All Forum Posts by: Brett Weaver

Thanks for all the input on this.

I have not been able to get in touch with Tony since last week, but I'm still attempting to. So no, he's not pestering me for the deposit. I expect him to say that he's out and that he will forfeit the deposit voluntarily. The lease he signed spells out clearly about the prohibition of subleasing, so he's clearly in violation.  There is a clause where the authorized occupants are listed and we wrote in only him and his 5yr old son.

As @Al Williamson has stated, the "new guys" are now in possession of the unit.  I am going to get applications and screen them, but with them already moved in, it seems the best I can do is not collect any rent until we have approved them, and I like @Thomas S. suggestion of scrapping the old lease and moving forward with a new M2M, including a new deposit.  If they're not approved, then the next step would be negotiating their exit / eviction.  With them already in the unit, the new lease may as well start in Jan? (assuming approval).

I have a situation that I need some advice about.

I have a tenant in one side of my duplex who is 8 months into a 1 yr lease (Tony).  He is a recent divorcee and I really didn't make enough effort screening him (FWIW).  He's paid late three of the eight months, but aside from that and poor communication, he's been a decent tenant.  

About a week and a half ago he messaged me and said he'd be moving out the first week of Jan and wanted to know how much the pro-rated rent would be. I informed him he was obligated by the lease he signed to pay rent in full through April and to give 30 days notice to move after that.  A day or so later, he replied that he would have full rent on time for Jan and that his plans had changed.  Fair enough.

Today, Tony's roommate, Eddie shows up at my residence (what roommate?) and asks if it would be ok for him to "assume" responsibility for the remainder of Tony's lease along with another roommate,(Greg). Both roomates were news to me.  Eddie tells me that Tony has already moved out (he found a girlfriend). Eddie promises to pay Jan rent in full tomorrow if it's ok, and I have no doubt that he can.

FWIW, Eddie works for his father at an auto repair shop in my town.  He has actually done work for me on my vehicles several times over the years.  They've been in the current location for 16+ years.  He's recently divorced also and needed a place to stay, so he move in with Tony without telling me.  All else being equal, I'd much rather rent to Eddie than Tony (he meets income requirements and I know he's been at his job for at least 16years), but I don't like that he moved in unannounced.

I'd welcome advice on how to handle this either way, but my first inclination is to get applications from the two new tenants and let them fulfill the last four months of the lease and re-evaluate with them in early March.  If I do that, how should the deposit be handled?  Since I rented to Tony I've read The Book on Managing Rental Properties and in there, @Brandon Turner states that the outgoing tenant should get their deposit back from the incoming tenant and then when the new tenant finally moves out that they will get the deposit (assuming the lease conditions have been met), but what if I never hear from the first tenant? Do I just keep the deposit?

I'm glad to keep the place rented, but feel like I'll be off on the wrong foot with these guys.

Any thoughts?

Hi Niraj,

Welcome to BP.  You will probably get better explanations from more experienced investors, but I'll share what I know...

First, the value of buildings of four units or less is based on sales of comparable properties in the same area.  The 25% down payment you're talking about is 25% of the appraised value (or contract price).  So you have 25% equity in the property at the time of purchase (you're leveraged 4:1).  As your tenants pay rent and you pay down the mortgage, your equity grows (pretty slowly).  As time goes by, market forces may change the value of your property (up or down), or you may improve the property and force the value up.  If the value is pushed up (appreciation) you get more equity out of thin air (or your efforts).  If it goes down, the property could be worth less than when you bought it.  The 4:1 leverage magnifies the appreciation, but also the depreciation.

If at some point in the future your equity grows significantly (principal pay-down + appreciation) you could re-finance based on the new value.  You'll still have to leave 25% in the property, but the difference in the 75% "cash out" and your existing equity would be capital that can be used to purchase your next property.  At first this is probably not going to grow very quickly, so to answer your question, you will likely be using the same sources to save up for the next down payment as you did for the first (W2 income or side hustle), but you will hopefully have the cashflow from the first property to supplement.

Of course you can use private money or partners to accelerate growth of your portfolio if you develop a track record.

Ideally you will buy at a deep discount (built-in equity), do some value-add renovations that drive up the value by more than the cost of the renovations (forced equity) so that when the time comes, you can cash-out refinance all that built up equity and accelerate purchase of the next property.

@Kevin Siedlecki Good presentation of the possible scenarios. I was too lazy to go there this time!

Just one idea here...and it's Mac based (which is not typical of most drafting apps).  I use EazyDraw all day every day in my day job.  It's a pretty simple 2-D vector drawing app.  It's capable of doing Adobe Illustrator type stuff, but the difference is that it also has automatic dimensioning, which you need with technical drawings.  

Well...maybe two ideas.  Our company just bought Mozaik software, which is a dedicated cabinet design app.  Probably overkill, but you can drag/drop cabinets, etc.  It's targeted toward cab contractors though.

The typical "cash-out refinance" will wipe out the original loan. You can typically get 80% LTV for your residence or 75% for a non-residence property (rental, etc). So you are "starting over" and the amount of "cash out" depends on how much equity you currently have in the property. Assuming you qualify, you will get the difference between the amount owed on the original mortgage and the new loan amount. You shouldn't have a down payment if your equity is more than 25% (rental property) or 20% (residence). This all assumes you've owned the property longer than six months (with most lenders - called the seasoning period).

Hope that made sense!

@Wesley Raye I did try my order again on another device (desktop in my case - both attempts).  The advice I received via email from Mike in support was:

I suggest the following steps:

1. Clear the cache, cookies and history in your browser. Usually this clears most browser bugs. Then, try again.

2. It might be possible that the server maybe busy at the time of processing your payment, please try again after 15 minutes.

3. If it still doesn't work, please check with your bank or card issuer to make sure that they are not holding the transaction.

Since I tried a different device, I can't speak to how well the above advice actually works.  I suspect something related to #1 was the culprit though.

Once my order "worked" the notification came through quickly...

BTW, BP Support is crazy quick and I tried the order again on another machine and it worked fine.  Suspect browser cache or cookie problems.  No cookie problems after Thanksgiving dinner thank goodness! ;-)

Thanks, but I tried placing an order for Amanda's tax book and got no confirmation on the page or via email.  The cart emptied out, but no indication of the order having gone through....I'll email support...

Hope everyone (in the U.S. at least) had a Happy Thanksgiving!

Welcome to BP Shyra!

Good luck with the new rental property.  "The Book on Managing Rental Properties" from BP is a highly recommended resource.  I learned a lot from it, but I'm having to slowly correct a couple of years of mistakes.  Get educated as quickly as possible before you start screening tenants!