All Forum Posts by: Bryan Petrinec

Thank you all.  Every one of you touched on the quandary I am in.  To JD Martin's question about rent reliability. The unit is managed by a large real estate management firm in the area and they sent the last 24 months of rent history for both units.  Because of the way the tenant with the dogs gets paid, they pay the rent in 2 installments so half of the rent is paid 2-3 weeks early, with the second installment being before the 1st, which makes them whole for the coming month.  

Although I don't have any personal experience with the renters, I am more trusting of a large property management firm to not cook the books.  Not saying it can't happen but the risk vs reward is not there.

As for the other unit, long time renters.  Been there 10 yrs and at least when I was there with the inspector walking around on both sides of the fence, there wasn't a single bark.  When inspecting the yard with the dogs in it, they were friendly and wanted to be petted.  As for any additional damage to the unit, hard to tell.  One of the reasons I am buying this property is that it is distressed and in a great neighborhood.  The units need a significant rehab when they turn over and personally, I think I would be lucky if the rehab for each unit was less than $10k each, so the break even point is longer than 3 years.   I knew this going into it.  My initial goal was to rehab each side and go with the same approach as Bettina F. did as the tenants phased out.  So to Steven D.'s point, I may be worried over nothing if they don't renew.  That said, given the fact they have 2 60lb dogs, no matter which breed, I think their options to find a new place are limited.  I know that is not my problem, just a factor that makes me think they will stay if they can. 

This is my 3rd duplex and I have not been a landlord long.  After all the reading / info from BP, I made a set of rules to manage my tenants through screening, lease language, and a fair but firm approach.  Also, the fact that I have owned a pit bull mix and was one of the sweetest dogs I ever owned doesn't help.  This is the "human" part of being a landlord that is a little more gray vs. the black and white of screening / leases.  Also, I will have a chat with my insurance agent.  I have a good relationship with him so it will be good to walk through this with him.  I have a couple of months before this comes to a head, just trying to get a plan in place.

I expect to close on a duplex in the next couple of weeks and one of the tenants has 2 dogs.  On their current lease, they filled out the pet addendum and paid an additional deposit.  The pet addendum has the breeds as "Albino" and "Dalmatian Mix".   Although the one might be a mix, I didn't know albino was a breed.  Both are pit bulls or bit bull mix.  I have met both dogs on the inspection and they are friendly.  I personally don't have a problem with dogs or renting to tenants with dogs but my limit is 35 lbs or less.  Both are 60ish lbs and did I mention they were pit bulls. 

Since the previous owner / property manager, allowed them under their current lease, and they have been there coming up on 2 years and have always been on time with rent. I don't see any grounds to get rid of them now, but their lease is up for renewal in Feb.  At which time I will move them over to my lease.  Now for the questions:

1. I prefer good history with tenants, as this is a business relationship.  Should I allow them to renew if they intend to stay and make a 1 time amendment to my pet addendum to allow these larger dogs? At this point I do not know if they plan to renew.  I am not a dog enthusiast, so if they are mixes, I have no way to prove one way or another outside of their looks.

2. If I decide that I will not be renewing the lease, even if they want to, what is the process in Texas.  Is it just the 30 day notice that is in the lease or is there more?  Do I need to give a reason?  If so, it the 35lb limit on pets sufficient?  

I am reaching out to the BP community to provide some advise.  One of my biggest drivers for being in this quandary is that the reason I am buying this duplex is that it needs some work and can will be able to raise rents but I was hoping to let the renters phase out on their own which will allow me more time to generate cash to be used on the rehab.  This unit will probably be off market for 4-6 weeks before I can get it rent ready and they are currently the top rent payer in my small portfolio.  

Thanks in advance

@Luke Feds, I had the same issue when I was starting out only a few months ago here in the Austin market which is also hot.  I was digging in evaluating deals and I could not understand why deals that looked bad to me were only on the market a few days.  In Austin and other hot markets, the evaluation can be based on tax breaks to offset other investment income while banking on appreciation.  

This makes it tough for folks like us just starting out, but keep evaluating deals and you will find one that works for you.  I just closed on my first duplex last week and have two more under contract.  They are cash flow positive and will still appreciate.  They need some work, but are fully rented and are generating income.  As they turn over, I will be able to force appreciation through improvements and subsequent rent increases.  

The best advice from BP is to stick to your numbers and you will find deals that work for you.

That's great Joe. If your son is looking long term, there are still some great opportunities out there and the Domain is a great area. Right now, the only deals I see in the Austin area making the 1% rule are not rent-ready and would need to take the BRRRR strategy. Since they are month to month, he can phase them out and still get some income while turning one unit and getting other tenants. That's what I plan to do as leases expire. At least he doesn't need to wait.

I am closing on a duplex next week and it does not appear that the previous landlord required a move in inventory and condition check list.  There are minor damages on the units that go beyond normal wear and tear which were observed during the inspection.  The leases are not due for over 6 months on both units.

Since the damages are cosmetic (door dents in walls, door handle missing on interior door, etc), I am considering doing a walk through with the tenants and get a checklist / pictures of the current condition and ask them about some of the damages.  I know going in, they will likely say "that was already there", but just in case they say anything different, it cant hurt to ask.

Outside of the usual cleaning fees if needed, I was planning to give a pass on what may be "previous" damages and start from the day I do the inspection.  That way I am covered if there are charge disputes when there are security deposit deductions.

I cant be the first person to deal with this situation.  What did you do? Why? and Were there issues down the road?

I am in the process of closing on my first duplex and about to become a landlord.  I have read the book on managing rental properties, read many posts and blogs and for the most part, I am at least armed to handle the basic stuff when it comes up.  I do have a couple of questions that I am looking for guidance on that I havent seen mentioned.

Re-key when landlords change?  I know to re-key when tenants turn over, but haven't seen anything mentioned about when you by a rental. My instinct says to wait until the tenants turn over and not worry about re-keying when I purchase.  What have you done?

One of my inherited tenants has been there for a number of years and has been a model tenant.  Paid rent on time, no major issues, and I hope that remains the case going forward.  My issues is that they do not speak English and I do not speak Spanish, at least not enough to past hello and thank you.  The leases are in English and there are not any notes about communication issues.  The property is currently managed by a property management company, but I intend to self manage.  As long as there are no emergencies, communicating in writing can be primarily done through Google translate with review from a Spanish speaking friend who is willing to help.  My concern is for times where prompt communication is needed (emergencies, past due rents, issues with violations of the lease etc.)  Besides getting a property mgmt company that is bilingual, what solutions have you found to manage this?  

Hiring a bilingual PM would be too costly for this property.  Is there a PM-Lite version out there that can be used just for communications when needed?  

Thanks in advance.

Thank you @Tiffany S.  No, these are all under conventional loans with 25% down.  I was lucky enough to get connected with a mortgage company that works with investors and the lender is able to take rents into account.  All three units are fully occupied, so there is positive cash flow on day 1.  The downside is a slightly higher interest rate, but as long as I take that into consideration when running my numbers it is covered.  They will work with me up to the max of 10 loans.  The nice thing is the first one is the hardest to get.

One decision I had to make was deciding to buy one property cash or several with conventional loans.  From a cash flow perspective, this was the right choice.  Even when you own the property outright, there are still costs, like property taxes which are significant in Texas, to account for.  As for equity and appreciation, it is a push.

 I have been fortunate enough to get connected with a bunch of like minded individuals locally and through BP who have been a tremendous help.  I am sure there will be bumps in the road, but hopefully I will be prepared.  

This may be a little premature on the "success" side, but thanks to the support from BP, the BP community, friends, and family, I am now racing down the path of buy-and-hold rental property and becoming a landlord.  Backing up 18 months, I was laid off from a good job with 17 yrs there.  It was a real shock to the system as I was performing well and making the company money, but higher-ups needed to find some cash so they let go 3 well compensated employees.  Being out of work, nearly 50 years old, and looking at my 401k, which I was diligent in my contributions from a young age, I realized that in my retirement I had social security as my only "passive" income and the rest was coming from my savings, which was then market dependent for growth once I stopped contributing.

Although it took me longer than I wanted, I was able to get another W2 job, but while I was looking I started a handyman business.  As a younger man, I did high end remodeling and custom home building.  I figured I didn't want to do that again, but maybe a handyman business could provide some extra cash, and keep me busy while I looked for another job. Well one Facebook post on the neighborhood page and I had all the work I could handle.  And continues to grow just through word of mouth.  However, about 1/2 of my customers from the neighborhood had me doing repairs on their rental properties.  I had a couple of conversations about getting into that myself but I didn't really take it any further.

Then selling a couple of items on Craigslist, I met Joe.  Retired military and a great motivational speaker. Not sure how we got on the topic, but he was telling me about his buy-and-hold strategy with rentals.  Now, that I have been involved with BP, i realize he was just telling everyone about what he did in order to expand his network.  Typical CL transactions are 10-15 min, get the cash and never see them again. Joe and I talked probably for 30+ minutes about rental investing and he turned me on to BP.  Thanks Joe! That was in June of this year.

Step 1 was to join BP and start reading posts.

Step 2- listen to podcasts new and old

Step 3 - develop my own spreadsheet to evaluate deals

Step 4 - start reading books on rental investing and becoming a landlord

Step 5 - update spreadsheets - profits were not as attractive as before but are realistic.  Good deals became bad deals, great deals became good deals.

Step 6 - learn local market.  The Austin area will not have a 100K multifamily turning $2k/month in rent (thanks Brandon for rubbing that in :0)

Step 7: Pool cash and determine a plan.  Long term to have 20 doors in 10 years.  Short term buy 2 duplexs in 2017 - Start looking

We are now in the last week of July,

Looked at 3 properties and offer made on first property 1st week of Aug - rejected; 

Second offer made - 18k below asking - counter was 15k below original asking.  Past inspection and on our way to closing.  Originally would not have been my first choice, but there is a lot of upside potential for this property.  

Great on our way....

This week an opportunity for a better than good deal comes up for a pair of duplexes next to each other.  Put in offer for both, got them.

Now I am excited and terrified all at the same time.  0-3 properties in 3 weeks and should have everything closed by early Oct.  Need to close on the first one in 2 weeks.  

So much for analysis paralysis - Now back to re-read the beginners guide to landlording.  

Now to shift to income generation and additional  savings for next year provided I survive being a landlord

I am 90% sure you need a RE license to be a PM in Texas also.

What am I missing here? Existing property is $500k. Seller doesn't care if you plan to raze the building, so assuming there is not a major issue, you will pay ~$500k. Then you have the cost to tear down and rebuild a duplex, assuming you can get a permit. Based on value of the land, I would guess you plan to spend ~$300k for the new duplex. Now you are $800k invested with $35k NOI. Assuming your NOI calc does not include your mortgage or property tax, your mortgage alone is over $35k/yr not to mention property taxes. Now you have $600k in debt, you have invested over $200k in your cash (assuming a 20% down payment) for a property worth $575-$600k with negative cash flow. I know there are some assumptions in this and it might not be as bad as it looks initially, but I don't think I am that far off for this to look good.

I wouldn't worry about commissions, be sure you check your numbers and the area comps.  The value of the duplex is determined no differently than a single family and will be based on the market comps.  

I sure hope I am missing something and good luck.