All Forum Posts by: Eric Bate

@Isaac Kuehn

I want to stress something that hasn't come up yet except in passing.  If you take out student loans to get your finance degree, those work against you in qualifying for a mortgage loan.  Even before you have to start paying them back, banks will count them against your income, and sometimes a lot more heavily than they should.  They're trying to play it safe.

Before you go to college, shop around for the cheapest possible way to get your degree.  Maybe take a bunch of your general education requirements at a community college and transfer them in.  Also, hunt for scholarships.  Do your best to keep your costs down.  The best way would be to just not go, and work instead.  Landlording doesn't require a college degree, and it sounds like that's what you ultimately want to be doing.

Main point: going to college can make it harder to invest in real estate.

Epilogue: The deal is done.  We moved the date to Oct 3rd, by which time the tenants would be gone, and I signed an as-is addendum.  I did my final walk-through on the 2nd, and I was super impressed with the condition they left it in.  Lawn was mowed... lawn mower was left behind for me.  Floors were swept, fridges scrubbed down.  I needed to replace a flapper and chain on one toilet, I rekeyed the locks, and I'll need one light bulb.  Other than that, the upper unit is ready to go.

Thanks for the advice, you guys!  I'm pretty excited about having done my first deal right now.

Just got a text from my realtor: "Oct 3rd..both leaving".

I'm happy with that.  So long as it comes true, of course.  I cooled off since my first posts, and didn't issue that list of concessions.  The sellers are getting their tenants out, and I'm getting the property, and that's all I really want.  The nickel-and-dime thing I was about to do, in retrospect would have been tripping over pennies on the way to dollars.

@JD Martin Oof!  Thanks for the warning on that.

I think I've got my list of concessions:

*I'll wait to close on the property until the tenants are out.

*Holding costs (e.g. taxes) will become my responsibility only after closing.

*However, I'll ask that the rental income will be mine after 9/20, instead of when we actually close.

*Sellers will pay any fees associated with extending the closing date.

*Lower the selling price by $500 (the cost for me to pay rent for another month).

*AND Cancel the addendum that I signed saying that if I can't close, they keep my earnest money check.  (This was a concession I made in order to get the closing date moved from 9/1).

Does this sound reasonable and doable?  I'd much rather have the tenants out than get these concessions, though.

@Shane Hedeen Will do.  The lower was on a month-to-month lease, separate from the upper, and our original closing date was September 1st.  I had to push the closing back to accommodate the LIFT downpayment assistance program.  So the sellers should have had plenty of time to work this out, yet they've only brought this up now.

I do have copies of their leases, and I spoke with the tenants after the inspection period.  They had said they knew the house was for sale when they moved in, and were planning on moving out when it sold.

***** So what I'm wondering is this...

Let's say I wait to close until they're gone.  In the meantime, I'm still paying rent at my apartment (almost $500/mo), yet the rent paid by the sellers' renters would still be going to the sellers --- I only get the rent money prorated from when I close.  And once they're finally gone, it'll take me some time to re-rent it (roommate in the lower, eventually new tenants in the upper) --- which will be difficult after October.  That's a lot of money lost, by fault of the sellers.  I also need to owner-occupy one of the units to qualify for the $7,500 downpayment assistance I'm getting.  So I need them gone; it was the sellers' responsibility to get that done; and it's gonna cost me a lot of money because they didn't.

I think my strategy here will be to wait to close until they vacate, but ask them to make a concession on their selling price to reflect the costs I'm incurring.  The question is then, "how much?"

Found it! Alright, so the PA states that the lower unit will be vacant by the day of closing. The upper can stay. Their lease is up at the end of October. I'd like them gone ASAP, though, so I can repair and raise the rents, and get it turned over before winter. Right now they upper pays $700/mo for a 2/1 unit which should be able to fetch closer to $1000. The upper and lower are occupied by the same family — aunt in the lower, nephew in the upper. So at the moment, they seem to be using it more like a big SFR.

I'm set to close on my first property on the 20th.  It'll be a house hack duplex in St Paul, MN.  Just a few hours ago my realtor called me to say there was a problem: the renters want to stay.  It seems that the sellers (there's six of 'em, btw) are having trouble getting them out.  Maybe they didn't give the renters notice because they didn't want the vacancy if I didn't close.  I'm mostly guessing on that.

So, what should I do?  Minnesota seems to be a tenant-friendly state, so eviction could be costly if I close and then have to evict.  (Could somebody throw me a ballpark figure on that?)  Do I close, and then sue for damages (is this even possible)?  Do I wait until the sellers handle it, however long it takes?

My plan was to close on the 20th, and then move in during the first week of October.  I'll occupy the lower, do some work on the upper, and then get it rented ASAP, hopefully yet in October.

Thanks guys,

Eric

 Whoa nelly, slow the cart down!  Cash on cash is simple, but it's not quite that simple.  With what you're telling us here, you only need to put down the downpayment, and then all the other costs will take care of themselves, with the rent being pure profit.  You didn't factor in the cost of your mortgage, tax, insurance, the water and trash, gas, electric, repairs, maintenance, capital expenses (because eventually the water heater and the roof will go), and vacancy for when the other unit is empty.  Some people even factor in the eventual cost of hiring a property manager.

Look around on the site to read up on calculating cap rate and cash of cash return.  Somewhere around here there's a video of Brandon demonstrating the BP Rental Property Calculator, which goes through this stuff.

Interesting idea!  Thanks for sharing it with me.  For the moment, though, I definitely want to start house hacking to get that $955/mo rent down to as close to zero as possible.

@David Oldenburg Thanks, David!  I wish I could take full credit for the amount I've got stashed away, but it was a life insurance payout from when my grandmother died.  I'm just doing my best to invest it wisely, because I know how hard it will be for me to build that capital back up again if I blow it.