All Forum Posts by: Dean Valadez

Thanks for replying. The current rents are $1150. 
Even if you feel that I should only increase rents, is it still legally acceptable to also start charging for pet fees?

Hello. I purchased a quad plex last October of 2023 and inherited 3 leases. One unit was vacant and I was able to fill it fairly quickly. Of the 3 inherited leases, the tenants were not asked to pay a pet rent for their cats, nor a pet deposit. Two units have two cats, and one unit has 1 cat, thus, there are 5 cats total where I am not collecting pet rent. Those 3 tenants have lease renewals coming up. Can I start charging for their cats with the new leases/renewals? Also, can I collect a pet deposit?

Additonally, the rents are very much under market and so I plan on raising the rents $75-100 (and they will still be under market by about $100-150 even after the increase). I also pay for utilities for two units since they are not on separate meters.

My additional question is: can I/should I raise the rents the $75-100 I would like to, ask for a pet rent, possibly ask for a pet deposit, and then also charge a flat fee for utilities for the 2 units I pay electric and gas for? If I did, all the above, 2 tenants will end up paying nearly $200 more per month, not including a possible pet deposit. Is this wise, or should I take a different strategy?

When I use Rentometer, the rents are $250-300 under market. When I look at Zillow, the rents are about $200-300 under market, for comparable quality units. What do you all think?

Thank you, Aaron. This is the type of response I was looking for - some sort of explanation as to why my property was being denied coverage. 

I have received other quotes for insurance and they were able to go with a replacement cost closer to, but still above, the property value (thus, way under the $2M evaluation). I would truly appreciate another option if you have one or a local agent referral as you mentioned.

Please have someone reach out to me via email or phone

Quote from @Aaron Letzeiser:

Quote from @Dean Valadez:

I reached out to Obie for a quote and this is the response I received via email:

"We’ve heard back from all our markets and unfortunately, we do not have a market available for your property at this time. If that changes, we will let you know. We appreciate you giving us the opportunity to review your property.

Best regards,"

I replied back asking for more specifics, wondering if it is the Milwaukee market, the Wisconsin market, the multi-family market, or the property itself, and I got crickets....

At the very least, I should get better customer service explaining why. Unresponsive customer service leads to not reaching out to Obie again in the future for other rental acquisitions. Has anyone else received this type of response from Obie?

@Aaron Letzeiser

 Dean -- thanks for the feedback. Totally valid question and I'd be looking for a response if I were you as well. That would at least give you the context as well around what our reps mean by "markets".

I see that you sent in the question Wednesday evening this week so I'll check if that rep was our yesterday and will also have them follow up today. 

As for your property, two main items that came up:
1. It's over 130 years old (1888). This isn't always a deal breaker, although many carriers tap out at 100 years old even with updates.

2. The replacement cost (cost to rebuild, not the value of the property) data providers are pegging the quadplex at close to $2M and most 1-4 unit rental property insurance programs tap out at $1-1.5M before you'd end up in a commercial insurance product. At the submitted square footage you provided, that $2M seems wildly out of whack. It doesn't happen often, but there are times when the data providers screw up a variable and suddenly they think your place is built with imported Italian marble and golden fixtures.

Nonetheless, I appreciate the feedback. I'm going to get with the sales rep and look into this further to see if there's any other option available or if we can make a referral to a local agent in your area that might be better positioned to assist.

-Aaron

I reached out to Obie for a quote and this is the response I received via email:

"We’ve heard back from all our markets and unfortunately, we do not have a market available for your property at this time. If that changes, we will let you know. We appreciate you giving us the opportunity to review your property.

Best regards,"

I replied back asking for more specifics, wondering if it is the Milwaukee market, the Wisconsin market, the multi-family market, or the property itself, and I got crickets....

At the very least, I should get better customer service explaining why. Unresponsive customer service leads to not reaching out to Obie again in the future for other rental acquisitions. Has anyone else received this type of response from Obie?

@Aaron Letzeiser

Quote from @Joe Garretson:

Quote from @Dean Valadez:

I'd like to flip this topic to the other end of the spectrum and ask about paying for a property all cash to avoid the high interest and to get better cash flow. It's not through a 1031, but if I would have the financial means to buy with all cash, is that a wise strategy in this higher interest rate environment? The property, with an all-cash offer, could get a Cap Rate of 8.3%, a COC ROI of about 5.99%, and would cash flow well enough with about $415 per unit. I am new to this field and am looking for insight from experienced investors. I would prefer a higher COCR and a higher cash flow per unit, but the rents are under market and I can slowly raise them to get to market value. By year 2 or the start of year 3, I would imagine the rents would get to market value and then my COCR would be at 7% and cash flow would be $490 per unit.

Are these numbers appropriate for having no mortgage? Also, would it be better to take that cash and purchase 2 or 3 smaller properties, forcing me to take out loans for those 2 or 3, paying for the high interest and having low cash flow? Advice is welcome!

 This is a math problem for me. A 6% return is where you start. Let's assume for numbers sake you've got that $100k sitting in the bank. Are you earning 6% on it? Probably not. You could invest in stocks and potentially earn more than 6%. This comes with zero control other than what you buy so the risk is growing. You could buy the property you mentioned and earn 6%. You have greater control, the ability to increase rents, the tax benefits, the appreciation potential. So some risk but much greater upside in terms of control. You can always go get a mortgage when rates come down so you're playing arbitrage with the interest. If you're earning 7-8% but your mortgage is less than that, what could you do with the cash you received from the mortgage? Spin it into more properties? 

The tl:dr is buy those properties with the cash and it opens up a ton of options. It's absolutely better than what you have it invested in now. In my opinion anyway.

You confirmed what I was thinking. Yes, I can put more money into stocks and get at or slightly above that 6%, and in the long term, possibly get even more when the market gets better. But my money in the stock market stays in the stock market and would not be used for re-investing into real estate (unless I pulled it out of course). Having said that, I know my COCR will grow into 7%, then 7.5, then 8, etc in an all-cash property purchase, with more controllables, and allow me to do a cash-out refi later when the rates come back to 6%, 5.5%, or maybe lower. Thus, ultimately, I would have mortgage on the property, but mainly when the rates drop so that I could enjoy the higher cash flow now.

Any other thoughts out there on this? Where are my flaws in my thinking, or possible scenarios I am overlooking?

I'd like to flip this topic to the other end of the spectrum and ask about paying for a property all cash to avoid the high interest and to get better cash flow. It's not through a 1031, but if I would have the financial means to buy with all cash, is that a wise strategy in this higher interest rate environment? The property, with an all-cash offer, could get a Cap Rate of 8.3%, a COC ROI of about 5.99%, and would cash flow well enough with about $415 per unit. I am new to this field and am looking for insight from experienced investors. I would prefer a higher COCR and a higher cash flow per unit, but the rents are under market and I can slowly raise them to get to market value. By year 2 or the start of year 3, I would imagine the rents would get to market value and then my COCR would be at 7% and cash flow would be $490 per unit.

Are these numbers appropriate for having no mortgage? Also, would it be better to take that cash and purchase 2 or 3 smaller properties, forcing me to take out loans for those 2 or 3, paying for the high interest and having low cash flow? Advice is welcome!

Quote from @Greg Scott:

Can you get a commercial loan without a W2?  Absolutely.  However, the bank will want to see you have a strong balance sheet or a strong track record of managing properties, or both. 

What if you quit your job, buy an apartment, and then find you hate running an apartment (and aren't particularly good at it)?  That is crash and burn, life in the toilet sort of problem.

I'd find a bridging strategy.  One is to get a different job, even at lower pay.  If it has more time flexibility that is a huge help.  Build some experience in real estate investing.  Build a track record.  Know what you are getting into.  Every step in that direction takes you closer to your goal without the "going down in flames" risk.

Great points, Scott. I’ve had a touch of property managing experiences and know what to expect. I’ve just never owned. I get what you mean. 
Regarding the bridging strategy, that is something I considered even if it was a part-time job. I wanted to post this question to see if I could avoid that since I’d rather put full-time focus into real estate. 

i appreciate your response. In this high interest rate market, it may be tougher to find properties that cash flow well, thus I may need to find a part-time gig. 

Quote from @Justin Moy:

Yes you can, but will have to make up for it in other areas like liquidity or net worth requirements. Also to make up for not having owned real estate investments in the past. 

You could look to partner with someone who can help sign the loan for you and possibly help with operations of the property as well, or if you have significant net worth and liquidity they may overlook the lack of experience and no regular income coming in. 

Overall the lender will look to dilute it's risk. Another factor could be a smoking hot deal you're getting. If they feel the deal is very good or priced very well and in a great market, that will also help. 

Having no W2 income or real estate investing experience are factors of risk, so they'll look for other things to help balance out that risk.

Thanks, Justin. 

 I should mention that my wife has had a consistent job for a significant amount of time. Would this play a factor?

By liquidity and net worth, I assume that means the lender would ask for my list is assets and I would need to supply statements to prove such. Is this correct?

 Hey Dean, 

Are you currently renting? If you can show 12 months of consistent rental payments to verify that you won't live in the investment purchase, you can qualify for a handful of loans. The rate will be high given that you'd be an inexperienced investor, but if you have the downpayment, you qualify

Hi Erik
My wife and I are currently paying a mortgage on our first home, which we have lived at for 16 years. What might the average rate be for someone in my situation: inexperienced, no W2, no rental/business history?

I am looking to leave my W2 because it is an extremely intense and unhealthy work environment. I would like to get into the real estate industry, don't have any properties yet (so no rental history), have enough capital for a good downpayment for even as large as a 16-24 unit (although I don't know if I will go that big right away), but am concerned that not having a W2 will prevent me from getting a commercial loan. I know a lack of W2 will prevent me from getting a residential loan for smaller rental properties (unless someone has a suggestion), but I do not know about the ins and outs of commercial loans. My credit score is typically in the mid-800's and I have a long, solid work history in the W2 world. Any one have suggestions or answers? Thank you