All Forum Posts by: Brian Barfoot

I'm interested in getting started with commercial loans and I'd like to go into the meeting with enough information to satisfy the underwriters. I have an LLC with two properties, one that has been rented for just over a year and the other that has been rented for about eight months.

The first property we got for 85K with 20% down and it rents for 1200/month. It was assessed for 85 during the sale process. Debt service with all taxes and insurance comes to 630 which leaves 570 a month profit. We should take some percentage for capex and vacancy and haven't figured this out yet.

Second property we bought short sale for 78 with 15% down and it assessed for 110K during the sale. Debt service with taxes and insurance is 870 and we rent it for 1100 but pay an extra 130 per month on the principal right now to try and get the equity to 20% and get rid of the PMI. Depending on the metric that leaves 100 or 230 as cash flow before accounting for capex and vacancy. There have also been a few late fees that are in the income column but not many.

What other data should we bring when hitting people up to fund our next projects? What format is most effective for presenting the information? I feel like it’s all pretty basic but I know that I think about this stuff all the time and I may need to convince someone who’s new to it all.

@Michael A. I feel the same way in general. I'm not a major investor (four properties at the moment) and all of the tenants are people I like on a personal level. I have it very clear in the lease about the late fee and we have wording that they will pay our lawyer fees if we have to take them to court which can be a good incentive. I would rather have happy and slightly late tenants than angry and prompt. 

Thanks for the responses everyone.

@John Thedford, what are your rents? I assume you artificially inflate rents so that you get your desired cash flow if they pay by the 5th and then anything else is gravy?

@Rosston Smith How soon before the fees kick in? Day 1 (ie rent is due on the 1st so 2nd arrival means $50 fee)  

I'll start by saying: I know I'm too soft on the tenants. 

We have a late fee in our lease of $25 for rents that run 1100-1200 per month but it's a one-time fee no matter how late they are. I also have a bad habit of forgiving the fee if the tenant is proactive about telling me why they're going to be late. I know all about training tenants and may have to do what Brandon was talking about on the podcast this week and hire someone to be the mean guy for me. That said:

How do you all set up your late fees? Is it one time or daily and compounding? How much grace time do you give? Do you grace by postmark or arrival date? 

It's time for us to get better at this since we're starting to be taken advantage of.

I mostly use craigslist. I do the transunion screening service which looks very similar to rentberry and has served me well. I got some great tenants into the property on this thread now and I think I did it fairly and legally. I appreciate all the feedback as always.

I just do on the spot paper applications at this point but I have a record of who toured first and who contacted me in what order (in this case, the same family.) I'll probably just run their credit and since I expect them to pass, that will be that. I'm pretty old-school in my methods (still get actual checks, not direct deposits) and I'm starting to see the need to move into this decade.

Thanks for the advice. For those who do one at a time, how do you pick which one to do first? Order of communication? Whoever toured first? Is there an industry standard method of prioritizing?

I'm having a new problem. My latest property is all fixed up and ready to rent and I've given tours to several people, many of who have plenty of income for the rent and seem to be professional and a good match with the neighbors. I typically use smartmove for screening but it comes with a $35 fee (that I have the tenants pay and then credit towards the first month rent if everything checks out) and I feel bad asking several people to pay the fee knowing that some of them won't get the house. Do you have other ways of deciding before doing a credit/criminal check? Am I just being a softie feeling bad for people having to spend the money? 

Thank you Dacia Ray . I will look into that list and see what we can learn. I do think that if we can split the cost with him even a little it will make a huge difference in his life and he has been a good partner so far. I'd love to stay in business with him for the next 30 years and lay the right foundation now.

I don't know what the Ft. Myers market is like but up here that would be a very questionable deal. I aim for the 1.5% rule and get it most of the time on SFRs. To pay 90 and get 1100 for the hassle of two leases it doesn't seem worth it. What would you clear after PMI? That's my favorite metric: Origination expenses divided by (rent minus mortgage). If that number is larger than 60 (ie I don't get all of my money back in five years) I don't even consider it. If you can get it for more like 70 then it becomes a much better deal.