All Forum Posts by: Michael B.

The numbers seem pretty good, but I'd say this is pretty risky. It's no fun being an undercapitalized landlord. And especially on a place that needs substantial work.

There's a reason that banks demand 20% (or more) down on commercial loans. They want you to have enough skin in the game you're not tempted to walk away when things get rough.

It's also interesting that the current owner is willing to help you get in this property to the point of financing the down payment. He wants out, and he knows more about the property than you.

But to your question, you're not going to get a loan if the bank knows the owner is carrying the down payment. And it's never good to lie to a bank about sources of funds. A much better plan is to spend a year saving cash so you have the down payment and much of repair cost before getting another property.

Being an undercapitalized landlord.

If you don't have enough cash to do maintenance when it's due or must take the first tenant application because you gotta have cash to make the next mortgage payment then you will eventually lose big. Big expenses come at the worst time and if you aren't financially prepared you will eventually be destroyed by things you didn't see coming.

Time to negotiate. You promised payment, so you owe him something. Offer 3/4 what a commercial service would have charged and then agree on some price slightly higher.

Remember as a property owner you always pay for upkeep. With the lawn you can pay professionals, pay a teenager, do or yourself, or limit tenants to those willing to do the work. I'd rather pay a service so I control quality, but to each his own.

But not paying a tenant his due sets a really bad precedent between the 2 of you, especially when the majority of the cash flows to you. Letting him know that you don't take agreements seriously will have consequences. Don't go there.

One thing to remember ... The inspection is part of the price negotiation process. Way too few buyers recognize this.

I almost always go back with another offer after the inspection. That's the time that they're negotiating only with you, and the house is probably off the market or at least not being actively marketed. The seller and the selling agent know it's going to be a pain to start marketing and showing again. They're both seeing dollar signs at the end of the process. They want the deal. Now. This is especially true if the seller is a bank.

A good inspector will find a few issues that you weren't aware of. Show the issues and come with a new price. If you go back with a lower price there are 3 things that can happen:

1> The seller accepts your new, slightly lower price.

2> The seller counters with a new price between your old and new price.

3> The seller says no. At which time you can reaffirm the old price and go forward with the deal as originally written. In about 15 transactions that I've offered a new price after the inspection I've never had a seller walk because they were miffed at the new price. They may say no to a new deal, but the deal will get no worse than the one you have now.

If you like everything about the house I'd still go back with an offer that's 2% below the original price. If you find significant problems adjust the price downwards more. But now is the time you have maximum leverage. Don't let this time pass without at least considering pushing for a concession.

Hey Annette,

A little ahead of yourself with Governor Orr aren't you? I'm guessing Rick Snyder isn't ready to move over just yet.

Engineers and statisticians groaned at that one. The inflection point of a curve is where the concavity of the curve changes, where the slope =1 or -1. It's usually either half way to the top or halfway to the bottom. Never at either the maximum or minimum.

Just hoping Detroit isn't only halfway down their path to the bottom. Hopefully it's a minimum, not an inflection point.

Yes, I do have time on my hands today, and tend to be pedantic at times. Sorry.

I'm a little different than most here. I include all appliances including washer and dryer if there's a hookup for them.

Here's my logic. These appliances are pretty durable. Even if they last only 5 years then they only have to increase the rent about $12 / month to be worthwhile, based on about $700 for the 2. Also I'd rather have a good washing machine in the house rather than have a tenant pick up a washing machine on Craigslist that's going to randomly flood the house because he could only afford to pay $50 for it.

Peter, cheap insurance products are rarely worth the money. Some people swear by extended car warranties, others would never buy a TV without the extended warranty. To others the thought of not having full coverage on a 6 year old car is unthinkable. My own dad, with a net worth in excess of $1 million when he died had a $6,000 life policy for burial expenses when he died at 84. At times they're right. They do pay off on occasion. But that's not the way to bet.

Cheap policies have too much overhead to be of much value to the buyer. I do the opposite in my rentals. I try to keep tenants from spending on bad ideas so I can capture a larger wallet share.

So, Joe, if you don't like my numbers what are yours? Mine were pretty close about 5 years ago when I moved from being an actuary for the guys in Columbus, OH to a job in retail analytics. I'm guessing they haven't moved much.

Name another line with such a low claims ratio AND low variance of claims. Lines like flood and earthquake have low claims ratios, but the variance is very high, making them good consumer deals.

Actually I think you're confusing claims ratios with expense allocations. The small payments, small claims, and high churn make these difficult to deal with for the company, and not particularly profitable. But from the consumer point of view such a small amount paid in claims still makes it a bad deal. Even if the claims ratio is all the way up to 35% now.

Can't speak to the legality, but this sounds like a really bad idea.

You want the tenant to let you know when a repair is needed. Delaying maintenance and repairs makes for much more expensive repairs later. For example, if a tenant doesn't report that the fridge is leaking and now you get to put in a new floor it's going to cost much more than fixing a water line.

Houses need maintenance and they get expensive when it's not done. Don't put a tenant in a position where he doesn't want to report problems.