All Forum Posts by: Chris Gantz

@Jonathan Steiger @Theresa Harris

We raise the rents on all month-to-month leases annually on their anniversary. We assure our tenants that they will only receive one increase per 12 month period, and we are transparent that we always raise at a minimum of 3%. This is how we've always operated, though we have adjusted some of these rental increases currently due to Covid.

@Terrell Garren

I agree with everything you're saying, and I like how you put it being that "the long term lease locks the landlord in." Most of my problems come from the leases that are locked in, especially non-payment as they'll just stop paying and tell us to take them to court or send them to collections at times. That's another perk of month-to-month is we can get them out much sooner minimize the loss since we still have their security deposit.

We also have the similar strategies on our client's that are more affected by vacancy being that they have lower total unit counts. In those situation we may stagger the increases on the month-to-month to be sent one at a time as to gauge whether the tenant is going to move out immediately upon receiving the increase. 

@Bjorn Ahlblad

Agreed, the tenants are better behaved when they know we're able to remove them more easily for any lease violations. 

Tell me if I'm wrong...

Our company has approximately 1,000 units under management, and we have a couple of our smaller clients that we have that present concerns with having tenants on month-to-month leases. I'm sure this topic has been covered a thousand times before, but wanted to refresh the topic.

The way we operate we require a standard 12 month lease on move in and our leases all automatically convert to month-to-month leases at the one year mark once this 12 month term is fulfilled. We send lease renewals with higher rates, typically between 3-5% increases at this time, and we send these leases as month-to-month. We've found this typically incentives people to stay in their units after an increase, as they have time to try it out to see if the new rates fit their budgets, as opposed to having to make that commitment to paying the higher rate for a full 12 months. 

From an operational stand point this also gives us the ability to non-renew any tenants for any reason once they're month-to-month, as opposed to having to build up 5 day notices, 14 days, and going through with evictions if we have an issue arise with a tenant. 

The argument I hear most often in favor of additional 12 month terms at lease fulfillment is avoiding turn over costs, and vacancy exposure since "all the tenants could leave at once," but I find that even if the tenants leave we are typically able to refill the units immediately anyway, so that shouldn't really be that big of a concern. Also, we find that the more often we're able to turn units, the more often we can make incremental updates and raise rents toward the higher end of market rates.

In my opinion month-to-month makes up for any loss-to-vacancy since it's making up for it with higher rates and therefore helps avoid loss-to-lease.

As a side note, we allow short term rentals of 3-6 months on new leases at rates of 125% of the 12 month market rate and have had great success with these options as well.

Other options we've done are allowing tenants to choose their renewal rate on buildings we're aggressively raising rents on by say they can pay 3% increase for signing for another 12 month term, or 5% increase to stay moving forward on a month-to-month lease. 

Are there other people out there that operate in favor of going month-to-month after 12 month terms? What's everyone's opinion?

Hey Rachel, 

It sounds like you've already taken massive steps toward your goal and are getting a lot of the education you need to succeed. Here are a couple pieces of advice I have for you or any new beginner:

• Start investing as soon as possible, not as soon as your comfortable. Age is just a number, it's not the years of experience you have, but the experience in your years. Real estate is a learn as you go industry, even after years in property management and investment there are still unique situations that I could've never imagine. I believe the same could be said for people with 40+ years of experience... such as Covid. 
• If you can find a brokerage that'll let you start with them as a part time agent this would be ideal. Local shops, not the large national chains, may be open to you coming in an offering to be there go to person for weekend open houses. If you can bring value by taking the showings nobody wants, that are in time slots people don't want to work it'll be like pouring rocket fuel on your education. Also offer to take photos, videos, etc. for minimum wage or free as this could be a huge draw to some smaller brokerages that have to take the time to do it in house, or pay hundreds to have a pro take the pics. That being said I would still reach out to your local KW and see if they'd be open to the same type of arrangement.
• Don't buy if it doesn't cash flow. If you're going to live in one side this may affect the "cash flow," but if you buy based on positive projections from renting out both sides you should be fine as you'll be paying yourself the rent you may be currently paying, so it's not a sunk cost. 

• While there are certainly risks and pitfalls, if you're active on Bigger Pockets and asking questions when you need help you're going to be just fine.

You've got a great list of goals, and it sounds like you'll have great success if you keep self educating. The more you learn, the more you earn.

Best of luck,

Chris

@Carson P.

I’d contact your lawyer or your circuit court and ask them if they know a way around the eviction moratorium. 

Like you said the order put a moratorium on evictions but it actually allows evictions in domestic violence cases and when there is "an imminent threat of serious physical harm to another person." 

If you can get whichever tenant reached out for help to work with you they may be able to testify that there is abuse or imminent danger. 

Don’t be afraid to level with the tenant and explain that you are going to have to pursue an eviction if they don’t leave and that it will make it much harder for them to find a new place moving forward. Cash for keys is a great way to incentivize, usually we’ll guarantee the entire security deposit back if they leave and we’ll even prorate rent back if they leave immediately.

Don’t be afraid to continuously call the cops everyday if you legitimately believe they should do something. They’ll get the picture that you’re going to call everyday until the problem is resolved or the tenants are charge or change behavior.

In my opinion the moratorium does more harm than good. They should have put the moratorium solely on evictions for non payment as it’s proving impossible to correct other lease violations when the tenants know they can’t be evicted.

Hi all,

I'm focusing on scaling my property management company's client base and portfolio of assets under management. I've been contemplating the idea of offering a referral fee to any agents or brokers that bring us new clients/properties, but want to make sure I'm not breaking any laws. 

I've found a number of companies in other states typically offer 2 months of management fees for a new management contract, and an agreement that they will refer the client back to the agent/broker that referred them in the event the client is looking to buy or sell investments. 

My company is based/licensed in Wisconsin. The biggest question is whether I'm legally allowed to pay the referral in Wisconsin to other licensed agents/brokers?

@Anthony Brancato

I’d reach out to professionals within the Real Estate industry such as local Realtors, Builders and Property Managers and ask if they know of anyone in the area doing the specific contracting you need. I’ve built a lot of solid relationships based on Realtor referrals. I guarantee if you ask a Realtor for a Referral they’ll open their black book to you because they know that good Karma goes a long way, and they’re hoping those contractors think of them first when their contractors get asked for referrals. Obviously reach out to a couple different professionals to get more than one biased opinion and do some due diligence before you call. 

In my experience I’ve found Craigslist doesn’t always have the highest quality or most qualified options.

Thanks for all the positive feedback, everyone!

@Jeremy Trad the Realtor who originally listed the property when we were on the buy side approached us with an investor interested in purchasing after the renovations. The investor had just sold his local gas station to Kwik Trip and asked the Realtor if he new of any investors in the area that would be open to selling real estate. As the saying goes “everything is always for sale.” He offered us a great price that we couldn’t pass up.

@Caleb Heimsoth The purchase price was $500,000. 20% down conventional financing so we put $100,000 down for the loan and we ended up putting almost $200,000 into the property. We put in all new windows and patio doors which ended up being a large portion of the budget, I can’t remember exactly how much but somewhere around $50,000... 

On average we put about $10,000 into each unit, including full paint, flooring, cabinets and appliances. We salvaged what we could with regard to the cabinets and kitchen appliances.

We sold for 1,200,000 so it ended up being about a 4x equity multiple at the close. I believe the gross monthlay rent was around 12000.

Investment Info:

Large multi-family (5+ units) buy & hold investment in Baraboo.

Purchase price: $785,000
Cash invested: $300,000

Older Value Add Multifamily. We have been renovating the units on turnovers and increasing rents by about 50%. Common areas are being updated as well.

What made you interested in investing in this type of deal?

Strong value add opportunities, high return potential.

How did you find this deal and how did you negotiate it?

On market listing.

How did you finance this deal?

Conventional loan, 20% down.

How did you add value to the deal?

Updated common area lighting from florescent to wafer LED lights. Painted all common areas, updated all common lighting. Updating all flooring in all units, replaced old, inefficient windows and patio doors. Updating cabinets, lights, and baths in units.

What was the outcome?

We have realized up to 60% increases per unit rents. We expect to stabilize the building with around a 60-70% gross increase by the time the project is complete.

Lessons learned? Challenges?

Challenges working with existing tenants paying lower rents. Increase rents on existing tenants.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We do all renovations in house other than flooring with the Flooring Center out of Baraboo.

Investment Info:

Large multi-family (5+ units) fix & flip investment in Baraboo.

Purchase price: $500,000
Cash invested: $300,000
Sale price: $1,200,000

Highly distressed property purchased from an estate sale. Son and daughter inherited the property and let it go. There were maybe 5 tenants in place out of 16 and the property condition was heavily distressed. There were dead animals, standing water, mold, etc...

What made you interested in investing in this type of deal?

High return opportunity.

How did you find this deal and how did you negotiate it?

MLS

How did you finance this deal?

Cash

How did you add value to the deal?

Renovated all units. Updated flooring, cabinets, lighting, and vanities. Painted interior and seal coated driveway. Installed new landscape. Filled the building with high quality, qualified tenants.

What was the outcome?

Intended to buy and hold for a long period of time. Was made an offer we couldn't refuse within two years after the project was completed.

Lessons learned? Challenges?

Sweat equity is an incredible way to super charge returns.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Marcus Mitchell out of Baraboo, Wisconsin has worked with on a large number of deals and is always fair to buyers and sellers.

@Chris Elkendier

Hey Chris,

It depends on your risk tolerance and liquidity needs. If you want a relatively safe place to park your cash and get a constant income stream then buy one property for cash.  

That being said, leverage is one of the best tools to grow your wealth quickly. If you have a higher risk tolerance then I would suggest buying as much property as the bank will finance. 500k at 20% down means you could afford up to $2,500,000 of property. This could mean a decent core+ 32 unit apartment complex, or a really nice STR on the beach in Florida that you can rent for a couple grand a night. In my practice I've always found there's safety in numbers and economies of scale with volume so I'd personally pursue a large complex focusing on cash flow and let the property pay down the debt.