All Forum Posts by: Brian Hughes

WRT "quality of tenant doesn't matter"  -   I hired professional PM about 2.5 years ago now -  I've had 2 turnovers since then out of 8 units.    Guess which 2 tenants have been the highest maintenance?   (They aren't bad,   but have been needing and getting "trained" so to speak)   -  If you are self managing,  quality of tenants is CRITICAL.    One of the things to get clear with any prospective PM is how they screen,  and whether or not that screening process is acceptable to you.

(My PM relies mainly on credit score, income verification/debt ratio, eviction history and other automate-able factors.  When I did screenings,  I did the usual credit/civil/criminal background check,  verified income,  interviewed prior landlord (almost nobody seems to actually do that - at least none of my former tenants have ever resulted in a new prospective landlord calling me)  and for anything less than perfect I asked some combination of  2nd months rent,  co-signer,  or increased security deposit.   Some of what I was doing is now illegal where I am in Seattle)

Seattle has some very specific ordinances about what is considered acceptable forms of identifications,   and IIRC lack of presence of an SSN by itself isn't necessarily enough to deny without risking fair housing complaints.   If they have a state (any state) issued drivers license for example that qualifies.   I'd look into it carefully.   Yes it can mean they are in country illegally,   it may also mean their applications for SSD/TIN are still in process,   they may still have job(s) they work their a$$es off at,  etc.    Your loophole should it be needed may be if you screen for credit history / credit score and no result is returned due to lack of SSN,  or if they gave a totally bogus SSN or one belonging to someone else.

I recently had a somewhat similar issue -  I have a pair of roommates in a 2br in seattle,   one of them was getting married and moved out,    and they asked permission to swap that party with his father on the lease.    That was fine,  except the father recently returned from several years back in the "home country"  and had zero documentation,  and nothing came back on credit reports, etc.   He DID have a verifiable job workign with pre-schoolers (so you know THEY screened more closely than I'm allowed) which in combination with the other resident income easily met that threshold.    We asked him for alternative sources of info and had to guide/push a bit but ulltimately he was able to produce in-process applications for green card (which can take OVER A YEAR to process right now),   several bill stubs/proof of accounts he has held,    and records of a home he owned in the area which was foreclosed during last housing crash.   Between that and several family members living locally we chose to let him onto the lease,   with a six month probationary renewal,  which has since come and gone with no issues.

Parts of tacoma are a little rough - but improving.   Other parts of tacoma are awesome right now.   Stadium district is my favorite  right now  (victorian mansions anybody?)   Recent articles in seattle times about the fact that many priced-out homebuyers from seattle are heading south to..   Tacoma.   

600K may not buy a "median" house in seattle but it will readily buy a house in city limits in lots of decent areas especially on the south end of seattle.   Beacon hill,  White center north of roxbury,  upper rainier beach are best bets for a larger home,   Areas of Seward, Hillman, Colombia City, Delridge also for "better" neighborhood but probably smaller house or bigger project.    

Looking for a liveable fixer will also increase your options tremendously.

There are 3 mid century homes in upper rainier beach ranging in age from 60's through early 80's for sale within about 1/2 mile of me right now,   all are well over 2000sf,  4+ bedrooms 2+baths, 2 floors.    Asking prices are ranging between 500K and 600K.    I toured open house at one of them yesterday and talked with the agent for quite a while.    We both agreed despite the asking price it would probably end up selling for 400-450K.   The place was structurally solid with exterior in decent shape but does need substantial interior renovation.   (First time on market since built in 1966, estate)   But its 1/2 mile walk to light rail,  1/4 mile from chief sealth trail and a mile to kubota garden,  Territorial view,   unmolested 2 car garage,   hardwoods throughout need repair but salvageable,  etc.    Hot tub/sauna off master,  mirror tiles throughout and red velvet bar downstairs no extra charge :)    This one might be a little too much of a fixer for a family,  but point is they are out there.

Less sexy,  but 1)  rent the cheapest 2br apt you can find and don't be afraid to move someplace yet cheaper if the opportunity presents and it pencils,   2) with a roommate  3) apply the savings to paying off those student loans and building up cash.   4)  take the time to learn,  watch the industry and market,  maybe even find a engineering job with a RE angle.

@Pavel U.  Not really Minneapolis I suppose but if I' ve got everything straight right now in seattle you CAN look at: 

Credit report 

Credit score

Prior rental history

Civil history (evictions or other housing related judgements)

Employer reference (unless income is from a non-employer legal source, e.g. social security,  alimony)

Income to rent ratio (must subtract any voucher income from rent when calculating it)

History of commiting a sex crime as an adult (must have "business justification" if using this to deny)

You CANNOT look at any criminal history except above

You CANNOT consider any credit or civil history more than 7 years old

You cannot consider source of income  (any legal, verifiable source must be accepted, including short term vouchers)

You CANNOT require up front payment of security deposit and last month's rent  (must offer six month payment plan if applicant requests it unless total of fees is less than 25% of one months rent)

The "First in time" ordinance that Seattle passed was struck down by a judge,  and is currently on appeal to the state supreme court.   If that were in place,   it would not affect the screening criteria,  except that you would have to track the order that applicants filed (following a complex bureaucratic process of course) and process them in order,  including granting appeals, accomodations (for example for non-english speakers) and re-evaluations that could take days.

I'm sure there are more details I'm missing,  but thats the broad strokes.      There are still enough angles that for the most part a reasonably thorough screening can be done.   The exceptions are criminal history of course,   and alternate tests,    for example allowing somebody with no or weak credit to instead pay last months rent and/or an increased deposit.    I used to do that all the time before that rules passed.    The source of income restrictions are only a problem as I see it in two ways -   1) short term vouchers must be accepted,  but still required to offer same lease I would for another applicant,  so I can't do something like say OK you have a 3 month voucher,   so I'll write a 3 month closed end lease and reevaluate your income at that point and renew if you have it.   The other income problem is with things like judgments and alimony/child support,  where the source of income could be a less-than-reliable individual instead of a government benefit or something that could be expected to be reliable.

Tenant friendly areas are typically also urban areas with good economies,  high property values and people wanting to live there.   

the problem with overly tenant friendly laws is they are generally in response to a related but orthogonal problem - shortage of housing.   As we all know piling more rules, regulations, risk, process, taxes/fees onto housing providers will ultimately reduce availability,   starting with mom and pops and smaller investors who don't have a legal department and decide to sell out either proactively or in response to a bad experience.    This causes yet more housing shortage,  and a classic negative feedback loop.    There is a house for sale about a block from mine,   fully renovated.    I toured it and the agent said that this was its SECOND full renovation in a year.   I asked what happened the first time;    It was completely trashed by a bad tenant.   So that small landlord is getting out of the business.   I don't know the whole story of course but this is one less rental unit on the market in seattle most likely;   there is no way that house will rent for an amount that would cover the mortgage at the given asking price,  so it will probably sell to an owner occ.

In seattle over the last 3-5 years when most of these new ordinance passed what has been going on is a couple of our council members who have very active renter / advocacy organizations backing them have been creating very one sided rule changes.    So basically that "Side" has been getting pretty much everything it wants,   and any attempts by local landlord organizations like RHAWA to mitigate or offer practical alternate approaches result in at best token concessions or the usually "greedy rich exploitative priveleged landlord lobby" narrative or some subset thereof.   Some of the rules are pretty clearly designed as much to be punitive to landlords as they are to actually benefit tenants.

Some tenant friendly changes I'm OK with,   because any landlord that plans ahead and is conscientious and responsive won't be affected -  60 day notice for rent increases instead of 30 is not an issue since its easy enough to plan a little further ahead for example.   Source of income as a protected class I am mostly OK with - so long as I can screen effectively and verify receipt of income, not just entitlement to.   (I do have a few detail issues with that,  but overall its a fair thing).    

I've responded to rule changes that limit my ability to screen and collect up front deposit and last months rent by hiring a property management service.    Supposedly they are experts and keep trained on all the changing rules and best practices.    They are of course bound by the same rules I would be,    but they have access to full credit reports (I was never certified for that) and can advertise to a greater pool of customers than myself,   and the presence of a professional manager will deter some "professional bad tenants" who try to take advantage of smaller self-managing landlords.   I had a few of that type apply when I self managed,  but at the time I had more leeway to say no without risking fair housing complaints,   so I dodged those bullets (mostly).  Rents also went up about 30% under the PM, which offsets the cost thereof and weeds out more "bad" applicants based on cost.

I am working on moving to  the "next level" :P with my investments.    I am in the process of selling a seattle duplex I own and the proceeds from that will be used to reinvest in a larger multifamily property in a secondary market in the greater puget sound area;  I want to get out of seattle market in the long term,   but I'm pretty established now with negligible debt and market-ish rates so I can weather some more bureaucracy and occasional losses from having to comply with some of this stuff if I have to.

Even though we are seeing landlord/tenant "reform" at the state level now and I'm guessing will likely see a statewide rent control bill similar to oregons next session I would prefer to invest locally so I can visit my assets on a fairly regular basis,  even if it takes a couple hours instead of 15 minutes to drive there thats way better than cross country for me.     I have shifted my strategy though,   I'm probably not going to aim for quite as large of a property as I otherwise could consider,   to keep the debt ratio lower.   I may also not go for as much of a rehab property,  in case I'm in a situation where I cannot raise rents at the same rate to match improvements/repairs that are needed.

I guess it boils down to understand the rules,   get a feel for how stable they are or if more changes are coming,   and build your business model around it.      Everybody else in that market also has to play be the same rules,  so ultimately if tenant friendly laws make your rental more expensive to run,   it did it for everybody else too so rents will reflect that over time.       For the most part it  seems the rent control bills being pushed these days (at least west coast) are somewhat less draconian than earlier designs,   so maybe possible to do OK with it in place as long as you take most or all of the allowed increase annually and don't fall behind on capital maintenance.     Even our local socialist councilmember who is the most extreme on this is pushing for rent control maximum increase of 5%+CPI per year.   The most damaging part of her plan is no vacancy decontrol - meaning you can't raise rents to market on turnover.   However that proposal is worst case.   If it passes statewide it will probably look like Oregon's bill.

I've got a Triplex (bought 2006) and duplex (2009)  in seattle.    The duplex is currently pending sale to a developer.   There are several reasons for that,   summed up they are:

1)  the duplex is the oldest property (pre-1900) and while well maintained,   is economically and functionally obsolete

2)  Located on L2 zoned land  (4 townhouses,   small apartment/ SEDU complex, etc) would be allowed on lot.

3)  I was ready to end house hacking,  I had lived in one unit of the duplex since purchase

4)  Lower unit (one I owner occupied) not habitable per Seattle rental inspection ordinance.   (totally fixable,  but see point 1)

5)   Increasingly complex, risky, and punitive seattle rental regulation ordinances already on the books

6)   Winter Rent Control is coming.   (right now more likely to be statewide like Oregon (passed) and CA (soon) than in city.    Kshama Sawant  (Seattle's most vocal socialist council member)  has been advocating for rent control of 5%+CPI allowed increase per year without vacancy decontrol.   So I am operating under the assumption that this is worst case scenario,  and statewide will be more moderate  (if moderate could be used as a term for rent control) - so if we have to have it,   I'd rather it be passed statewide.   That also gives it a better shot of being removed in the future when enough people see the negatives piling up.

I can take the proceeds from the seattle duplex sale and buy outright a fairly modern ~6 unit property (60's and up) in some secondary and many tertiary markets in western washington, and with no more than 50% financing I can be looking at 8-12 units properties in secondary and tertiary markets. I am being very conservative with any financing options since I am operating under the assumption that WA will get statewide rent control similar to oregon and CA (7% + CPI) - My Model has been to buy functional but needing maintenance-and-upgrade properties and then update them over a few years, so I can probably work within that framework. I don't really want to go out of state, If I can't visit and be personally involved with my properties I might as well buy into a REIT or the stock market instead.

The triplex is a more modern building that I've sunk a lot of work into and is in nice shape ; It just recently got upzoned to residential small lot,   and I currently intend to hold for another 3-5 years,   then it will get traded up as well.

So I'm not getting out,  but I have modified my next-level plan to trade up and out of the seattle market.   I'm now most interested in markets like Burien  (have a 4-plex there),   Renton,   Kent, Auburn,  Tacoma,  Spokane, etc.   but there are many other secondary markets as well that I would also be interested in.    

I also hired professional property management a couple years ago when some of the more intrusive Seattle rules hit,   but again this was a modification of my existing plan which required that anyway so I could keep scaling beyond what I could manage by myself while I still have a full time job.

FWIW I'm a seattle landlord  (for now,   I'm on a ~5y plan to trade up and out).    Seattle won't let you use ANY criminal background,  with exception of sexual abuse as an adult,  and even then you have to have a 'business justification' if you deny based on it.    There aren't any rules limiting use of eviction history other than the rules around credit reporting limiting that information to 7 years back afaik and they don't limit use of credit score,   though our lefty leadership and all the rental advocacy/SJ groups have all indicated interest in such things.    They also effectively limit use of security deposit and last months rent by requiring landlords to offer interest and penalty free payment plans for those costs if they exceed 25% of one months rent.

BEFORE they limited use of criminal history and passed some of this other stuff my standard screening process was to verify income 2.5x rent,   verify prior rental history or acceptable co-signer,   verify payment history of recurring bills (cell, utility, etc)   and verify no evictions or serious/recurring criminal history.    Based on the results of that if things were excellent I offered movein with first and deposit up front,   if they were slightly marginal I'd offer first+last+deposit to move in.

After  all of this I am now using a property manager,  and they look mainly at credit score, income 3x rent,  and eviction history.    My rents are running 25-30% higher under the  PM as well,   which also acts as a filter.

I suppose since credit score is an amagamation of other discoverable information,   all that would need to happen is the individual attributes of the credit history  (bill payment history,   judgments,  all that other stuff) could still be reported,  they just can't stamp a number on it.   that of course means all the smaller guys who used to use credit score will now eyeball the information and make a qualitative judgement,  and all the bigger organizations will dump that information into an algorithm of their choice and generate their own number internally.

I have a 4-plex in the greater seattle area built on a hillside.   Its 3 1/2 stories high from the street.   I haven't counted the steps lately but its probably ~30ish from the parking area to the top floor.     I have a 85+yo tenant on the top floor ; been there since he retired,   and another 70+yo retiree on the 2nd floor.     Right now all the tenants are single males,   though when I bought it one unit was occupied by a family.

A lot of steps will certainly deter some people,  but I haven't had any trouble renting these units  (decent units in a working class area renting at working class prices in a region that is overall pretty expensive).     One thing to consider though is safety regulations WRT the stairs and hand rails.   Some juristictions like Seattle are requiring updates to handrails to current code standards as part of rental inspection and registration ordinances,   and it could be a liability thing if a baby or dachsund climbs through the 8" or larger gaps in the handrails in an older building nonetheless.    Depending on where you are starting the updates could be pretty cheap/easy or more expensive.

+1 on screen screen screen.

Also:

Roll utilities, parking, pet fees, storage fees, etc.  into regular rent on next renewal.

Shorten grace period (if any) for monthly rent payment.

Waste no time properly serving proper notices when payment isn't on time.

Tell the tenants why you are doing this.

AND if you have the time/resources and political inclinations and are a moderate/pragmatist,   consider running for office.   we only get left, lefter,  and wacko (both sides) to choose from around here.