All Forum Posts by: Ricardo R.

Charis, I have one you can use use/modify, DM me and will try to get it over to you.

@Nkechi Jarvis I'll try to address as many of your questions as possible here goes: 

- Addendum/Amendment regarding utilities: As you mentioned, yes you can add an addendum/amendment to the Lease regarding utilities - The document would have all the utilities i.e. 'water, gas, electricity, waste, etc.' and next to each utility item you would allocate if the Tenant is paying or the Owner (you) are paying the utility, if it is you then next to date you can put a 'maximum' dollar amount you would pay for that utility. For example: Owner will pay for water up $100/mo. after which Tenant is responsible for any additional cost

- Renter's Insurance: Yes it is possible for the Tenant to get MTR renter's insurance through most carriers, require proof of renter's insurance prior to move-in from the Tenant. Renter's insurance is cheap ($100,000 coverage for about $8-$15/mo.) If they decline then it is up to you, but you do decide to move forward you should have them sign another document that states, that you have requested they attain renter's insurance and that they have declined and the are aware that your insurance does not cover their personal belongings or cover them, nor will you or your insurance be cover any cost associated with temporary housing or relocation should your unit become 'uninhabitable' -- Personally, I would just pass on a Tenant that declines to follow your procedures. 

- You should be able to find carriers that do cover MTRs so it would worth looking around. I would focus on the liability side of insurance and you may even get supplemental umbrella insurance to safeguard your liability. 

- Yes, you should do your own background verification of the Tenant, do no rely on ANY background verification, credit reports, etc. provided to you by the Tenant directly or a background verification conducted by another company with no connection to you - different companies focus on different things when conducting verifications - you will be focused on qualifying this person for housing not a new job, which is completely different. 

- For furniture/other items: Make an inventory list and have the Tenant sign it before moving in.

- Yes, you should include all these items in the Lease; You should not accept anything less than a one (1) month deposit, it is your security. For early terminations, you can add that in the lease as well, figure out an 'early termination' fee that makes sense and include it in the lease. 

- Other items: 1) On move-in day do a video walk-through to show the condition of the unit and the inventory (because this is an MTR with inventory this is even more important) and  save it for the future in case of disputes; 2) There are so many things included in a lease and they are all different, so my advice is 'don't assume' it is 'understood' if you are thinking of it or think things should be run a certain way... include it in the lease. For example: Regarding maintenance don't assume the Tenant likely won't call you after 8PM.... include it in the lease and make sure the items are enforceable in escalation instead of just going straight to evictions. For example: Many will put 'No smoking in the unit' in the lease.... Tenant smokes in the unit, you tell them to stop, they don't ... now what?... if the lease doesn't provide a remedy for escalation, then your only 2 options are to, just allow the Tenant to continue smoking in the unit or to evict them, which is costly..... A more suitable enforceable escalation would be 'No smoking in the unit, $200 fee + cost of clean up to Tenant and Landlord retains the option to evict' ... this give you options instead of only having eviction as an option to remedy situations.... your pocket book will thank you, the courts will thank you and the Tenant won't like it but will eventually thank you. 

I really hopes this helps, I have sent you an email and I hope you did find value in this information.

@Dror Brumer thank you for clarifying... okay at the end of the day you know best but least you see where we are trying to go. As far as setting aside maintenance, vacancy, & **Tenant placement costs from your realtor ** ;) (Ex. $7000 realtor fee for 4 year tenant = $146/mo less) ... Just as a rule of thumb 10% of the rent for maintenance and 5% of the rent for vacancy, if CapEx then an additional 10% (I know you're saying you don't have CapEx) ... these are just 'rules of thumb' and are very broad... really as long as you keep them in mind and account for them then I think you should be okay... as far a physically putting it aside, I guess the 'by the book' way would be to put proceeds in an account by itself but really it can be as simple as just making sure you have enough in your bank account and personal finances to cover the costs.

@Dror Brumer I don't think you understand what @Nathan Gesner so kindly laid out for you 'EVEN AT $8,500 you will not be cash-flowing' or at least not as you think and IF... a big IF it does it would certainly not be $800/mo. I understand that the Tenant pays taxes and utilities. What about capital expenses, i.e. roof, windows, flooring, heating and cooling? what about repairs i.e. broken appliances, other items that just run their life etc, etc. etc. ? Lawn? Snow? What about insurance? Here's an example, a stove/oven now I know it's outside the us but a stove/oven lets say is $600 with a life expectancy of 12 years = That's immediately $800/mo less $4-$5/mo. just on this one single item... now maybe you supply appliances, maybe you don't but there are 100's of different items like this... a new roof $12,000 lasts 20 years = $800 less $50.... etc. etc. etc. , which is why that even at $8,500... no, you will not be cash flowing $800.... my guess without having any another additional information is that you cashflow $100-$200 at best... maybe. Anything less in rent and YOU are paying for someone to live in your unit. 

With that out of the way... I get it, some properties may take awhile to cashflow --- after all you don't have to manage it and even if it is a net even or a slight loss it's not detrimental, it may also be going up in value, I don't know. But I do have a few questions for other possible options: 

1 - You said it wasn't meant to be an investment property, why not just sell it? I mean its not like its adding anything to your cashflow... are you planning on moving back into it? 

2 - If market rent is $8,800-$9,000 why then would you rent to the current Tenant at $8,500? --- Why not sign for a 2 year starting at $8,500 and then bump (written in) to $8,800 after one year..... or better yet why not just sign for one (1) year at a time... you didn't share where 'outside the US'  your property is but my guess (at the risk of assuming) its like most universal residential leases and although your lease may say 2, 3 even 20 year residential lease, the Tenant can leave anytime they want and all you'll be able to keep is the security deposit as anything after that will not be allowed by law or to expensive to try to collect - so again why not just do 1 year leases and renew every year so that you are able to adjust and get yourself out of this 'investments' red zone and start cash flowing in a healthy way?

@Tim Windhorst sorry to hear you are in this situation, answers to your questions: 

- Yes, you should be concerned after all you may have an extremely high or higher that usually utility bill and water is not very kind to most kinds of construction if this is a leak.

- We have dealt with high water bills previously as in 'sudden jumps' in water usage, but all of our experiences have been traced back to the Tenant either utilizing more water, weather related or a case in which a Tenant has allowed another occupant to occupy the premises. All of our outcomes after checking up on them were dealt without much hassle. We did have a main water well pipe burst but were alerted almost immediately via the Tenant and neighbors and took care of it accordingly.

- Who is responsible well it depends? It depends on 2 factors 1) what does the lease say as to who is responsible for water and 2) when did the Tenant move-in, in correlation to what the billing period is for. It could be a bad meter. The easiest and most logical step for you to take is to schedule an inspection with the Tenant to enter the unit and then check on the meter, you'll be able to quickly notice if the meter is not acting in sync with the current water usage inside the unit during your visit; of special note this could be classified as an 'emergency' and thus depending your State you may be able to access the unit immediately and without notice to address this emergency but check your State laws. Aside from a broken meter, it could be possible that someone (likely a neighbor) is 'stealing' water from you i.e. via a hose, underground connection etc. 

Hope this helps.

Not its not too late, until possession is delivered (key turned over) you can revoke your offer. 

@Chi Sastry…. Geez Chi I think you’re a little late in trying to figure out if you’re self managing or if you’re going to use a professional PMC… it should have been something you should have researched BEFORE you made your purchase… but what’s done for now is done. The problem is MOST landlords ‘investors’ is that they forget to realistically account for property management within the numbers and then when trying to hire a PMC complain about the fees.

I highly recommend you hire a PMC and save yourself the frustration… sure you can try to manage it yourself but things are easy when they go smoothly but not so much when they don’t and then end up being horrid stories which then becomes an ‘investor’ seeking property management advice for a ‘situation’ on BP.

A PMC is a service similar to your mowing company… can you cut the lawn yourself… sure… but is it really worth your time? After all your landscaper already has all the equipment, has more experience and can do it faster and better than you on a consistent basis. Also as a side note you would end up paying more per month for weekly mowing if someone just mowed your lawn about 30mins. than you would probably end paying your property manager which is on call pretty much everyday and handles many, many, many, many many services/issues/tasks on your behalf and for your property… just food for thought when taking about PM rates.

@Bruce Woodruff for sure, that's definitely one of endless the options available to the Seller at an ask of that much of a discount. 

@Jason Warner yeah sounds like a bad appraisal. You should order another appraisal. The Seller wants $260k - they paid $220k highly unlikely, not impossible but highly unlikely that the Seller will go even below $220k with you. I mean everyone saying $140k is your new negotiation point is delusional. Put yourself in the Sellers shoes… if a buyer is wanting a $120k discount and screaming at the top of their lungs that that’s what it’s worth… wouldn’t you as a Seller just then take the chance and let you go on your merry way and immediately drop the price by $5k, $10k heck even $30k ? Their agent would surely advise them to and I would advise them to do that as well as their agent.

A low appraisal can be a negotiation tool but a bad appraisal such as this…. is worthless because you both know it’s worth more. You obviously know it’s a low appraisal and you are obviously okay with paying $260k for the property, now I’m not saying to massively overpay for the thing but how would you feel if the Seller just laughed at your counter of $140k and instead just dropped the price to $239k and it flew off the shelf? Because I’m telling you that’s exactly what will happen, heck the Seller might not even get any bites at $239k and may drop it again… what I’m saying is that there many many many more stops and options to the seller before they just hand a $140k discount… but hey I’m just a guy and anything’s possible.

 @Blake Ramsey okay I understand. That's a tough question and is HIGHLY dependent on your personal profile, your views, your goals, etc. etc. and you will probably get 101 different responses if you asked 100 investors the same question. Personally, I shoot for $300/min. in cash-flow and a CoC return of 10%+ but I invest in better quality properties and in better areas (B+ - A) but even this has changed; when I started out I looked for $200/min. with a Coc return of 15%+ which that alone highlights that 1) it was earlier in my investing and my criteria and goals have changed; 2) it was different market with different numbers and opportunities --- Cashflow and ROI are also highly dependent on the property and neighborhood class you're going for but as a rule of thumb in my experience they tend to be on a seesaw in the first few years for purchase. For example 1: All things being equal, I would expect a property (SFR) with high cashflow to have a lower ROI either because of a bigger down payment, higher purchase amount or higher quality property/neighborhood and a property with a high ROI to have lower cashflow either because of lower down payment or distressed property/neighborhood BUT that is my experience in MY area. A few other examples:

You can get 30%+ ROI CoC but if the cashflow is $50/mo. , as is usually the case with distressed properties/neighborhoods (D & warzone), then yes you are getting a high ROI and 'beating other traditional investments' but $50/mo. doesn't really leave you much room for error or the occasional overlooked CapEx or eviction -- nor does it factor that your true and economic vacancy on lower class properties/neighborhoods are much higher and in reality and in practice are a liability even though on paper they look like an asset.  -- BUT if your goal is to get # of properties under belt and 'stretch' your $ then yes it does make sense if you're that type of investor -- remember I did say these are usually the #'s in the first few years after purchase. 

You can get $1,000/mo. in cash flow but if your ROI is 3%, you are cash-flowing well but does it make sense considering you can likely make more by investing in other more traditional investments which do not require such a hands on approach (stocks, mutual funds, etc. etc.) I notice this in more higher quality rentals and neighborhoods -- BUT if you goal is to increase cash-flow regardless of ROI then yes it does make sense.

This is just the tip of iceberg, and it is all dependent on what you are trying to achieve. Personally, I find a middle ground, I do not invest in D or warzone properties/areas no matter what the price or ROI and I do not buy expensive non-cookie cutter properties which have a lower ROI than the stock market - I invest in properties/areas that are cookie cutter 'middle class American dreams' which will appeal to most, I want to have enough cash flow to leave room for error and to make a personal finance difference but not too much that it will suck up my $ on the buy in. Same with ROI I want to beat the market for sure but not so much that I'm over leveraged and put in a dangerous position, at the risk of redundancy -- at the initial purchase phase.