All Forum Posts by: Daniel B.

Here's another with similar language. This one even goes a step further.

Hi all, we're looking to hire our first management company and are starting to vet some of the options in our area. One area of concern we've come across is the tendency of these companies to include some language in their contracts that would absolve them of any responsibility when acting outside the law. It seems that this would open us up to potential legal issues if the management company were to use discriminatory tenant vetting practices, not following the proper process during an eviction, etc.

I would expect that part of the reason to hire a management company is to have someone that is more familiar with these laws and to ensure that we are not in violation. Is this standard practice or are these guys just trying to see what they can get away with. I doubt we have much ability to push them to change the contract with our single building, but we also don't want to sign something that opens us up to legal action.

Here's a snippet from one of the contracts:

Hi all, we are looking for a dependable, quality management company to help with a few single family properties. We have a really good handy-man who is able to handle all coordination with tenants, maintenance and repairs, so ideally, we are just looking for someone to find and vet tenants, and handle any related activities, but I'd imagine most managements companies want ongoing business. 

Does anyone have any recommendations one way or the other?

Thanks Chris, it sounds like the passive investing strategy may still be an option, but I need to identify which market(s) I'm most interested in and then do some serious diligence finding and vetting potential team members in that area.

Could you share some more info about this or the name of this company?

Yes, I'm definitely open to other markets. I like Atlantic Canada and I'm currently working in the US so that opens some doors here as well. When you invest remotely, do you have anyone helping with locating and purchasing a property other than a realtor?

Thanks for all the suggestions, guys! As is alluded to in this thread, finding a dependable PM is onerous at best and it took me the better part of 3 years to finally build a team I could trust in my local market where I could actually keep an eye on things. I haven't fully abandoned the idea but I'm wary of PMs and wanted to explore other options.

I haven't looked much at commercial so I'm not very familiar with NNN but I will look into them more. I'm more familiar with HML but being familiar and getting involved are two different things. Back to do more research I go!

Hi all, I've been investing in RE for the past 6 years or so. In that time I've done a couple of house hacks, a BRRR, and built up a portfolio of 7 doors. However, these days I'm getting much busier with work and less tolerant of the overhead of dealing with rentals. I've offloaded my existing units with property managers, which works well, but does not help with my desire to continue to do more deals.

In light of that, I'm looking for suggestions on what some options are for more passive investment strategies and peoples' thoughts on them. I've been looking at the possibility of doing a JV, but it seems like being fully passive is potentially legally problematic. Private money lending is another possibility I've considered but it's quite a daunting proposition to find someone I can trust with a large chunk of money. Either of these options still requires quite a bit of work through networking, vetting, etc. Do I have any other options that I haven't thought of? Are these two my best bets? Am I sounding like I should just buy a REIT?

Appreciate any input!
 

Hi Huong, thanks for the reply. 

I target $10k right now because it's a good amount to have to cover any potential unexpected expenses for 4 houses. And just for reference the net rent is around $6000 and positive cashflow is about $1000.

I'm not sure I'm understanding your proposal from a cash damming perspective. My goal is to pay down my personal property mortgage as quickly as possibly at the expense of increasing the mortgage on the rentals. From what I understand cash damming is the method used to achieve this, more specifically by drawing on a LOC to pay for expenses associated with the rental.

Am I misunderstanding something?

Hi all,

I'm trying to implement a cash damming strategy to convert some of my personal property mortgage into tax deductible debt, and I'm looking for some guidance. I have a few rentals that have LOCs associated with them and a personal property which was just purchased and does not have an LOC.

What I do currently:

1. Allocate a bank account from which to pay all expenses associated with the rentals.
2. Deposit all rents into that account and use it to pay rental expenses
3. At the end of the month withdraw whatever money was left over to bring my balance back down to $10k and use that to pay down my personal mortgage.

What I think I should do for cash damming:

1. Allocate a bank account from which to pay all expenses associated with the rental (Done)
2. Deposit all rents into my personal account and use them to pay my personal mortgage
3. At the end of the month transfer whatever money was spent in the rental account back in from my the rental LOC to bring my balance back up to $10k
4. I can now deduct the interest on the LOC which I'm not longer paying on the personal property. Eventually on refinance I roll the LOC into the rental mortgage and the maneuver is complete.
   

My main questions are:

1. Does this make sense? Are there any pitfalls I'm missing?
   
2. My rental chequing account currently has a balance of $10k. Should I cash out this amount and replace it with $10k from the LOC or keep the "clean" cash in there?
3. Is the principle I pay on the rental mortgage considered an eligible "expense" (just like everything else needed to service the rental) that I can use the LOC to pay for and deduct the interest for?

We're looking at out first MFH, a 4-unit residential property that is currently quite under-rented and are having a tough time figuring out what the property is worth. So far we've been dealing in SFH that carry around 6-8% cap rate and have been happy with that but like the idea of have 1 building to maintain and acquiring multiple units in one transaction.

The issue with coming up with a price is that valueing it based on current cap rate with under-market rents is definitely far below what it's worth, but a value based on a cap rate at market rents is also not representative since the building is obviously worth less with it's current income. From speaking to the agent I know they've had offers above what we think it's worth that they have turned down. It may just be that the seller wants too much and there is no solution but I was hoping investors with more experience than myself in this area could provide some insight into how they would value this and how much of a hit to cash flow would be acceptable in exchange for future potential.

The details:

4-unit purpose built building in an average residential area

Cap rates for 1-4 unit properties range from 6-10% depending on quality, location, conforming vs non-conforming etc.

Asking price $520k, dropped from original $550k and has been on market for a few months

Rents are ~$34,000 and should be ~$48,000

Expenses (excluding maintenance) are ~$9,000

- This puts the asking price cap rate at ~4.7% (not including maintenance)

- We estimate that at asking price it would be about -$260/month in cash flow and break even at a PP of ~$450k assuming our typical 10% of rent for maintenance

- We estimate the building would be worth around $530k at market rents

We were thinking the cash flow neutral price would be our best offer, but their indication was that they are looking for close to 500k. The main question we have is how high is it worth going now, and how much negative cash flow should be tolerated (if any) for future upside? At $480 we'd be -$100/month but stand to make ~$50k if we can bring rents up to market value