All Forum Posts by: Gabe N.

A good friend of mine and I were having a very interesting discussion on the real estate market here in Alaska. His premise is that the recession up here is going to cause such a contraction in prices on multifamily property that pricing is going to drop 15-25% in the next two years. Personally I am a little more optimistic and I would be surprised if prices drop more than 10%. I also just bought a 4 plex because of my optimism and he thinks that was a foolish move and he is waiting until the market hits the bottom before buying. 

Anyway, what is everybody's prediction of our market? How low is it going to go before rebounding?

Thanks everybody for all the great input! My first instinct is to be tough on them and "train them early and often" as I've seen it said on here but you're right, the middle of winter in Alaska is not a great time to have a vacancy. But...

Great news! I told them I would be bringing a "pay or quit" notice by today for the rent and deposit and they immediately replied that they had both the rent and the deposit and could pay today. It appears that they had  the money after all! Hopefully this doesn't affect their ability to pay rent next month.

Hi, I'm new to landlording but thanks to BP I think I have a pretty good handle on the basics. What this situation is though, is somewhat unique. Here's the story:

So I purchased this property with 3 tenants already in place and one unit vacant which was great because it's an FHA loan so I am occupying one unit. The property overall is in pretty bad shape with lots of deferred maintenance and very aged and damaged interior. Two of the current tenants are okay and pay their rent on time and have fully paid deposits but the last tenant is a first time renting couple who moved in July and has a one year lease in place. The catch is that the old landlords allowed them to make payments on their deposit which I only found out at closing when there was no deposit for that unit. Turns out the old landlord had never bothered to collect any of the payments on the deposit since the place was under contract and it was up to me to collect back payments and future payments on that deposit. The term was 5 months at $200 a month to cover the $1000 deposit. So far no payments have been made and I told them clearly up front when I took over that the whole deposit would be due on the first of December.

This month they informed me that not only would they not be able to make this month's rent they also would not have the deposit. They have since scratched up enough money for rent but not enough to cover the deposit that is currently due in it's entirety. As with most tenants there is no way they will be able to pay the deposit and still make their next month's rent. 

So the question is do I accept this month's rent and simply forget about the deposit or possibly file an extension for their deposit payment? Since the units are pretty trashed I am renovating all of them so even if they trash the place I will be doing repairs anyway. I would prefer not to have to go through with evicting them since I am already in the middle of renovating the unit I'm living in and having a turnover right now and a second renovation to do is far from ideal for my timeline and would eat into my reserves heavily.

Thanks in advance for your advise!

September 18th, 2018 Noon

@Thomas S. Thank you for taking the time to answer some of my questions directly.

Not to derail this discussion too much but I have to say I agree in large part to your approach but I would have to say it is more situational that what I think you promote. For where I am at in my investing career (admittedly at the very beginning) the maximum leverage approach is excellent and produces the maximum results over time. However, for somebody that has a good portfolio and wants to simplify I would argue that refinancing and reinvesting is not necessarily the ideal approach given the stresses that it can incur.

Again, this is coming from a place of ignorance since I am fairly new to investing but I think the beauty of real estate is that you can make it as complicated or simple as you like and tailor your investment to your vision for your lifestyle so perhaps the one approach fits all mentality is what I am against.

I would argue that aside from the money picture, it depends on what you see yourself doing in the next few years. Are you going to be spending time at home where you would want to keep your house or are you going to be traveling most of the time? If you don't need a home to live in then I think that simply selling it and buying better performing rentals would be the way to go.

Another thing to consider since you seem to be wanting to buy more units would be using more leverage to buy more rentals instead of using 30% down. If you have as much equity as you say you could easily roll the sale of your house into two or more properties instead of paying off existing mortgages. I don't suggest this lightly however, it does depend on if you see yourself growing your investment business or if you are happy with the amount of properties you have and would prefer to see them paid off and cash flowing without a payment every month. 

Really, this all comes down to where you are at in your life. Are you wanting to grow and make more money or are you looking to stabilize and take some time off to travel? I would suggest looking at your end goal for your lifestyle and working backwards from that point.

@Thomas S. I see you always beating on the drum of "refi and reinvest" when it may not be be best option for somebody that has enough properties already and just wants to simplify their current investments. In my view paying down or completely paying off a few of the better performing properties in this portfolio may be the least stressful option and would increase cashflow.

Another thing I'm curious about is this "ghost cashflow" or "artificial cashflow" as you put it. Cashflow is cashflow no matter how you get it. Whether that is 10 properties making 10% or 1 property making 100%. It's just money in the bank account at the end of the month.

I don't mean to single you out but I just see this approach being foisted on every person and I would like some clarification as to why it's the best for every situation.

It may not be the "best" way but I just sat down with each of my tenants after I closed and explained to them that I was the new owner and property manager and they would make payment to me and via direct deposit to my bank of choice. All of them were totally fine with the change and even said it was more convenient dealing with direct deposit instead of checks. Since the lease stipulated payment to the old owner, even making payment to me (the new owner) would technically 'violate' the lease. You're going to have to change things anyway so might as well make payment type part of that change as well.

If you want it to be "correct" then you will have to make an addendum to the lease but in my case it didn't seem necessary.

Looking at the numbers, it does look good at first glance but how did you calculate CapEx, Vacancy, and Maintenance? If you leave those out it does look fairly good but once you add those in it might be thinner margins than you hoped. Personally I look for 1% rule as a minimum which this does not meet.

As for your negotiation, it may be a market related difference but I would have started at asking price and met in the middle. Previous posters are correct, if the seller meets your counter offer you don't really then ask lower than your counter offer unless there is something else you are sweetening the deal with. It's just bad form.