All Forum Posts by: Michael Johnson

@Dan Swanson No signature = no lease. If you accept payments than the person can probably be considered a tenant on a month-to-month basis and may be subject to 'default' tenancy laws. However, you won't be able to enforce a duration. You could try to argue an Oral (Aural?) Contract in court, if it went that far, but I think a judge will only rule that the tenant is on a month-to-month since it's your word against theirs.

Now, going in the other direction, I've read that not enforcing a late payment can negate your right to collect a late payment. Laws are generally skewed in favor of the tenant so I would dot all i's and cross all t's in everything you do.

EDIT: D'Oh, I need to improve my comprehension skills. I just re-read the last post and see where they agreed in email. In that case I would defer to legal council. I suspect you could argue it either way (email is written but difficult to prove who sent), but the time and effort to hire the attorneys and go to court is probably not worth it.

While probably not what you want to hear, I'm going to say that you're probably going to eat this. The argument is going to be that since you just purchased this duplex, it was your obligation to perform a thorough property inspection before purchase. This would include the exterior and interior of the property. If you didn't perform an inspection than you have no way to prove that the lady is lying and (my opinion) any court is going to feel the same way. If you did perform the inspection than you should have noticed the damage and asked the seller to correct before closing. You may have to chalk this up in the 'how to do things better next time' column and move on.

@Mark Ferguson

Are these commercial policies? If so, if the individual LLC's were under one parent llc would that be the same as if they were owned together? If so, could you get a multi property discount?

Thinking this through, perhaps it wouldn't be necessary. I don't think anyone cares where the insurance comes from as long as the building is insured. So, if I put the policy in a parent llc's name, but the buildings were still in their own llc's than I think I could accomplish the same thing.

Sorry for the twenty questions, but now I'm curious.

I have a tenant who has two dogs and a ferret. Unfortunately, I now have cockroaches because they're attracted to ferret feces. Out of 6 units, only one is allowed to have pets because I bought the property with tenants in place and she was grandfathered in. Be sure, if you allow pets, to be specific about what kind of pets are allowed. Fish tanks can break and ruin flooring, ferret's attract roaches, cats spray, etc.). I won't be allowing any future pets in my building...

This may actually be the most important point. It would appear from my readings that, even if I don't value a lease, people who analyze the property will. If I want to retain full value of my property than I need to maintain a lease for all tenants. Although, to be fair, SFR's value differently than Multi-Family. However, I think the point is still valid.

Brandon W. -- Good point. On that same idea I would mention that my bank wanted copies of all of my leases before they would write the loan. Having tenants under a lease is important if you're trying to sell the property.

From what I understand an RTO contract should be separate from the lease. The tenant should be under a normal lease, for which you could evict, while the RTO contract spells out the terms of purchase. A breach of the lease should trigger a clause in the RTO contract causing forfeiture of any monies applied. Now, this is assuming that the RTO contract was constructed correctly. If it wasn't then you'll probably need to contact an attorney to help you. So, to answer your question, there should be no difference between an RTO eviction and a 'regular' eviction. They should be one and the same. I'll look forward to reading any corrections to my understanding, of course. :)

Brandon W. - I would recommend a new thread if for no other reason than to get more specific answers to your question. I'm no expert and you can probably get some local, more market specific answers to your questions. However, to answer your latest:
Purchase based on what is now. If it's a good buy NOW at current rents, than great. If it's only a good buy after you raise the rents than I think you might be paying too much. Generally you want to see higher cap rates in low-income because they're higher risk. It's all based on market, but I like to see 7.5+% on actual operating expenses. Others will probably have different opinions.

Brandon W. -- My biggest initial concern would be the distance. My units are 45 minutes away and I'm over there every other weekend. My tenants drop their rent in a dropbox and always pay via cash or money order. I'm not sure if I could ever get them to reliably mail me the rent, but I haven't tried yet so that's my fault. You may be driving over there a fair amount, at least in the beginning.

If you can cash flow with a management company than that would be the easiest. Bring them on and, if they're any good, they should bring the rents up and clean the place up. Since you're looking at a 4-unit than you're still residential and not commercial. I may be wrong, but I don't think cash flow plays as big of a part in determining the selling prices as it does with 5+ unit commercial complexes where property valuation is usually determined by cash flow. I don't know so I could be completely wrong. That being said, when it comes time to sell you could unload the management company to try and show as much cash flow as you can to try and increase your selling price.

I don't think you'll be able to get more deposit from existing tenants. There's no incentive for them to give you more money and, honestly, they probably don't have it anyway.

Long story short, a 4-unit building is a good starting point. Make sure you're honest with yourself about the cash flow. There are a lot of costs that you may not think about (extermination fees, trash, water, gas, electric, insurance, etc.) What's you're cap rate on the property off of actual values, not pro-forma (what they claim is market)? While the building may not appraise off of performance, you'll certainly notice if your cap rate is only 2% or less! I've know a few companies who advertise an 8.5% cap rate off of market value, but actual figures show a cap rate of 4%. There's nothing worse than getting into a property and breaking even or worse. I know the tax breaks may make it up to you in the end, but it's nice to have some positive cash flow every month.

Typical property management fee is 10% of gross rent. If they're advertising less, ask why....

I have a section-8 tenant and HUD won't even pay the max allowable rental rate for him. HUD allows for up to $950 +/- in my county for a 2 bedroom, but 'based on a market analysis of my neighborhood' they will only pay $786. I was asking for $800 and they made me lower it, even though his voucher showed he was eligible for more. So, don't think you're going to get the max rate. Ask HUD first.