All Forum Posts by: David Krulac

@Matthew Crivelli HUD Section 8 does not pay above market rents. I have been a participant in their survey of market rents. Their figures are labeled as "Fair Market Rent" and are the MEDIAN rent foir the area, which means it is the middle rent with 50% above that rent figure and 50% below that rent figure. These figures are updated every Federal fiscal year which starts October 1. In some areas of the country the Median rent is by zipcode and some areas it is by county.

I look at cash flow, purchase price and prospects of appreciation. Another aspect would be financing terms. In the real world, its hard if not impossible to get all 4 aspects on a single deal. For beginning investors the financing is critical, but more experienced buyers rely less on financing because they have other avenues of getting the funds to close. Bringing in a partner, second mortgages, line of credit are sources of additional funding to close.  I might buy 1 property that has cash flow, another that has a great purchase price, another that has great appreciation prospects and yet another with great financing terms.  Getting more than 1 aspect on 1 property is a bonus.  Recent purchases were financed at 4.25% fixed for 10 years, and 4.75% fixed for 30 years.  Those have cash flow allbeit small, and appreciation prospects.  Other recent purchases were at 66% of appraisal, appreciation pospects but terrible financing.  It was a tradeoff, I was willing to make that I could not have made when starting out with no funds.

With FHA financing you can finance 96.5% (that's 3.5% down) or VA financing at 100% financed. With both programs you can buy 1-4 units as long as you occupy 1 of the units. There are some conventional financing for owner occupants with 5% down. Take any of these 3 programs buy a multi-family of 4 units with 1 owner occupied. Or buy a single family and house hack bedrooms or a portion of that property. Personally, I bought a 3 bedroom house as my first purchse and lived there while renting bedrooms and 2 bedrooms rent paid all of the mortgage payment and 2/3 of the utilitites. And I literally started with no money and borrowed the down payment. I told this story on Bigger Pockets Podcast #82.

David Krulac

Besides the HUD guidelinem we have had HUD violate their own guidelines. We had a tenant HUD approved Section 8 where we had 12 people ina 4 bedroom house. I think their logic was that a family with 12 people (parents and 10 boy children) would have difficulty finding a suitable house with say 6 bedrooms.

In addition to the Federal guideline, some local ordinances address occupants both tenants and owners.  In several communities their ordinance says no more than 3 people unrealted by blood or marriage may occupy a residence.  Some think that this is an anti-group home law, but so far nodoy has challenged this in court.

Currently we do not pay anybody's heat or hot water.  In every building, that we bought that had common heat and hot water, we seperated those units on to their own devices.  The exception being condos where the common heat was not in our control.  We have installed gas hot air furnaces, gas hot water boilers, and heat pumps.  All of thoise are more expensive to install that electric baseboard but have much lower operation costs.  We're in it for the long haul, we want tenants to stay a long time and reduce vacancy.  We've had 30 year tenants, and currently have a 25 year tenant, and several 10 year tenants.  Our average tenancy is 12.5 years.

For the longest time, I almost always bought locally.  I like the feeling of being close by to my rentals and managaging myself.  On the journey, I once sold properties that were 30 minutes away as being too far, and also managed some properties that were 200 miles away.  I know thats a contradiction, but a matter of growth.  Subsequently I ended up buying property in 8 states, and a couple weeks ago bought 5 properties in 5 days in 3 states. Now I've sold all my properties in 4 states and of the remaining I self manage in 2 states and have a large property management firm in the other 2 states.  I've self managed property for a long time and I belive that no manager does as good a job of managing as I do.  My quick response time and attention to detail is not matched by many others.  This winter we had a no heat call on a Sunday and I had the technician out there that day.  In the past there were other cases with no heta on a Saturday night and we had somebody out to fix that night and get the heat back the same night.  Last year we had a water leak on a Friday night, we had somebody out immediately Friday night and came back on Saturday to do final clean up.  The overtime is not a consideration when there are emergency situation.

I've owned a bunch of condos, so I speak from experience. There are several factors that affected my decision, the first being the rising condo fees. Some of the condos here have extremely high condo fees. One place is $8,000 yearly condo fee. As I posted recently on BP, some of the units that I've owned included heat and hot water in the condo fee, which increased the condo fee such their fee was in the $380 monthly range. And in the same complex later built units had individual heat pumps and hot water heaters which the unit occupant pays. We had units that had heat included and units where heat was not included. In my experience owning units there for 20+ years, we were not able to get compensatory higher rents. Tenants were unwilling to pay the higher rent for units which included heat and hot water. They might pay a little more but not enough to cover the extra condo fee. A second consideration is that condos locally have become more adverse to rentals. So condos have gone so far to totally outlaw all rentals. Other complexes have put in a quota systyem of allowing only 10% rental and every one of the copmplexes instituting those rules already have at leats 10% rentals. In that case when a rental lease expires or a condo is sold, its rental exception is extinquished. A third consideration is that FHA has rules for limiting rentals in developments. If the number of rental exceeds the FHA standard then nobody can get a new FHA, owner occupant mortgage. At one condo development where I owned property, they did not exceed the rental limitation, but none the less were not certified for FHA financing. I spearheaded the movement to get the devlopment FHA approved so that owner occupant buyers could use FHA financing. I felt that it benifitted the community expanding the buyer pool and increased the value of all owner's property in that development both owner occupant and investor owners. The fourth consideration for condo owners is special assessments, which re have been hit for, parking lot paving, new roof, and new siding. These special assessment were thousands of dollars, and there was no sufficient reserves from the monthly fees to cover these large biggers, so the owner were required to cover the shortfalls out of pocket, what a great way to ruin your cash flow and ROI.

There are benifits to condos, including tennis courts, playground, swimming pools, club houses, and fitness facilities.  And when we had those amenities we used those ammenities in our pitches to both renters and buyers.  And we owned a bunch of rentals in condo developments with swimming pools which was a desirable appeal to many, becasue most condos did not have pools. The best pools are where somebody else does the maintenamce and has the liability.  

@Greg M. Point well taken!  I have seen studies that show that when the utilities are paid by the tenants themselves directly, that the costs are reduced by 20%.  When its included in the rent, tenants naturally think its free.  When I was a tenant, admittedly a long time ago, I would turn off the air conditioning when I went away for a weekend in the summer, even though I was not paying for the heat/air condtioning.  I thought that I was saving the LL money.  Ironically, I later foud out that the thermonstat in my apartment was the only thermostate for the central air conditioning of the whole building.  The other tenants would call the management company on Saturday to report the air conditioning failure and were told that a service person would fix the problem on Monday.  When the service person came on Monday, they could never found anything wrong and the AC was working fine.  I only found out later what the results were of my energy saving actions.  No good deed goes unpunished! 

local REIA groups are filled with investors looking to buy properties.

@James Hamling  Agree 100%, in my market the number of owner occupied buyers versus investor buyers is sometimes 9 to 1 or higher.  Much bigger buyer pool and particularily is in a single family neighborhood with mostly owner occupants, appeals to owners.  One particular property that I looked at was converted from single family with a one bedrom unit on the first floor and two single room apartments on the second floor.  The buyer ended up buying and reconverting to a single family, and doubled his purchase price.