All Forum Posts by: Cory O'Dell

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

6 bed 2 bath, 2062 square feet side-by-side duplex built in 1920 and updated in 2011. Two inherited tenants, one side paying $500 for a 2 bed 1 bath and the other paying $550 for 3 bed 1 bath. Current market values for 2 bed are around $600-$650 and 3 bed roughly $100 more. The property was very poorly managed before...the tenants moved in with trash in the yard, things broken inside, and the leases are pretty subpar (one doesn't even define the term!). To us, it's an opportunity for value-add.

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

We've always wanted our focus to be small multifamily properties, but we were previously unable to find one where the numbers work in the area we want.

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

This duplex had been on the MLS for 6 months (overpriced at $85k), and finally went under contract in February of this year. In March, it came back on the market but at a lower price. The new price was still over what we believed we could pay for it, so we simply offered a little below what what would work for us. A couple counter offers later and we had it under contract for $72,500.

How did you finance this deal?

Conventional financing with 75% LTV, 30 year amortization at 4.99%.

How did you add value to the deal?

This is still ongoing. As we introduced ourselves to the new tenants and began "training" them on our way of doing business, the tenants were mostly just glad they had a new landlord that cared about the property. When these tenants leave, we will do some minor rehab and re-rent it at market value. The "bones" of the house were updated in 2011, but cosmetically it could use some TLC.

What was the outcome?

Current cash flow after mortgage (and setting aside 25% for management/maintenance/vacancy/repair/cap-ex etc) is about $260 per month. When we have tenant turnover and can update and increase to market rents, we estimate between $400-$450 after accounting for everything listed previously.

$300 since last October? Doesn't sound too bad to me.

If he or she is a good tenant and you want to keep them in the property, offer to pay for the fans if they pay for the install (or vice versa) with the condition of signing a longer lease, say another 2 or 3 years. Then it's a win-win, the tenants feels their input was valued AND you even offered to pay for some of it...what a great landlord! And on your side, you get a good tenant secured long term. 

Originally posted by @Nathan Gesner:

If there's no defined termination date then you should consider it a month-to-month lease. Give the tenant 30 days notice of any pending changes and move forward.

 Thanks for the input. 

I think it really depends on the state. As Jill said, in Ohio that would not work and you'd have grounds to evict for not paying rent.

We just purchased a duplex, and on one side the lease term is NOT defined. It states the day the lease was created, but not for how long or when it expires. It does include a canned statement about month to month at the end of the lease, but no actual term is defined. It looks to be a mistake and we just didn’t catch it until now. The other side lease is fine. Both sides the tenants are paying under market rent by about 15-20%. We did do an Estoppel and the tenant believes he’s on a year long lease from Dec 1 2018 to Dec 1 2019. It may be worth noting for this discussion that the tenants are related, it’s the younger son and wife on one side and the mom on the other. The lease also does not define who actually lives there, in fact it doesn’t even say tenant name until the signature block. The seller didn’t seem to care when we asked about who all resides in the units.

From my perspective, there are a few options at this point. We could be jerks and just say screw this guy and immediately not renew his lease (30 day notice etc) in order to get a tenant in paying market rent ASAP. It may be more complicated since his mom is in the other unit though. We could immediately raise the rent to market value and if he decides to stay, great, and if not we find a new tenant anyway. We could do an amendment to current lease and fix the term. We could sign him into our own lease and do a normal year term after our screening. We could continue on month to month and see how he actually is as a tenant and if he struggles to pay rent or adhere to his lease, then not renew and raise rent with next tenant. It seems we have a few options.

What would you do? Either way, we want to be honest in the situation and tell him that he actually didn’t sign a year long term like he thought, but we want to have a way forward when it comes to that conversation.

Originally posted by @Seth M. Jones:

@Cory O'Dell, love the approach... I've always thought about doing it the reverse way. Build a base with Real Estate, and establish a strong, reliable passive income stream then add in additional asset classes as I grow my wealth to further diversify and add truly passive income

Exactly, multiple streams of income. We likely would have done it the way you presented, but we didn't really learn about the real estate option until last year. In totality, we're considering our 401/IRAs as our 60+ retirement plan and our rentals as income to get us through the early retirement phase starting around 40. I think many chasing FIRE forget that standard retirement is still included in early retirement plan. So for us, our goal is to pay off 7 or 8 rental properties in the next 10-15 years, and that income will give us about $50k to live on until standard retirement age where the rest of the portfolio can take over. By that point we could always sell the properties if we wanted to be totally hands off too, but there's certainly some flexibility built in.

Up until last year we were 100% stocks (we're young, send it). Now we're about 55% real estate and 45% stocks. We'll slowly shift to incorporate some bonds over the next decade to "smooth the ride", but otherwise we're staying all index funds and rentals.

Honestly? Just hard work combined with diligent saving and time. Cutting out frivolous expenses and redefining what "need" means allowed us to go from saving maybe 10-15% of our income to 40-50% each month. Then we used that money for down payments. The downside to this strategy is it can take significant time to accrue a decent portfolio of rental properties. So to mitigate that you can "re-use" your money by using the BRRRR strategy.

When your spending is in alignment with your values and your goals, it doesn't feel like sacrifice!