All Forum Posts by: Max Householder

A 12-month lease only protects the tenant. No matter what, the tenant can leave pretty much whenever they want and it's probably going to be time & cost prohibitive to attempt to enforce the lease on them vs. just re-renting the unit and moving on. Especially with a new tenant, m2m or a shorter term can be advantageous because you can boot someone relatively quickly by simply giving notice that you won't be offering a renewal the next month.

Like Kim said, the time of year for renewal is also key. We just bought our first property (4 units) and have 1 vacancy. Trying to rent it in December has been slow going so we will offer m2m hoping that we can get someone in asap and then offer a 1-year lease in like May or June when it'd be better to have a future vacancy assuming they stay the full term. 

People hate moving, so unless you're at the very low end of the market, it's highly unlikely someone will want to move every 1-6 months because of something that wouldn't have had them or you trying to get out of a 12-month lease anyways (relocation, breakup/divorce, job loss, non-payment, damage, etc.). My 2 cents anyhow.

A property management company will work with you even on one property, however, some PMs are better for small/new investors and some cater more toward the big commercial properties or landlords with large portfolios. It's likely both would happily take your business, but a small company might feel more like a partnership while a large company managing 2,000 units might make you feel like just another number in their system. You'll have to feel them out.

Call up at least 2 or 3 in your area and schedule a sit down meeting/interview and ask them every question from this blog post that's relevant to your property: 80 Smart Questions to Ask BEFORE Hiring Your Next Property Management Company

That's exactly what we did and it helped us have confidence we were choosing the right company. The best two PMs we interviewed were happy to meet and talk shop for over an hour and both said that we were the first people to actually want to meet and interview them! They said most just call and talk for 5 minutes about their rate and then say okay. No wonder so many people end up hating their PM!

We ended up going with a smaller company at a slightly higher price than the other because we felt the working relationship would be best with them and their fee structure aligned their goals with ours: they make money when we're making money and they make more when we make more. Others felt like just a list of fees that we'd be nickel-and-dimed over every month. 

Definitely do an interview (remember that you're interviewing them) and try to meet/speak with the person who will actually be managing your property and not just the office/backroom manager. Know who you'll be interacting with on a weekly/monthly basis and make sure it's a fit. Anyways, that should get your started. Don't be embarrassed to ask a lot of questions and dig in on this stuff. This person or company will be managing your most important assets, so make them show you they're worth that trust. If they seem annoyed by it, don't bother.

Even if you are planning to manage it yourself, account for the cost of management when analyzing the deal. 1) Your wife's time is valuable, so consider this as money being paid to her for her time rather than a "savings" of not having to hire a 3rd party. 2) You might decide that you're not good at property management and need to hire one. 3) Your situation might change (birth of a child, divorce, disability, moving for work, etc.) and you won't have time, ability, or proximity to manage the property well if at all. 4) You might get to your passive income goal 20 properties down the line and decide you want to go sit on a beach and drink Mai Tais, but when you go to do it, suddenly a big chunk of your cash flow goes away because you never factored it in from the beginning. 

When doing your analysis, add in property management as a cost before arriving at your projected cash flow and return. Then if you decide to manage yourself, that money is a bonus rather than a necessity to make it a good deal.

Look at where you are from where you started, 29% down to 9% just by adding in a few rules of thumb. 9% is still very good and much more realistic, so don't start crossing out line items like paying a PM because you perceive your situation to be unique. If 9% works for you then it's a deal, if 9% is too low then find another one or negotiate a lower purchase price, but don't start trying to spruce up the numbers just to make it sound better than it is/will be.

Earn, save, invest. Get your financial house in good shape and you'll be able to save that downpayment in no time. Pay off your debts and don't take on more (new car loan, primary residence mortgage, etc.). Focus on being able to save a significant portion of your income, like 20-40% for starters. The less income your require, you faster you can get to financial freedom.

Get 2-3 months of expenses saved in an emergency fund and then start piling up those savings for a down payment. Add a side hustle, drive for Uber, tend bar, freelance write online, whatever works. It's easier to do this now when the only thing you're missing is hanging out with friends or whatever. Later if you have a family it becomes much harder. The vast majority of people will not work that hard, so you will be way ahead of the game.

I noticed in your OP you said you hope to have a downpayment saved within 4-5 years. You should be able to do this much faster! In Toledo, properties are not that expensive. $20,000 should be ample amount for a first down payment. If you can save half your income, you only need a $40,000/year income to buy one property per year. House-hacking is also a great idea because you can put down < 5% and learn how to landlord.

If you look at your current finances and Excel says it'll take you 5 years to save a down payment, change something! Either earn more or spend less or ideally do both.

@Account Closed We literally closed yesterday, so no issues or challenges yet! haha

One tenant has been there 10 years, another 5 years, and the third almost a year. The previous owner had the property under professional management by a large PM company in our area so we assume the tenants were placed based on good qualifications. While viewing the occupied units we didn't come across anything out of the ordinary so fingers crossed it'll be a smooth transition. 

Yesterday evening my wife and I closed on our first real estate investment property. I found Bigger Pockets about 3 years ago, so you could say it's been a long time getting to this point, although it's mostly due to analysis paralysis and failure to take action sooner on my part. That said, I am completely satisfied with where we are today, so I wouldn't change a thing. 

We bought a 4-family property in South City St. Louis, 63109 zip code that we found on the MLS. It's an 89-year old building (as most MFR in the city are), but is in great shape and has been very well cared for. The seller had owned it since 1949.

4 Units 1BR/1 bath each (these are true 1BR units, not walk-through or "shotgun" style)
3 units currently rented at $525, $525, and $550/month
1 vacant unit that's turnkey and we have listed for $550/month
There is a detached garage that should rent for at least $50/month.
Gross income = $2200/month, $26,400 annually. 
1% rule = 1.19

Sales price: $179,900
Seller put $3,000 toward closing costs and credited us $4,000 for a handful of minor repairs that came up during the inspection. 
30-year fixed rate mortgage at 4.25% with 25% down ($664/month)
2016 Taxes: $2,009
Insurance: $983/year
Total PITI: $913

Expenses
Water, Sewer, Trash: $218/month
Vacancy & Credit Loss: 5%
Property Management: 10%
Maintenance & Repairs: 15%

Total Expenses (w/out P&I): $1127 (52%)
$2200-1127 = $1073 - $664 (P&I) = $409 cash flow/month

Cash out of pocket (inspection, down payment, closing costs): $45,981
Estimated cash-on-cash return: 10.67%

This isn't a screaming deal by any means, but it's a solid base hit that gets us "in the game". Rents are going up quickly in our zip code so we see this as a stable property that will be cash flow positive on day one and has room to grow on the income side as we perform value-add over time. 

I can't thank our realtor Peter MacKercher enough for all his hard work showing me countless properties and then getting this deal over the finish line. I would highly recommend him for anyone looking to invest in St. Louis. His entire team was a pleasure to work with and even if you're still at the learning phase or not investing in St. Louis, he's a wealth of knowledge for anyone looking to get into REI and well worth reaching out to.

Of course a huge thanks to Josh and Brandon and everyone at BP and on the forums. Without this site we wouldn't have had the confidence to pursue REI and start down the path to financial freedom. Thank you!!

Michael is spot-on. Don't quit your job until it's costing you money by taking 40+ hours a week away from a venture that you've proven is more profitable such as flipping or finding buy and hold deals.

Also, consider your expenses. Could you downsize your primary residence or rent or sell a car and buy a used one or reign in your spending such that your monthly income needs are much less? If you can maintain a smaller lifestyle, your monthly income needs are drastically reduced and you can probably accelerate your retirement.

Last, don't always think of retirement as never working again. Is there another job or career or hobby that might earn you less income, but you would enjoy a lot more and could bridge the gap to being fully financially independent? Instead of the 9-5 grind maybe you'd enjoy driving a delivery route or tending bar or being a tour guide or something you couldn't afford to do before but maybe now it's more realistic with the flexibility REI offers. Just some thoughts, best of luck!

A common misconception about Sharia is that it's all about stoning people for crimes or whatever. In reality it's meant to cover all aspects of law including crime, property, marriage, trade, etc. It doesn't allow for charging interest and plaintiffs/accusers are supposed to represent themselves in court, no lawyers. It's really pretty fascinating and many Christian religions, think Mennonites or the Amish, govern themselves using similar sets of religious law. 

You'll likely only be able to lose OPM once or twice before nobody will lend you money ever again. Like Jordan said, you have to approach it as a win-win, but actually it's more like your investor wins first and always and then hopefully you structured the deal such that you also win. The first outcome can never be in doubt, even if you have to put up additional money of your own to make an investor whole on a bad deal.

Stay far, far away from whoever was putting on that seminar.

We're buying a 4-family with 1BR units and had similar fears about turnover going in. Turned out this particular property is currently occupied 3/4 units and has one tenant who's been there 10 years and another 5 so you just never know. 

I think good tenant placement/management probably > # of bedrooms when it comes to turnover.