All Forum Posts by: Jeff Copeland

Property Managers are not debt collectors. There are federal and state laws surrounding debt collection practices that are way outside the scope of property management. 

And in the vast majority of cases, you are never going to collect a dime from a deadbeat tenant. 

As much as it might feel rewarding, chasing collections from past tenants is a waste of time.

You are better off putting your time and energy towards getting your unit re-rented, or finding new properties, or whatever. Check out:

http://www.evicttv.com/episode...

It can be a major red flag: http://www.evicttv.com/episode...

If it's a condo, it almost has to have an HOA. And if there is an HOA (or COA, I'm using them interchangeably here), there is an HOA fee. How else would they pay for insurance, landscaping, and shared amenities such as the roof and parking lot?

There are several very good reasons many investors steer clear of condos:

1. As noted above, the HOA is responsible for the shared amenities (roof repair/replacement, parking lots, pools, pest control, landscaping, etc). So you give up control over how, when, and for how much these things are done.

2. The HOA has to pay for these things, and they do so by collecting monthly or quarterly HOA fees in most cases, which cuts into your cash flow as an investor, or your buying power as an owner occupant.

3. When major repairs are beyond the operating budget of the HOA, they can assess the owners a one time fee for things like roof replacement, recladding the buildings, or refinishing the pool. So in addition to your $600/mo (or whatever amount they are) HOA fees, you might also get hit with a one time assessment of $20,000 (or whatever amount the HOA deems necessary) for repairs or capex.

So you really have to dig into the financials of the HOA and any looming assessments during due diligence. 

4. The HOA often controls things like whether or not you can rent your unit to a tenant. Some HOA's don't allow it at all, some want to screen, meet, and interview your tenants themselves before approving, which can cause delays and/or scare off potential tenants. At the other end of the spectrum, some HOAs may be completely hands off and let the place go, to the point no one wants to live there.

5. Some HOAs even control whether or not you can sell your unit and who you can sell it to. I've seen HOAs who require a potential buyer to sit down in an interview with the HOA to determine whether they are a "good fit".

6. HOAs are responsible for "policing" the grounds. They often control what colors you can paint your exterior and doors, what color and condition your window screens must be kept in, where you can park, and what condition your vehicle must be kept in (I've literally had an HOA tell a resident they could not park their car on the property because it was too ugly).

7. Things like the HOA financials, the percentage of owner occupants, and the percentage of units owned by the same person or entity (which are largely out of your control) determine whether the units in the complex are "warrantable" and can be financed using conventional Fannie/Freddie financing. This makes many condos a cash (or private financing) only asset. And this can change over time, potentially leaving you stuck with a much less desirable asset at some point in the future if the development becomes non-warrantable.

I would suggest better defining your goals, and then breaking them down into smaller, achievable steps with a deadline. (A common mnemonic is that your goals need to be SMART: Specific, Measurable, Achievable, Relevant, and Time-Bound).

Is $15k/mo in cash flow your goal, or is owning several multifamily properties your goal? Either one is okay. Just decide and define. 

If $15k/mo is your goal, you need an additional $13,200 cash flow per month. But by when? Let's say for argument's sake you want to achieve this goal within 10 years. That means you'd need to add about $1300/mo in cash flow to your real estate portfolio each year for the next decade. 

Now break that down and define how you are going to do it. This of course will depend on your financial situation (if you have a ton of cash and great credit to begin with, it's obviously much easier). 

In year one, for example, you might plan to refinance your existing properties at a relatively safe 60% LTV, which would give you $192k to either buy a $192k property free and clear, or buy a $480k property with 40% down. You can adjust the LTV to suit your risk tolerance, then figure out how these options would impact your cash flow.

From there, come up with a strategy for year two, three, and so on. 

Congratulations and welcome. 

It may be a unicorn, as you suggested. But $1000/mo in cash flow sounds too good to be true. I would encourage you to take a careful look at your operating expenses (which normally eat up around 50% of your rental income) and make sure you aren't leaving anything out:

Property Taxes

Homeowners Insurance

Liability Insurance (landlords often need a separate umbrella policy)

Management Fees

Utilities

Landscaping/Snow Removal (depending on where you are of course)

Repairs

Reserves for Capex

Vacancy

And then take a careful look at your debt service payments (if any) and understand exactly what you'll be paying. Is your funding partner lending you the money, or are they an equity partner?

Even if you don't have any debt service initially, you might want to project out a few years when maybe you do need to refinance and cover debt service. 

HELOC

Of course floor plan is important. It isn't talked about a lot because it goes without saying. 

But different business models work for different people in different situations with different needs and goals. 

Calling people "dummies" because they chose to implement a long-term rental strategy is narrow minded. 

Co-living is a sound business model that is taking off in many markets across the country where it makes sense. But it is limited by obvious things like zoning and parking restrictions, as well as not-so-obvious things like management intensity. 

There's no getting around the fact that having 4, 5, or 8 tenants living in a single family home with shared common space is going to take a lot of work for the landlord and/or property manager. 

By contrast, I have LTR single family homes where the same tenants have been in place for 6 years. It's a much more passive model. 

The cheapest option in the long run is actually a high quality kitchen with solid wood cabinets and granite countertops. 

Cheap materials will not last long in a rental property. A $10k kitchen that lasts 20 years costs you half as much as a $5k kitchen that lasts 5 years. 

In addition, the kitchen is the #1 amenity that will get you higher rent and lower vacancy. 

Just keep in mind the aggressive sales person is not your loan processor or your underwriter. 

They often make promises (on things like rates and timelines) that they can't keep. Sometime these things are not as crucial on a refi, but they have derailed many a closing on the buyer's side. 

Why is he even still living there? What are the terms of his lease/tenancy? 

Get rid of him at the earliest possibility, or the whole place will end up either vacant, or with a bunch of other non-paying tenants (why should they pay when he doesn't, when clearly there are no repercussions?).