All Forum Posts by: Kris Fox

I've used TLOxp and had awful results. Maybe 10% of the list I was trying to locate had valid phone numbers.

OK. I was wondering about normal wear and tear as well. Sounds like I replace and move on. Thanks,

Kris

I bought a house and inherited a tenant. They moved there in 2004 and they moved out. The carpets are shot and need to be replaced. I obviously have no idea what the condition of the carpets were when they moved in.  Clearly replacing all of the flooring is going to cost more than their $700 deposit.  I've read in Turner's management book about sending them the letter outlining the return of the deposit and any charges you are levying.  I just want to prepare myself when they argue (and they will) for their deposit.

They've left the rest of the place in clean and good condition. Is there anything else I should know when they call asking why I took all of their deposit?  I'll obviously say the carpets needed to be replaced and what do I say if they say something like "That's how they were when we moved in?"

Thanks for the help.

-Kris

Russell, 

I hadn't considered rent increase law. Thanks for bringing that to my attention. Some quick googling leads me to believe that SC prohibits rent control and is a non-issue.

I agree with you Mike.  Mathematically, it seems to make sense to just say $1,000/mo "take it or leave it", but I'm just trying to see if there's a strategy that allows me to have 0% vacancy by keeping 10-year+ tenants.

I think that anybody facing a $300/mo rent increase psychologically would just say "I'm out of here," whereas a $100/mo rent increase, I'm pretty sure they can get on board with.  There lifestyle will adjust to an additional expense of $100/mo/yr easier than it will be to have an additional $300/mo increase.  My opportunity cost isn't really $700/mo versus $1,000/mo. It's $800/mo versus $1,000/mo. If they don't agree to the $100/mo increase, then of course, I'll renovate and get the $1,000 per month customary for that neighborhood.

The big thing is I don't want to lose the 10-year tenants.

They've all been month-to-month for years.

I've got a package of 3 SFRs under contract.  All 3 tenants have been in the houses for 10+ years and have not seen a rent increase since they moved in.  

Current rent is $700

Market rent is $1000-$1050 after I go in and spend a total of $10,000 between all 3 units on cosmetic stuff. 

From a financial point of view, it seems like a no-brainer to spend $10,000 to increase annual rental income by ($300x12x3 units) = $10,800.  My initial thought before doing this math was to just increase rental income by $100/mo for year 1 and then again for year 2 and again for year 3 until I got to market rent.  

My ultimate question is this...

Do I knock on their doors on the day of closing and present them with the new lease showing a $300/mo rental increase or do I gradually step it up?

Ki Shin is pretty damn sharp!  

@Brian Knox  From what I understand. You don't need a license to manage properties that you own.  Additionally, if you are employed by the company that owns them, you don't need a license. You're just performing services in exchange for a wage that may or may not happen to be 10% of the gross rent.  

Actually, the chance for a cash deal to cash flow is almost always 100%. If you don't have a mortgage payment and even if your expenses add up to 50% of gross rent, you'll still have amazing cash flow. The real metric you need to evaluate is the cash on cash return vs your ROI.

Assuming 100% down payment (e.g. all cash purchase), you would divide your annual net income by your purchase price and the resulting % would be your ROI.

Assuming financing with a down payment, you take your annual net cash flow and divide that by your down payment and your result is your Cash on Cash Return.

I like to go with a hybrid of both.  You have to assign a cost to your money even if it's only for internal metrics.  Whether or not you actually have to borrow money, all money costs something.  If you're using it for an investment, the alternative is to lend it out to get a return.  Let's assume we're all capable of lending at 8%. You have to assign your down payment an interest expense at 8% and subtract that from your cash flow before you get your CoCR.

Good luck!