All Forum Posts by: Shawn Davis

@Brad France - I would love to attend the Lake Oswego meet-up on Aug. 18.

I Look forward to meeting other BPrs!

@Dave Foster - Well luckily I did understand the most basic rule and purchased the replacement property at more or less the same price as the relinquished property.  I just forgot to figure in the value of depreciation recapture and include it in my gains (So basically, I should have purchased a property that cost significantly more than the relinquished property.). The silver lining is that I won't be making that mistake again, that's for sure!  Live and learn...

Hi Chantz - When you purchase a tenanted property you basically assume the lease agreements currently in place.  You will want to read these carefully as they will govern until you can legally make the changes you are hoping to make.  In Oregon, I would need to give at least 30 days notice of a rent increase on a month to month lease if the tenant had been there for less than a year.  If they have lived there for a year and one day or more you must give at least 60 days.  Washington may be different so make sure you read up on this and understand it before you do anything.  In Oregon the notice requirements to terminate a month to month tenancy are similar to the above.  If you are buying this property from your father, perhaps he would agree to post the rent increases now ow so you don't have to wait as long after you own the property.

I wholeheartedly agree with the other posters that say that if there is a tenant with a history of late payments, lease violations etc., choose that unit to live in if you must live in a unit.  My concern for you is that you say you need the rents to increase by $150.00 (total? Per unit?) to be able to make the mortgage payments.  Your costs on this tri-plex will include many expenses on top of the mortgage (taxes, insurance, any utilities you are responsible for, repairs, capital improvements, unit turnover etc.,).  If you were hoping to pay these with your  "some extra" after raising the rents and paying your mortgage, I think you might find yourself in trouble right out of the gate.  You can read a lot about the "50% rule" here on BP, but it basically says that over time, your monthly expenses on a rental property will be about half of the total rents you collect.  This does NOT include the cost of your debt service (mortgage payment) - that comes out of the remaining half.

If you have all that factored in and you are moving forward I would do some research on Craigslist and any other rental sights that are used in your area.  Do a search with the number of beds/baths of your units and put in a ceiling rent that is the rent you hope to charge after the increase.  Now look at the pics and area and amenities and compare them to yours because this is very likely what your tenants will do as soon as they receive the rent increase.  If there aren't many units available below that price or they are not as nice as yours, your tenants will see this too.  If there is a lot for rent at that price and they are nicer than your place, you will probably lose tenants.  Vacancies really impact your bottom line but you also need to keep rents close to market or you lose that way too.  The trick is to know your market so you know how much you can push rents without going too far.  $150 below market is a lot!  

If it were me I would immediately increase all the rents to the amount that the market told me was appropriate.  I would give a 60 day notice even if I could legally give a 30 notice because with that kind of a raise I think it best practice to give them time to restructure their budget AND it gives them time to look around and learn that even at the new rent, they are getting a good deal.  If you only give 30 days, many tenants have a knee jerk reaction and give their 30 days notice to you that they are moving.  I have seen it happen where they do this and then look around for another apartment and realize too late that they were getting a good deal.  Now you (hopefully) already have another tenant lined up and will incur the cost of a turnover that you could have avoided. 

I would be hoping to keep all the good tenants at the new rate but I would be prepared to invest in a proper turnover if they left.  If you don't have the funds to do what is necessary to attract new renters at the new rate (new carpet, fresh paint etc.,) you might have to play it a little different.  You will have turnover costs and if you have to wait to do the work while you save the money the vacancy will kill the whole increase and then some... Another option would be to give a 60, 90, 120 day notice of rent increase where you are basically increasing it $50 each time but tell them about it all up front.  This is irritating to renters but it might space out any attrition you get...

Good Luck!

Hi Thomas @John Thedford is right that you should call around.  I use an intermediary that gets nothing unless the 1031 is completed.  Getting my money back is a matter of signing a notice of termination and waiting the 3-5 business days to get my money.

Since you seem new at this I will share a huge mistake I made with my first 1031.  I had held the property for over 14 years so had been depreciating the asset for all that time.  I had both a CPA at the time and the 1031 intermediary and both were aware that I was doing the 1031 but neither pointed out to me that my capital gains for the purpose of the 1031 (and for determining debt to value ratios on your replacement property) will include the obvious capital gains (i.e., you bought the property for $100,000 and sold it for $200,000 so $100,000 capital gain right?) but also you have to add back in the amount that you depreciated as well so if you have held the property a long time like I did this can be quite a bit.  In my case what I thought was a $100,000 gain was in fact (for tax purposes) a $180,000 gain.  Unfortunately, my replacement property was based on the $100,000 gain and the remaining $80,000 was treated by the IRS as if I had received it in cash at the closing of the relinquished property.  Ouch!  The added bummer was that I bought other properties during the time frame for the 1031 and had I understood the above, I would have gladly rolled that recapture amount into a new property.

Another thing to consider if you are worried about the time frame to identify and find the new property is to see if your buyer will work with you to delay closing.  Of course, that has its own risks but if the deal is good and you aren't worried they will close maybe you could put it out an extra 30 days or so to give you a little more time and then start looking immediately.

Finally, I'm sure you know this but the intermediary must be involved before and at the closing on the relinquished property as the proceeds from the sale cannot "flow through" you or your bank accounts for even a nanno-second...

Good Luck!

Hi Malgorzata - I see that you are focused on the owners in your building but don't overlook the renters as potential purchasers.  Renters have seen the reality of having their rents increase dramatically over the last few years and are looking for ways to regain control.  Drop your letters with the current residents and post the info on the lobby bulletin board if there is one.  My last two sales (in Chicago actually) were to my long term tenants.

Much success!

@Shiddharth Shastri

I would be up for a Portland meet-up.  Let me know if you get some interest.

Thanks!

-Shawn

As part of my Lease with a tenant, I require that they provide me with a good e-mail address and cell phone number as well as indicate weather they agree to accept texts on that number.  They are further required to notify me of any changes to this contact information.  I provide them with the same contact information for me.  Lately I have been thinking how much easier it would be to provide notices by e-mail and text rather than posting on the unit door and snail-mail.  I also believe this gives me an added protection of an electronic "date/time stamp" in proving that notices were made timely.  

The laws in Oregon where I have the majority of my properties talk about personal service (posting) and mail which seems outdated to me but of course, I always want to be compliant.  My question is, if I made the acceptance of service by e-mail and text a part of my lease, and agreed to take my written notices from tenants the same way, would this be sufficient to enforce the content of the notices?  Has anyone done this?  Does anyone see a downside to it?  

It seems to me that the chances of someone "missing" a notice posted on their door or by USPS are much greater than them missing anything that comes through on their phone...

Is anyone doing this?  Does anyone own property in a jurisdiction that expressly allows this as an acceptable form of 'Notice"?

Thanks!

@Jay Hinrichs. Thank you for sharing this.  I have been doing what your friend did for years.  Have been repeatedly assured by my bank that there is no risk to giving this number out and businesses do it all the time.  Of course, during these conversations, both the bank and I were focused on security of the monies in the account.  Never crossed my mind about this scenario.  Luckily, I have never had to evict but just "dodged a bullet" on a tenant I inherited with a purchase.  Could have so easily found myself slogging through the eviction process.   Really made me take another hard look at my "systems" Because it was clear I was dealing with a tenant who was extremely knowledgeable about the system and not in the "I don't want to be taken advantage of by my landlord" kind of way but more in the "I want to take advantage of my landlord" kind of way.  Still, I didn't forsee the scenario you describe.

Guess I will have to find a better way going forward...

So, is anyone aware of a low/no fee service that would allow for direct payments but avoid the aggravating scenario @Jay Hinrichs described?  

@Rob Golob and @Bradley Behr  - Thanks for the Cobra info and the "neat little trick".  We will likely be taking COBRA initially but as you know, it doesn't last forever so just trying to get a sense of what we will be facing after COBRA ends before we jump ship.  Thanks again for taking the time to repond!

@Lisa Thoele - Thanks for that practical information.  Is an HSA the same thing as a medical savings account?  Do you have yours set up in a self directed vehicle?  Finally, do you have any prescription coverage through your HSA.  This is one of those subjects that I just have not had occasion to think about prior to now.   I'm sure I'm not using all the right terminology, so please excuse my clumsiness:-)

Hi Sergiu - In my opinion the two most important things for you to do are to see the documents for yourself (BOTH leases, the 60 day notice to vacate,and any check-in sheets, as well as your HUD 1 (lenders docs to see what credits (i.e., security deposits, tax pro-ration, rent pro-ration etc.,). Your realtor should be able to go over each of these with you so you are comfortable. Any lingering questions you could think about contacting an attorney.

The second thing is that you need to know what you want going forward and then line your ducks up to get it.  You say that you want the tenants to sign a lease with you and also that the current seller said he could write up a lease and have the tenants sign.  If this is the case (maybe that was their deal), for the tenant you want to keep, why not give seller the copy of the lease that you want the tenant to sign?  That way you don't have to go through it all a second time.  If you want to raise rent, you will have to adhere to the statutory notice provisions.

By the way, the Oregon Rental Housing Association is a great group for landlords.  They have some great tools for landlords including two references that I use all the time.  The first is a book of Forms (leases, notices, applications etc.,) and the second is a Law Book which sets forth many of the pertinent laws applying to rentals in an easy to use manner.  I hope I'm not goofing up by giving this information to you here and not the marketplace.  I don't make any money or profit in any way from the sale of these books but have found them to be an invaluable tool.

Anyway, good luck to you!