All Forum Posts by: Sam LLoyd

So, being risk averse is fine.  Take a step back and find out what percentage of vacancy you'd be comfortable accepting as worst case, then figure out what you could refinance them for and still break even.  So, you think 30% vacancy is a worst case... then put that in your spreadsheet to find out how much you can afford and still brake even at this rate.  If that means you take out 65% debt on the property, so be it, but you need to borrow money to make money at any kind of speed.

So, you leverage your SFRs to pull out enough cash to go for the 3rd or 4th.  The problem is that you'll run out of ability to get conventional mortgages at some point, and you'll still have to find partners, or other types of loans to keep moving.... cross that bridge when you get to it.  Personally, I'd angle for a 4plex or triplex so that you can get a larger conventional loan at the current great rates.

If you're shooting for 1M/year in SFR... and you make $1,500/month/house, that's only 55 houses.... not that unreasonable. Your cash flow will start to compound in a couple years if all goes well. Food for thought though... It might be easier to shoot for a 25 unit apartment, and get professional managers in on it. That way you free up more of your own time to grow the business, and if you can get 3 of these, you'll have more units, and only have to do 3 deals instead of 55. It's a way to grow faster, but you'll still have to find a way to add value to get the equity position that will give you that 1M/year.

First, they might both have HOAs, but the condo is going to cost a lot more.  This cuts into your income a lot.  For that reason alone, I would be looking at the house.... depending on the age and any maintenance that will need to be done in the near future.  Also, the location should be very important to your decision.

For establishing market rents, I pull up as many craigslist listings that are similar that I can find... try to narrow it down by condition, location, size, etc... then take an average of the cheapest 3 or 4....   That's what I do to make sure I have a competitive rate.

One thing I've found, is that if your paint is very thin, or old (22 years would qualify), the air can actually move through the sheetrock, however, any dust in the air does not go through the sheetrock... it acts as a filter.  I had one place where there is a lot of wind creating a negative pressure outside... You could see every seem and every sheetrock screw under the paint because they were black from the 'filtration soiling'.

If there are patterns that reflect any seems or fasteners, this would be my guess... in which case a good coat of paint would help seal it.  If it's completely uniform, this might still be the culprit, but I doubt it.  Has this been related to the weather or seasons?

Is the stove sound?  Is the chimney going to pass an inspection?  Are the set backs proper from the stove to the walls?  Is the stove on a flammable hearth?  If it is installed correctly, leave it if it looks nice.  This is a great feature, and might help to sell the home.  And if you're selling, you don't have to factor in the cost of insurance.  Even if a buyer does not want a wood stove, it's probably not a detractor.

That being said, if there's any chance that you'll have issues with an inspector, it might be easier to get it out now, so make sure of this before an inspector finds something wrong with it right before closing and everything gets messy.

What a sad state of affairs we live in.  Trampolines are fun.  I only broke one kid's ankle on a trampoline when I was a kid (and then the trampoline came down, go figure).  I love trampolines, and haven't said anything when my tenants put them up.

My first question is when insurance companies cancel, is the cancelation effective immediately, or do they give you 60-90 days to fix the situation?

Personally, I'd cross my fingers and let the kids have some fun for a couple months.  If insurance does a drive by, hopefully they'll give you enough time to get it down and take a picture.  In which case, the common areas argument is the best one I've heard.  Unless there is a specific yard area for that tenant, just say that can't do that in 'the yard'.  Not that they would think of it, but in my state if the tenant said the previous landlord said that was their yard or their half of the yard, you're stuck again since a verbal agreement is legal.

If you want to keep the tenants, and plan to wait it out till end of lease, do mention that the trampoline will be addressed now so that there are no surprises.

I went the first route.  I had some vacant land I was paying on, so liquidating the retirement accounts and paying off that note made sense.  Now, there's a chance I can trade the equity in the vacant land for equity in a 7plex.... we'll see.  Note... don't buy vacant land if you don't have a plan for it.

So, looking at the numbers: Let's pretend that you have 100k.  You pull out 65%... which has an annual return of 25%... so you earn 16.25k/year.  You borrow against it at 5% so you have 50k making 20%.... that's 10k.  However, your 100k is still invested, and if it is earning 5%... then you have15k coming in, and if your funds could somehow get 7%, then it's a wash.

So, I'd look at how much you'll make cash on cash.... and use the conservative side.  25% is very high in my world, so confirm this. Then, the cost of borrowing the money, and then the return the fund is currently making.  I do think it's just a matter of comparing interest rates and returns.  Play with the numbers, run a couple scenarios out a couple years, and whichever one has the most money, go with that.

And now we know why not everyone is investing in real estate.  This is very sad.  I've had similar situations regarding heat and internet and all that.  I hope it's a beginner mistake, but I still find myself losing $50 here and $50 there because I don't have a system nailed down, and I miss things.  So, don't worry, you're not alone, and if you push through this, you should be over the shakes in a couple years, and if you do push through, you will be well on your way to being a good investor... remember the end of all the BP podcast where the hero says perseverance is the key?

My first question is when is the lease up?  If it is a 1 year lease, you have 5 more months before you can get rid of her.  Yes, this might seam harsh, and they might be nice people, but the relationship is not working out well, so move on if you can legally.  When I had a similar situation, the tenants had hinted that they might move out too.  I talked to an attorney, and he recommended that I take the $ hit... if they would agree to leave.  Cash for keys.   It was agonizing, especially since it took me two months to fill the place, but looking back, it's the best thing I could have done.  So, you might hint that 'if they are upset with the apartment' you'd be ok if they moved out, and you'd give them the security deposit back.  If they don't go for it... just hang in there for a few months.  The $250 is not worth trying to sue for, and if they do pay every month, count your blessings.  

Also, the $250 is kind of the fault of the property or the water company.  Yes, it could have been avoided with better communication, but it is still not the tenant that caused the charge.  At least, that's the way I see it.

Lastly, is the take away.  I don't rent to young people who's parents are involved.  Those similar situations I've mentioned?  Guess who paid the rent for them.  Yup.... the parents.  When the tenant cannot pay their own rent, thinking that they are going to take care of the place or stay on top of communications will never work in my opinion.  So (and I heard this from another investor a long time ago) never rent to someone who's parents are along making the decision.  That being said, I'm sure there are exceptions if you are in a collage town... but that's not my thing.

In our state, there is a maximum, but it depends on how much the rent is.  In our state, there is also a distinction between pre-paid rent, such as last month, and rent, which is first month.  So, you'll have to find your state statutes regarding landlord/tenant interactions, and study those.  This is a good thing for every investor to do if they intend to have a hand in management, even though it's no fun.

A couple things come to mind since I've been in a similar situation for the last 8 years, and have several other rentals now.

1st... you say you are going to refinance.  What is the purpose?  Unless you are lowering the interest significantly, it will not justify the cost of the refinance (principal will be higher).  However, if you have mortgage insurance that you can get rid of, and you plan to keep it for more than 5 years or so, then it would be worth refinancing.

2nd... I think your anticipated cash flow is a bit high, though I'd have to learn more about maintenance and vacancy in your area....  Still a good investment if you can get $400/month in my opinion... depending on how much you have down.

3rd... as a landlord... do market research and take the yard into consideration when setting your price, but I don't think it would be helpful to charge extra.  Laundry could be a monthly fee if you don't want to buy a coin operated machine.  Or, you could say it's included and charge a little more for rent.  Advertising a nice 3bd apartment with a huge yard and laundry is better (in my opinion) that advertising a 3bd with additional fees for laundry.

4th... as far as repairs... In between tenants, weight the cost effectiveness of improving the appearance by replacing fixtures... and if/when they do break, don't buy junk.

Another thing to look for is a side-by-side duplex.  They are much easier to live in if you're not having to tell the kids (I do have kids in a different duplex now).... "Stop banging, there's people below or above you."