All Forum Posts by: Account Closed

Some observations as a hood investor. NB Although I am often out of state my PM is my wife .........no if anything it's more expensive ;D.

1. 40k would be the upper limit of what I would pay  for a rent ready home. For the rental income I seek there is no need to pay more.

2. If I don't think I can rent it for at least $950 I probably won't touch it. It has to generate enough cash to pay the PM and even though it's the hood someone I know who had to lower his rents to circa $750 from my current levels  told me there was a noticeable difference in the quality of tenant it attracted.

You  need a PM who understands the psychology of your target rental demographic. I shouldn't say just need because I think different rules apply in the hood and the classic property management approach won't yield good results. First of all they will probably screen out perfectly  good applicants with pointless credit checks - if people had that kind of credit they  wouldn't be renting from you and they wouldn't be renting from you in that area. Note I did NOT say don't screen or don't screen carefully or thoroughly but what works for screening in a $200k neighbourhood doesn't necessarily work in a $30k neigbourhood and some PM's are yet to learn that.

While many of these places have higher crime rates, there are people who grew up and went to school in these areas who are prepared to go back and live there. I think it's because   they know these areas and believe that  if your intention is to mind your own business you can live a peacable life.

In my experience these tenants expect to be dealing with a slumlord so the charm that was exhibited when they were applying for the house soon wears off. However  once they realise that's not what I am they are not difficult to manage (given that they were carefully selected in the first place).

The real challenge and what may make it difficult to find a PM is the maintenance issues that may arise so we try and mitigate that by fixing up everything good  buying brand new when replacing appliances.

Our tenant died Dec 30th Section 8 told the tenant and us that they wouldn't pay for Jan and asked us to return the payment. You may be right because they haven't responded to our request for them to ask for the return of the funds in writing. 

Your rehab tenant wouldn't have triggered anything because that was only 3 months, we were told Section 8 would stop paying after 6 months of unoccupancy . The point worthy of attention though  is the belief that they are able to "cross-collaterize" tenancies and withold payments from other tenancies in order to claw back monies they think ought not to have been paid on this one. 

That should worry anyone who has multiple Section 8 tenancies.

We can disagree on what Section 8 policy is because @David Krulac and I have had different experiences. However what is not in dispute is that at some point Section 8 will stop paying so my question to all and sundry is what are you going to do if the family isn't as cooperative as the one Dave was dealing with.

We had great difficulty getting through to anybody at Section 8 who could give us the definitive answer on what was supposed to happen and drew a blank when we tried searching online for the policy on deceased tenants.

I actually recounted the experience incorrectly. The tenant had been in intensive care for the best part of 12 months. Section 8 discovered this after her death and told us that they are supposed to stop paying rent once the tenant has not been resident in the home for 6 months. That was what they said they would have recovered  from other tenancy accounts if we had multiple accounts with them. Yes I know it means we are supposed to either evict or allow a tenant in long term intensive to stay in our house rent free (is it even our business?), but that is what happened to us. 

You can choose which experience you want to go by and YMMV accordingly.

This makes sense.  I have worked on financial technology systems designed to implement these policies. They are known as Limit systems.

A bank will limit their exposure to many different types of risk - currency risk, counterparty risk, interest rate risk etc by automatically disallowing any trade that would put the bank over the limit in any one of these categories There are netting strategy that offset long vs short positions which would boost the number of transactions they can do.

The type of risk being talked about here is counterparty risk which is designed to limit the banks exposure if an entity they are dealing with goes under. Primarily it relates to their dealings with other banks but it does apply to borrowers and people who take out mortgages tend not to have trades that can be offset to reduce the banks exposure.

@All

Did the book have a section on what happens when a Section 8 tenant dies. 

Pay attention to our experience.

1. Section 8 stop paying rent immediate of the date of death.

2. You need to figure how you are going to get your house back from the deceaseds family . In our case we went the compassionate route and agreed a  month for the family to move out - they agreed to pay rent for that month but didn't. We were just happy to have the house back without going through eviction proceedings so we ate it.

3. We were left with a huge clean up bill. They did agreed to pay $175 when they left because the house wasn't properly cleared out but it was nowhere near enough. They also left with a water bill outstanding an unpaid. Moral of the story... never ever let to a Section 8 tenant without taking a security deposit. In our case this was a tenant we inherited when we bought the house and she came without a deposit.

4. Section 8 were not responsive to our notifications of the death of the tenant. She died right at month end and so the following months rent was wrongly triggered. They asked us for it back, we saidwrite to us so that we know who to pay and have an audit trail. Their response was to demand the money and threaten to deduct it from other Section 8 accounts we have with them if we don't return it. Fortunately we don't have other accounts. As of time of writing  4 months after the death we are still waiting for them to write and demand the return of the payment.

Either they are all making it too complicated or I am making it too simple.

I don't know what a cap rate is.

I target $35k as the cost of acquisition including upgrades to get a house to be rentable and I expect circa $1k a month in rent for that. I arrived at  those benchmarks because they were more or less handed to me on the first 2 deals that I did (actually both deals came inside those figures). I did not do any a priori analysis for those deals but my gut told me based on the price of the houses and the projected rent that the deals were  no-brainers. 

My other rule of thumb is to only buy houses that I think will rent for close to a minimum of $1k a month.

It's $35k for rent of $1400 a month which for a hood investor such as myself is ok. The 70% financing is very tasty. What would stop me is that dealing with tenants at $350 a month probably comes with a bunch of socio-financial issues.

I take a risk management approach by not exposing myself to unnecessary liability and/or risk without the prospect of commensurate reward.

The credit report is the supposedly the last step of our application process. We did not start out by saying we won't pull peoples credit but we found that by the time we got to that final step we had already gotten enough information to make our decision. We are now at the point where if we don't feel we can approve an applicant from the previous screening steps nothing on the credit report is likely to change that. As I have said I know people with fantastic credit and all that separates them from being broke is a single missed paycheck.

I have already answered the other question. My wife is a professional property manager. I honestly don't know what and how she looks this stuff up - and I'd rather stay in her good graces than be a forum hero. Plus if she tells me she'll start asking me to do it and I don't want to.

Beth, 

I don't know what my wife  does but she is a licensed realtor so that may have something to do with it.

We don't work on  feeling. We do take applications and follow up on the information (or at least some of it). We find that genuine applicants volunteer information often over and above what we asked and often invite us to pursue further enquiries.

 As well as what you could be liable for..... and it's not just if you are hacked, you could be burgled or not as careful as the law requires you to be.

If you are demanding peoples personal information is there any reason why you should not be subject to the obligations and responsibilities entailed in data protection and privacy legislation.