All Forum Posts by: Jack P.

You probably want to talk to an HVAC specialist to explore your options, but since each unit and HVAC will be independent, it shouldn't matter whether you do them all at once, or independently...at least for the duct work.  It should be 10 individual units, not a central system for the whole building.  If it's centralized throughout the building, you'll be on the hood for the cooling bill...something I'd steer clear of.  Get bids and proposals from several HVAC firms...you may be surprised at what they come up with.

The HVAC guys will have a setup cost, and may offer you a discount if you do multiple units at the same time.  However, if you're working with a specific vendor, you can probably explain the situation and work in an arranged deal where you guarantee them all 10 units in exchange for the bulk price.  

That being said, I'd really do my homework regarding the cost/benefit analysis on installing central air on every unit, especially with regard to comps in the area.  I also recommend exploring options such as mini-split/ductless a/c.  

 Service members receive a basic allowance for housing (BAH,) that is commensurate with the location and their rank, as part of their compensation.  Most of the time they receive BAH as a disbursement along with their normal pay.  However, if the system is set up, the service member may have a payment directly transferred to a designated recipient.  In short, an allotment that gets subtracted from the paycheck before the service member has access to it.  

Most of the time service members just have the BAH amount deposited directly into their bank account, along with the rest of their paycheck.  Then it's on the individual to pay their bills like a good citizen.  

If you're a landlord and want your military tenant to directly deposit their rent to you, that is a possibility.  You just have to have them fill out the correct forms.  

 In your case, it sounds like the CO may be trying to help you out, but trust me, his/her real concern is for the service member, and keeping him/her out of financial trouble.  That's not to say you can't make leeway with the chain of command.  It's just they don't have any authority to actually FORCE a tenant to pay his/her rent.  The commanders can talk all they want, but nothing they do can coerce money to move from the service member to you.  As a side note, the CO's boss doesn't give a care in the world.  I wouldn't put a lot of weight behind that "guarantee."

Back to the original posting, if this tenant has only been there a month, and can't come up with the rent, there are probably some underlying problems and a lack of financial discipline.  Regardless of what the service member or chain of command says, it's probably best to cut your losses, because it's bound to happen again.  Now I could be wrong, but the statistics say the problem isn't going away soon.  

While the above comments are intended to offer advice for the landlord to recoup their lost rent, or successfully collect rent, there are some significant misconceptions about the role the military can play in this case.  Speaking from experience, the Soldier's commanding officer does not have any legal authority in this case, cannot "force" payment of rent or any other debts, and will only look after the well being of the Soldier...not the landlord.  Civil matters are just that, civil between a tenant and landlord.  

If the chain of command gets involved, your interests are the last of their concerns.  

I'd also seriously question excuses for non-payment of rent...I've heard some  good ones from Soldiers. 

My advice is to call a local, respectable real estate attorney and have them walk you through the process of eviction.  They're going to cost a pretty good chunk of change, but it'll probably be less than the rent you lose in the long run.  

I think you're doing the right thing to not accept partial payment.  Sometimes people tend to think that all military members are saints, and won't possibly do anything to burn them.  However, service members are just like the rest of the population, and can take advantage of generous landlords.  Remember, it's your money and assets.  You don't owe anything extra to a service member than you would anyone else.  But you do have to follow the law and the extra steps involved in evicting military tenants.  

Good luck.

You have a few options.  First, understand that you must honor the existing leases until they expire.  However, if both parties agree, you could have the option of buying the tenant out of their lease.  Otherwise, the tenant has the right to stay put for the term of the lease.  

If I were in your situation, here's what I would do:

-Prioritize the units that I want to rehab, and tenants I want to replace.  I would let the lease expire on those units, and give the tenants the requisite notice to vacate (usually 60 days) at the end of their lease.  

-Let natural turnover occur in the other units.  

-As the units become vacant, either through not renewing the lease, or the tenant leaving on their own accord, I would rehab the units one at a time.  

-Do the exterior work with the tenants in place, but potentially offer them a discount on their rent for that period if you want to keep those tenants.  If you want them gone, then don't worry about the discount.  I've replaced roofs, AC units, and other moderate repairs on the exterior of the building with existing tenants.  Generally speaking, they're slightly annoyed with the construction, but appreciate the fresh new look even more.  

The above allows you to continue to collect rent through the rehab process.  Most likely on a 10-unit, you're going to have a small-scale general contractor do the work, and they wouldn't be able to do more than one unit at a time.  So vacating the whole building before work began would just mean a preventable loss in income.  Unless you're doing a "to the bones" rehab on the whole building, then it isn't necessary to have an empty complex.

Remember that generally speaking, you're going to profit more by leaving the existing tenants in place for as long as possible.  The difference in rent you make from the rehab will take several years to recoup your investment.  That's why I subscribe to the philosophy of not creating artificial vacancy, and will ride a tenant in a distressed unit for as long as possible, because as soon as they leave, I'll have to spend $10-20k to get the unit in rentable condition again.  

It's important to remember that 4-plex valuations are treated the same as single family homes...that is based on comps.  Any improvements you make need to have a comp available to compare it against.  If none exist, then it'll be hard for the appraiser to come up with a good number, and my just be pulling it out of his/her rear end.  

That being said, it's really just aesthetics unless you want to make significant upgrades.  The same rules of thumb apply there for adding value as do for SFRs.  For example, you'll only get about 70% back on what you put into a kitchen remodel.  

However, you can look at it from a different perspective as an income property.  If you spend $10k on a kitchen remodel, you may be able to command an extra $100/month, and it'll reduce your vacancy to 3%.  Using the same rule of thumb above, you'll need much less time to recoup your investment ($3k vs. $10k) before you list the place for sale.  

But, anyone looking to buy a 4-plex is concerned about one thing: ROI. Educated buyers are only going to purchase a property that can produce a decent return, and that means total revenue minus total costs. You can make all the improvements you like, but if they don't increase the net revenue, then they aren't worth the investment.

Bottom line, I only make improvements that meet my investment goals for those properties.  It's more complicated than a single variable complication.

So, to answer your question, knock yourself out with sweat equity and amenities in the unit you're occupying.  I'd definitely go with stainless appliances.  In my experience, that's the best selling point, and more than make up for the cost in reduced vacancy.  Be patient with the other units, and only update them after normal turnover.  

It's nice to see landlords willing to exert effort in military markets, but at the same time I wouldn't target that demographic for a few reasons:

1) military families are more than used to moving, both during a PCS, or to another location because of price or amenities.  The normal tactics of raising rents annually or per market factors don't neatly apply to military families because they have no problem moving if you suggest bumping the rent $20.  Because assignments seldom last longer than 2-3 years, turnover is substantially higher than the general population.  

2) the Soldier and Sailor Relief Act allows members to break their leases in the event of a deployment or PCS, which basically negates the security an investor gets with one.  Service members have no problem signing a lease because they know they aren't held to it if they get orders moving them somewhere else.  So while you may feel comfortable knowing that you have full vacancy, a deployment can quickly create substantial unplanned vacancy, while reducing the population of available tenants.  When a service member deploys, they often send their spouse and kids to live with a relative for that time so they can still collect the housing allowance and not pay rent.  As a landlord, it doesn't matter if that person is only deploying for 3 months, you have to let them out of the lease.  

3) The influence the supervisor has on the service member paying his or her bills is negligible.  As a commander, I had minimal latitude or authority over private disputes between landlords and their tenants.  I had more than a few bill collectors call my phone and inform me that Sergeant so and so wasn't paying his bills, only to inform them that I had no recourse to make them pay anything, and suggested that they take up the matter in civil or small claims court.  Legally, the only time a commander can take action is if the service member writes a bad check.  Even then, that action doesn't result in the debt being paid.  

4) The areas outside military installations are overrun with a few types of choice establishments that tend to prey on young, gullible service members.  You can usually find used car dealers offering no down payment and 20% interest, check cashing and payday loans, strip clubs, bars, and tattoo parlors a few feet from any gate, none of which exactly correlate to a what most would consider a nice neighborhood to raise a family.  There are, of course, exceptions, but I've seen more that fit that description than don't.  Same goes for the residential offerings immediately outside bases as well, which tend to cater to those with less than reputable financial histories.  

Bottom line, real estate investing is a business.  While catering towards military customers is a noble pursuit, it comes with its own peril.  The military population reflects society as a whole, the good and bad.  If you want to cut a service member a discount, that's great.  But understand that they are just as apt to burn you as anyone else.  Remember that it's your money that you're entrusting to a stranger, and you're not obligated any more or less because they wear the uniform.  Service members are competitively compensated, with regard to skill and experience.  

By no means would I discriminate against a service member.  Aside from being illegal, it breaks the fundamental rule of assessing each applicant by his or her own merits.  I just consider them the same as the rest of the population, with regard to their credit score, income, and references.  All but one of my rentals are in military towns, but I do not currently have any military tenants, for which I am slightly relieved.

The neighborhood where I have my units is made up of about 30 individual 4-plexes, all 2/2 or 3/2, and 3 different models.  They are all independently owned, and run about $50-60k/door ($200-250k) on the market, drawing $650-800/mo rent (each unit), depending on the size, location, and condition of the unit.  It's a strong C working class neighborhood and fits the niche between the B properties ($900+) and D ($500-) class.  

The units I've rehabed have rented within a week of listing, while I've seen other listings (same floorplan) sit for months  even though they're $50-100 less than mine because the owners don't give them any love between tenants.  Since I've bought them, I've rehabed every unit the first time it comes vacant.  Usual upgrades are LVP flooring in all common areas and bathrooms, neutral tone paint, paint the cabinets, new lighting and fixtures, and stainless steel appliances, which I really believe makes all the difference in the world with C-class apartments.  

I have a couple of long-term tenants (15yrs +), but they're the exception, not the rule.  I would say your 4-unit is an anomaly, and I'm sure the rest of BP would agree.  Be lucky you have those people in place, but don't expect that to be the case in the future unless you have 1) a product that can't be beat, or 2) a price that can't be beat to encourage your tenants to stay.  I lost one of my long-term tenants because they moved out of the area, and have turned that unit over twice in 2 years.  

So a few things that jumped out to me:

-No cost for lawn/yard/snow.  I'm assuming you're going to have some costs there.  Maybe you're doing it yourself?

-on a $74k property, expect to have a lot more maintenance issues than you budget.  I would expect there's a reason you could buy a property that hits the 2% rule.  Are you spending a lot more up front on a rehab or capital expenses that aren't listed here?  Are you doing all the maintenance yourself?

-Same goes for vacancy.  I'm not sure of your market, but it may be hard to attract and hold onto good tenants at that price point.  I would expect a lot more turnover and bad debt than you calculate.  When you're buying for $25-30k/door, that doesn't typically result in 700-credit score tenants.  

However, if you can hit your marks here, you're in good shape. I'd be content with consistent 10% ROI.

One more thing to consider:  How much is it going to cost to rehab the unit if they leave?  I'm assuming carpet, paint, and who knows what else.  While you may be able to bring up the rent to $700/mo, it may take you $10k or more to put the place in a condition where you could demand $700.  So assume you could get the full $225/mo more, and it takes $10k to rehab, it'll take you 45 months to recoup the difference from what you are currently making, not including additional turnover or rehab time.  Does it make sense to encourage them to leave if it'll take you 4 years to begin to see a profit?

In this case, I'd fine it hard to ask them to leave, but may ask for a small increase in rent to cover costs as they've increased over the years...such as taxes and insurance.  

Have the conversation and be honest with them.  Someone with 20 years at the same residence probably doesn't want to leave.  See if they can do $500 or $525 and ride them until they leave on their own.  Either way, definitely get a contract on paper!