All Forum Posts by: Joe P.

@Fradel Schaechter I think another point that might be helpful, is that 1) your criteria for cash flow evaluation is likely sound and 2) I would expect most properties available sale would NOT be cash-flow positive. If every property out there was cash-flow positive, every investor in the world would be picking them up. :)

I live in Philadelphia and would love to invest here in town, but the entry points are too high and anything on MLS is negative cash-flow. You have to get into the outskirts of the city to even get worthwhile deals. However you can venture into other parts near Philadelphia with good access to 95, and find cash flow properties. OK, they're not brand new construction and the tenants may not be the yuppie young professional everyone wants, but the key is good bones, good screening, good cash flow. Sometimes you have to look outside of your current area to find those.

One area that I fear I struggle in is tenant management, or lack thereof. I was burned by my last tenant (and really, my own decisions) because I think I allowed some things to spiral out of control.

Rent-wise, no exceptions -- due on the 1st, 3-day grace period, eviction path starts immediately following the grace period.

But what do folks do about property visits, inside and outside? What do you do if you have a tenant who is just messy, versus a tenant who might be causing damage to the property due to negligence (e.g. letting food rot, attracting pests)?

Ultimately, I'm seeking perhaps a guide or set of best practices that I may be able to instill in my own rentals. I'm starting to ramp up and one of my biggest fears is exactly what I just went through -- a negligent tenant that caused damage to my property. I also want to balance being an insensitive/neurotic landlord/property owner and sort of "setting the tone" with my tenants.

So, curious as to everyone's thoughts/guides/best practices on this.

I report to multiple executives in IT Consulting. I travel a few times a month for work myself. You know what executives and junior executives are looking for? The least amount of time that disrupts their day. There is very little chance you will rent to an "executive" for this property, unless that area caters to certain businesses in a 20-30 minute drive, or less.

Think about this -- you want your executive to fly into O'Hare or Midway, then drive 2 hours out to your property, then drive 2 hours back into the city for clients or meetings or whatever it is they are doing? Snow has a better chance of falling in Florida -- it might happen once a year, but otherwise, don't bet on it. Your plan not only slices the available rental market down to a tiny fraction of the population, but also requires your potential tenant to be silly enough to drive several hours to and from their business interests. I don't know many executives who have that kind of time to be sitting in a car. Not to mention, most executives are flying in and out, perhaps same day. My boss spends 5 days a week on the road and he's in 3 different cities, on average. He can't build a 4 hour commute and a stay in some swank place. He's flying to O'Hare, driving to Bannockburn, driving back to O'Hare, and getting the heck out usually same or next day.

Unless your area has some significant business entities (e.g. large corporations) in a 20-30 minute drive or less, and I do stress entitieS, as in more than one, I think you'll sit vacant for long periods of time.

James -- if he loses the other tenants and has a poop/urine smell that permeates throughout the entire property, don't you think 10,000 is a fraction of the true figure?

I agree that you need to remove emotion and look at facts -- so look at them. He has a destroyed unit, a tenant breaking lease rules, a tenant seemingly out of control, a tenant paying late, and compliant/good tenants who are now complaining about conditions in another unit.

He has 6 months remaining on the bad tenants lease. SIX MONTHS. That's six months more of a dog pooping everywhere, apparently stray animals, late/non-payments, etc.

If I were him, I'd try CFK and get them out ASAP. Do the reno. Keep my existing tenants (and show them I am not going to put up with that garbage, nor am I going to allow their maintained properties to fall into disarray) If it meant not receiving rent for a few months, well, tough. That's why we build in a vacancy percentage in our expenses.

I'm sorry -- the more I flesh this out, just looking at pure facts and what could happen -- this is disastrous. He should cut bait immediately.

@Gabe N. - EVICT or CFK. Do it yesterday.

My last tenant had a dog who I think was pooping on the floor. I didn't see any urine but on the occasional visit I would see poop on my (BRAND NEW HARDWOOD) floor. Then they stopped paying on time. I started the eviction process twice, and they knew the game -- if they paid the rent/late charge/legal fee before the court date, I couldn't evict. I tried to CFK multiple times, they would skirt my conversations or not answer the phone, or not answer the door, or say they couldn't talk unless the other tenant was home. All the runaround. Then when their lease ended (mercifully), I had a house that smelled like stale dog poop and I am fairly certain it attracted mice, who would then die UNDER MY SUBFLOOR and it added to the smell. Long story short, I decided to cut bait on the house because the numbers didn't work, but also the underlying smell problem would prevent me from now renting to another tenant. I refused to put in thousands of dollars to try and correct a whole house smell problem, which would have included ripping out destroyed hardwoods and subflooring.

@Account Closed made a great point about the problem with dogs (and cats in some cases) are the owners. I love animals, but the MOMENT you caught ANY issue -- OUT. OUT OUT OUT OUT OUT. I too will likely NEVER allow pets for the same reason. They are not mine and I cannot trust their care and upkeep will be given the same attention I would give them.

Your other tenants have ALREADY complained. You have a costly reno on the horizon. Do you not see the atomic bomb slowly exploding in front of your eyes? Your bad tenant WILL spiral because they continue to allow this problem to occur (and I think its a signal they've lost control of their lives, in some way), they will continue to pay late or not at all, then you have a hostile tenant refusing to leave because you are a PUSHOVER. Your other tenants will either get angry about the dog barking and take it out on you, in the form of non-payment or worse, and then the SMELL will permeate from there.

I'm begging you...learn from my mistake. In a few months you will have an EMPTY residence, a major renovation needed, un-rentable units because of a permeating smell, and the bank wants their mortgage payment on the first of the month.

Gabe, I hope you don't take this as a rude response. But if I knew you, I'd give you a swift slap across the face -- this is TOXIC, both literally and figuratively. You need to take serious action, and should have already done this at the first sign of trouble. A dog who poops on the floor once is not going to fix the problem itself. A cat who marks their territory might as well be out on the streets because THEY WILL DO IT OVER AND OVER AGAIN.

I believe this shouldn't be a problem, but you will likely have to have 25% down, and calculate another 5-10% in closing costs. If you don't have that in reserves, it'll be an issue for you and whatever bank you wish to work with.

@Peter S. is the missing link here that you are REFINANCING your current property, with the aim to rent it out @ $2700 per month? Then using the cash out from the refinance as a down payment on your next property?

First, I would keep the numbers separate. What is your cash out refinance costing you besides a more hefty PITI? I did not see any other costs, e.g. vacancy, CAPEX, maintenance, utilities, etc. This will add to your $2350 per month PITI and that will definitely hit your numbers.

I don't know if your numbers are right, honestly I'm missing your overall formula above. Again, I'd take each property seperately, work out the P&L for each, and see if the numbers make sense. To me it looks like you're about to take a loss on property 1 with a higher PITI and other expenses eating into any available cash flow. We don't see the numbers for the second property, which might be helpful.

Sorry if this isn't helpful - I just don't quite understand the ROI metric here since you aren't selling your property. Cash flow, cash on cash return, cap rate -- I think these are better indicators whether or not this works. But I certainly defer to more experienced investors if I am missing something.

My knowledge of the Bay Area market is limited, but isn't Oakland still relatively a depressed real estate area in terms of prices?

I would see what type of growth has happened over 5 years in your area -- for instance I like properties that have modest appreciation because I am a cash flow investor. I want properties that make me money month-over-month. Appreciation is just icing on the cake. Places with a wild swing always concern me -- its too speculative (read: risky) to last. I've heard the Bay Area is extremely speculative and prices are out of control.

Then again, if you're buying in Oakland to house hack, and the numbers are right -- the hack covers PITI, perhaps CapEx, maintenance, etc., and gives you some profit every month -- and the rental market is strong, why would you wait for something that may or may not happen?

Saj makes a good point -- can you really expect a price drop of 20% in the Bay Area over the next few years?

See if she would have any recommendations from previous landlords, even recent ones? I think that would be pretty telling. You need to be careful of how much you inquire into the charges, or any part of this woman's life. Discriminatory factors could come into play.

I agree with what others are saying about the sob story, but this woman is being incredibly upfront with you. The mother cosigning is an interesting addendum.

I would also not consider the rent pre-payment; I believe I've heard some horror stories on BP about prepayment. The general consensus, if I recall correctly, is to respond with "great! then you'll have no problem putting that money aside to pay the rent when it is due each month." The prepayment just gets a landlord off of a tenants back, and frankly, I would not want that. I would push for frequent house visits and be extra diligent.

Good luck to you!

Hi all, thanks for the responses - I knew I could count on BP for some help! :)

@Cody Evans the landlord pays common electric (assume the hallway lights and peripherals are on 24/7) but the units pay their own electric. The units share the heating system, and the unit is set at a specific temperature and it is a locked unit (only landlord can change). I'm unaware of any limits but I also have not seen any leases yet; all I know is that the landlord covers those as part of the rent. Ultimately I think this is a mistake and may be one of the ways I can decrease landlord costs for a better CF and COC return.

@Alex V. what a great idea, and I'm ashamed I didn't think of calling the town myself. I ended up doing that and confirming that garbage pickup is part of the taxes, but water/sewer is a quarterly bill and the person on the phone gave me an average dollar amount. I also confirmed there were no other "gotchas" that weren't part of property taxes. Appreciate the thought!

@Grant Miller I'm not sure what's going on with the owner. Getting ANY information has been sort of tough, which is why I think the property has sat on the market for so long. I have no doubt most sellers hide SOMETHING that they find to be a problem, but those problems can either be roadblocks or huge barriers -- just depends on how they are approached. The utilities are split for the units except for common electric (landlord pays), and heating (one heating system for both units, set at a locked temp). As mentioned earlier, I am hearing that heating and water/sewer are part of the rent. Ultimately I believe while this will save the headaches down the line, I'm curious to see how much of a dent they make into the overall profitability of the property. I may be making an offer contingent upon inspection/copies of bills which is not a bad idea at all -- thanks for the insight!