All Forum Posts by: Christian Malesic

Section 8s work good for a less active landlord and lower end properties (slums or borderline slums).

Having said that, we DO HAVE a great, perfect Section 8 tenant. He is an 86 year old, no complaints, great guy. The problem is you can't say to Section 8, "I only want old guys with great character and interesting stories."

Another one of our Section 8 tenants are the type that just do not want to work. They collect from every government agency possible (we inherited them). They are able bodied enough that they could get some sort of job somewhere. What do you think their apartment is like? Lazy is lazy. If they do not want to work, then they WILL NOT WORK - that includes keeping their place nice.

So you see - there are extremes Section 8 (in some ways this is true of all landlording and tenants). I do believe the range between 'good' and 'bad' tenants is greater in Section 8 situations.

What is YOUR willingness to put in work and YOUR risk tolerance? Section 8 is certainly the easier way in the short run.

That is exactly the angle we use... very successfully I might add.

It is very important to get their rents to market rate, but IMHO it is more important to get them on a good lease that protects you and your asset.

What do you offer?

You spoke to why YOU want a partner.

Why would anyone want to partner WITH YOU?

I will jump on that bandwagon. By all means charge for applications!

We charge $25. It not only covers your ad, but also the time you spend showing the property, and it covers the time you spend waiting for no-shows (about 50% or more of low to middle income renters will not show up for an appointment even after you have spoken with them on the phone and let them know you will be there waiting for them).

Actually, You Can!

I am not sure where this untruth began, but let us nip it in the bud right here.

YOU CAN BUY AND FINANCE PROPERTY IN THE LLC OR CORPORATE NAME!
(can you hear me yelling?)

That does not mean that grandwally is incorrect about the second part (only about the first). Let me explain.

I think where people get mixed up is that the entity can not finance the property by itself when it is young and inexperienced. This is a kin to not letting your 16 year old son or daughter drive for the first few times with out you sitting next to them the whole time.

Once your entity has proven itself with time and prudent financial management, it can stand on its own. That begs two questions, (1) what do you do until then, and (2) where is that line drawn at which the entity can stand on its own.

First, you co-sign. You give your personal guarantee. You financially back-up the LCC or S-corp until it can stand on its own. This is just like when that same son or daughter wants to buy their first car on credit and the bank (or your child with bended knee and hat in hand) asks you to co-sign.

Second, unfortunately there is not a real line – the line moves depending on whom you ask. Conventional wisdom is: at least 3 years in business and a company over $1M. $1M in what, you say? Certainly if the LLC has this in assets, it will meet the threshold. Short of that, $1M in sustainable receivables each year (Total Income).

Dan,

There are a number of us on here from Central PA. It is good to have you, too.

You can learn more about posters by reviewing their 'profile'. Make sure yours is current and complete for the same reason.

Thanks nationwide.

This is where I was headed with my line of questioning. When we sold our properties from a partnership we created to an s-corp we created, the bank just went with the flow. They drew up docs we had to sign (after review by our attorney, of course) and kept all else the same.

Do you have the mortgages with a local bank or with an impersonal far off bank?

Is there anyone with whom you have a relationship at the lender?

What I am getting at: is there someone who is a decision-maker or close to one with whom you can have this conversation?

National Tenant Network

This is what I was getting at dafly...

We call them 'inherited tenants', meaning we bought the building and they came with it. We did not receive their application and choose to let them rent.

We do not have a hard & fast rule, but tend to operate the same way each time by default. In most cases we find the rents to be under market value for inherited tenants (never 50% as dafly explained, though), so we are almost always talking about the need to raise them. We are generally in a situation where we need to allow the current lease to expire, so we are rarely having to make rash decisions with no experience with the new inherited tenant. When one of these tenants is a 'good tenant' which, more often than not, means they are little old ladies or men we do not raise them - OR - we raise them much less.

Here is why...

A successful full time investor in our area (who is involved with two of the REI clubs that we are members) argues that by keeping his rents down (by this we mean 80%-90% of market value) he minimizes turn-over, saving more money in the long run.

He would say: look at vacancy costs, repairs, cleaning, advertising, opportunity costs, etc. He would further argue, that a good landlord will 'update' a thing or two between tenants costing anywhere from a few bucks to a few thousand. However, if the original tenant stays, these costs are not incurred. Now, all that said, if everyone would take his approach we would collectively depress the market.

We take a middle of the road approach. Often, we do increase rents to market value (in fact, we are much better at this then many of the other local landlords), but for our best tenants we try to hold the line as much as possible. We will always pass along increased taxes, water fees, trash, etc.