All Forum Posts by: JD Martin

Long leases don't reduce tenant turnover; people leave whenever they want to leave, lease or not. Month to month for the win, though we always do one year leases at the outset as good tenants generally balk at the lack of security of a month to month lease when they first start out.

 We don't kick anyone out of here. Well, once in a while but usually just spammers :) 

It sounds like the apartments aren't permitted, and depending on where you are that could cost a boatload of money. It sounds like a lot of "what ifs" here to drop that kind of cash on. Unless you want to live in the camper full time I would think finding a reasonable house hack - a duplex or triplex - might be a much better goal in both giving you a home and bringing in rental income, and then perhaps in a couple of years transition yourself out of the unit and buy another one. In the right areas with high enough rents you could live very well on under 10 units. 

Don't forget - you *have* to include depreciation, because the IRS is going to include it for you eventually whether you took the deduction or not. Example: You have a house with a cost basis of $275,000. Your depreciation is going to be $10k per year (27.5 years). If you sell that house 5 years from now, the IRS is going to recapture $50k of depreciation from you even if you didn't take the deduction every year. 

Taxes are a huge part of real estate, and if it's not your forte definitely find yourself a good RE tax accountant because you do not want to miss out - or worse, pay on benefits you didn't even take. 

 PS: You're not this Dave Matthews, are you?: 

Most people would be in doomsday scenario if escrow were removed, because a significant portion of buyers would not be disciplined enough to set aside the funds themselves for payment and would then be in tax or insurance default. Your partner (the bank) knows this, which is why they're not crazy about the idea.

That said, I agree with you about removing escrow if you're the type that knows what you are doing and always keeps sufficient reserves (I don't really get the redeploying the capital other than keeping it somewhere safe and liquid, since you'll need it every year like clockwork). I hate escrow for 3 personal reasons:

1. I have had two different instances in the past where my lender failed to pay property tax and insurance. In both cases I had to pay out of pocket until it was resolved. Both were eventually resolved but at great time & aggravation to me.

2. I do not trust the record keeping of lenders. I had a loan once sold 3 times in 2 years, and the last buyer suddenly insisted I had a $25 late fee on my account for some mystery late payment from years earlier from one of the previous note holders. When I inquired which lender & which payment (I keep records on everything), they couldn't identify it, only told me that I'd keep getting the notice it was on my account until I paid it. Coda: I told them they could kick rocks unless they identified what payment & lender it was, and that they could send me letters until I was dead and I'd sooner set $25 on fire in the middle of the lawn first. After 2 years of sending the monthly letter (they probably spent more on letters than $25), I suddenly got a letter one day that because of my excellent payment record they were granting me a courtesy convenience waiver of the fee.

3. I like paying my insurance and taxes depending on when I need deductions. Sometimes I pay just before the end of the year, other times I will pay just the minimum on insurance and/or taxes before our 2/28 deadline depending on where I am with write-offs. I don't get that luxury with escrow. 

I'm generally a subscriber to "hold until you die", but I'm not dogmatic about it. It's all about what can I do with this money that's more profitable and equal or less risky and equal or less work than what I'm doing now. The profitable part has to take into account a lot of factors, including your age, tax considerations, skill set, investment options, heirs or lack thereof, income requirements, and so on. If I sold everything tomorrow and put it all into stocks - even a mutual fund - that would be less work than what I'm doing now, probably somewhat more risky than what I'm doing now, and probably less profitable than what I'm doing now since I bought (mostly) at a time where I can still see 20% annual returns, and it's pretty unlikely I could match that without really getting out on a limb. To do better I'd have to have some real specialized skill and knowledge like @Jay Hinrichs with timber and land sales. 

I think you're almost certainly looking for commercial or private funding for this deal. You are essentially buying a mobile home park with a couple of additional stick structures. You're not going to be able to get traditional financing even if you live in the home as there's too many units (and are they all permitted, etc). I'm not an expert on mobile homes but you are going to want to check the permitting and infrastructure carefully especially if you are on a well/septic system. You also want proof of ownership, or lack thereof, of everything - sometimes these kinds of deals will have say 3 park owned trailers and 4 tenant-owned trailers who are paying lot rent. You want to understand how electricity is delivered - everything metered individually or one big commercial bill. 

 I hate to say this but the search function has been a point of constant chagrin for years. I don't have an Apple so I can't speak to that but I will pass off to @Ashlee Perry to see if you can get some help. 

Good replies so far. Part of it depends on your market, but it's pretty rare we get people looking at a unit at the beginning of the month that can't move in for an entire extra month - most people who view our properties have already given notice, or are moving from somewhere else, or their lease is just expiring so they're free. Occasionally we have someone look at a property that's available on January 1, for example, put on their application that they are looking for a 4/1 move in date. We just generally ignore those applications because the house will be long gone by then. We start advertising as soon as reasonably practical - hopefully 1-2 weeks still into the previous tenant's occupancy - and start showing as soon as reasonably practical, meaning if the current tenant is a neatnik without animals, usually right away, if they're slobs then after they are out assuming there's no major damages. We don't worry about whether cleaning is complete yet or not unless it's a total slob hole because people can see past dust on blinds and the floor needs to be mopped. Don't take up valuable time waiting for things that will be complete before the new tenant ever takes over. Also, about 30 days before the previous tenant moves out we do a quick walk-through of the house to determine the condition, and then try to do another one when they are substantially moved out (assuming no 1-day big move) so that before they ever go we can have any repairs lined up on day 1, sometimes while they're still there. 

Once the unit can be shown we prioritize good tenants with immediate occupancy. From experience there's nothing to be gained waiting for a tenant that's marginally better but wants to wait 3 months to move in, unless they are willing to pay rent on the unit for that time period in which case we're happy to keep an eye on the place until they move in. 

 I had to look at the financial spreadsheets a couple of times to understand what I was looking at. I think his saving grace is that he's got almost $600k of what could be liquid savings between the 401k and the Roths, so although there's a cost of doing business there he does have some mattress. Beyond that I don't disagree with you at all. Personally, I'm baffled at the bad rap working gets from younger people. I don't know what kids learn if their parents just stay home all day and ride bikes or kayak. I think if I was a kid, and all of my friend's parents had jobs and my parents just rode bikes all day, I'd think we were pretty rich even if my parents told me we were eating off a dumpster dive kitchen table and buying 2-day old donuts 🤣. It would also say to me that just having fun and indulging my whims was really the only thing that mattered in life, that working was for suckers. That's the lesson I'm most disturbed about the "retire at 25" mindset today. 

Beyond that, my thoughts:

1. I can't see $600/month for health insurance for 7 people. That just doesn't make sense to me, considering that I wrote & negotiated our company health insurance for over 20 years, and it can't possibly cover deductibles, medication, vision, or much else. Even if it's being bought off the interchange, it has to be subsidized, which then really makes everyone else look like suckers if someone can own $4 million of RE and ride bikes and then buy subsidized health insurance. Something about it just feels unfair. But more importantly it's not realistic. 

2. I agree that the vacancy, maintenance & cap ex are likely grossly underestimated and likely to eat into some of that cushion. That said, he has some expenses in there that he could always cut like church donations and travel and such. 

3. His occupation is listed as a mechanical engineer. That seems like such a talent to waste especially since it probably took a lot of time and money to achieve - either paid for by his parents, or perhaps subsidized by the taxpayers because we need talented people in society. 

Maybe I just don't get it because I come from a different generation, but the people I looked up to found noble purpose in meaningful work. I'm sure Einstein could have spent his later years tubing and riding mountain bikes but instead he spent a lot of his time and effort trying to prevent nuclear holocaust and still researching all the way up to the end. Work is not just a way of providing for your family, it's a way of providing support to all of society. To me, the "retire and goof around" mindset is just a big F U to the rest of society, and that doesn't seem very healthy or sustainable long-term. 

 That's for sure. I don't like it at all compared to my long term rentals, but I kind of boxed myself into it as the house needs to help pay for some of its own keep. In a couple of years I think I will probably just let friends and family use it when we're not there in the winter because I'm just not a big fan.