also buy more 2-4 unit properties that cash flow way better than the single units. 

Its very disappointing to have spent 8-10 years working to build something only to basically break even. Not time to cry over spilled milk though it has shown me that i need to upgrade the areas i am buying in to increase the chances of the market appreciating and not just collect a cash flow while the resale market remains flat.

So what model did you follow to get you to being able to walk away. I am interested in what worked and what didnt work for you and what you would do different looking back now

For those of you out there that are close to or already retired from "having to work", how does retirement look. Are you using rentals, apartments, or fix and flips to get you to that magic # that lets you walk away from a full time job or at least from having to work. I have read many stories of successful investors who plowed all the profits from real estate in other more passive investments like notes, hard money or even just total market mutual funds from Vanguard. 

I am 48 years old and still looking towards the finishline that seems much to far away if more focused measures arent taken. My rehabbing business was kicked pretty hard in the shins during the downturn and almost everything that was due to be sold became a buy and hold rental property. Thankfully i was able to partner with Big Brother thru the section 8 program and top rents for these renovated properties but even 8 years later they just make a little monthly profit due to the higher quality rehab for resale.  The market has come back a bit but i am still at break even or just slightly up if i were to sell now. With 

Can you please post a detailed example of the 2-5-7cashflow for life model and how it would work as a case study. It sounds so simple yet i dont see how you are able to pay off all properties so quickly without adding additional cash not generated from the properties  free cashflow, to accelerate the principal mortgage payoff. If so where does that addtional cashflow come from. Who wouldnt want to payoff their rentals in 7 years and get to that next stage of investing nirvana. I know i would.

Originally posted by @Nancy Roth:

@Bob Craney

Wow, impressive! That's what's called creating value.

It looks like you consolidated two semi-detached houses--did you? Or had they been consolidated in the past? What made you choose this property? Are you comfortable describing how you figured the numbers? Also I'm very interested to know what most important things you learned about rehab as a result of the project. I'm just completing my first rehab for resale and learning tons of stuff. Some of which I wish I didn't have to learn!

My buy-and-hold approach so far has been to try to acquire properties without need for extreme rehab because, just as you found, you get all these uncertainties and pitfalls. Yet how great that it all paid off! This is a very encouraging story. Thanks for posting.

Best regards,

Nancy Roth

 I purchased the whole property for $75000 and spent about $285000 on the rehab for a total of $360,000. I had originally only planned on spending about $240,000 on the rehab but it went over due to a few factors i didnt forsee. I had originally planned on making a 3 story addition in the rear so i wouldnt have to dig out the low 5' existing basement for more space. Turned out because i was on a corner the building restriction setbacks would only allow a sliver of the addition i had envisioned. Underpinning the basement walls and then digging out the basement to get to 8' ceiling cost almost $20,000 all together and to a long time to complete. 

I am also trying to follow the buy and hold approach but its difficult to find properties i can rehab and not have to leave a lot of my operating finds into when it comes time to refinance after the rehab is over. Trying to lock in the appraised value you will be able to take to a bank is key to knowing how much you want to spend on the rehab so you dont deplete your operating funds.

Originally posted by @Rhondalette W.:

Originally posted by @John D.:

Would you mind sharing the address or neighborhood?  I'm intrigued!  Lived in Baltimore for years.

 @bob craney

This is an amazing rehab! I use to live in Baltimore  and I believe that much of the city needs rehabbing.  If you can do this type of work you could revitalize the city all by yourself. What were your numbers for the rehab? To answer John D's question about location this how looks like it is on the corner of Augusta & Walrad. Glad it is cash flowing for you. Congrats! 

 You must still know the area well. you picked the address perfectly. Its actually a duplex with 2 separate addresses. 

@ Julie Hasset

This property is two (2br/1 bath) and two (2br/1.5 bath). All are 2 levels, self contained units with central air and laundry in the units, large room sizes and tons of closets as my typical tenant is a single mom with an extensive shoe and purse collection. I have 2 of them rented to section 8 tenants for $1150 and $1107 water and sewer included. The other 2 are rented for $900 to market rate tenants who pay for their water and sewer usage.