All Forum Posts by: John Clark

"Over the course of 15 years you could get 7 properties paid off . . . "
---------------------------------
First question: How do you get to those 7 properties? If you already have them, and look to start winding down, that makes sense. If you are just starting out, but you have a chunk of money and can handle 7 properties now, then buying them and then working down the debt makes sense, too -- if you don't want to get much bigger than seven properties. Spending thirty years acquiring the 7 seven properties because you are paying one off and then adding the next one makes your above statement irrelevant.

Second question: How much risk are you willing to take and still sleep at night? Landlords without debt are in better position (I didn't say great, I said "better") to weather downturns and rent moritoria than those leveraged to the hilt. Check with your wife before you answer.

Third question: What is your desired scale of operation? If you want to be small and solid then a low growth, high return, probably suits you better. If you want a hundred doors in the next 15 years, you won't do it without leverage.

Fourth question: What are the alternate uses for you money? What are the returns on those investments?

Ignore ideological answers like "always be buying" and other brainless crap like that. ideology is an excuse for not thinking. Answer for yourself the above questions and proceed accordingly. You might wind up with a hybrid approach, or with a straight line doctrinaire answer. The answer is in your gut.

1. Don't do kitchen cabinets by yourself unless you have plenty of experience. You will do a bad job, it will stick out like a sore thumb, and you will have to redo them, thereby blowing your October move in. Pay the money and get them done right by someone who specializes in painting kitchen cabinets.

2. Scratch the microwave from your appliance package unless you're doing built in. Spend extra on your stove vent -- you do not want grease and smells building up.

3. $1,600 for white quartz countertops? No. Something's wrong there. Too cheap. Also, Quartz WILL get burned/melted. The tenants won't care. Do granite and on your six-month walk through inspection re-seal the counter top then.

4. Floor -- What are your competitors doing? If they are doing select grade red oak, then you are doing select grade red oak. If they are doing less then you can get away with less. Personally, I go to the top of the line on fixtures like that, on the grounds that I can get higher rents, it's easier to raise rents, it's easier to sell when you want to sell, and the tenants will stay longer. They grow accustomed to nice oak floors and when they shop around rather than pay your rent increase, they will notice that the floors in your competition aren't as good, bite the bullet, and re-sign with you.

5. I skimp on the stove and splurge on the fridge and dishwasher. Usually the husband isn't cooking, so he's neutral on the stove. He does use the fridge, though, and he does use the dishwasher, so both spouses pay attention to those. Also, you can upgrade the stove after a few years if the tenants renew (an enticement). Again, they bite the bullet and re-sign.

It's not your expenses that kill you, it's you loss of income from vacancies.

If a property isn't appreciating then I want to know WHY it isn't appreciating. Some people are okay with C/D neighborhoods. Others aren't. I can tell you right now, however, that A/B neighborhoods with stagnating property values aren't going to stay A/B neighborhoods very long. As we all know, property class indicates the type of tenant you wind up getting. 
I'm not talking about getting crazy bubble appreciation like Vancouver, Canada or or San Francisco, but the steady, constant , appreciation that comes from a well maintained, solid community with competitive advantages over other places (near mass transit, etc).

So a lack of appreciation is a warning sign and I have to ask myself; "Do I want to be in this neighborhood (or city)?"

Appreciation isn't something to buy for, it's something to buy into. Use it to help select the neighborhoods you want to invest in. Try to cash flow in areas that are on the cusp of appreciation.

" Overpriced." Always the answer. Overpricing takes a variety of forms -- Is your unit an illegal rental (cash flow)? Does your unit need work/upgrades that you are low estimating the costs for? Is your unit on a lower floor? (I once had a landlord tell me that my unit, on the second floor facing away from both the City and the lake was comparable to a unit on the 14th floor facing the City with some lake views.

Layout?

"However and more concerning for people here would be ...  inheritance issues for business owners."
-----------------------------------------
Please take a 101 US history survey course about the late 1800s,early  1900s. You could also search the internet for the phrase "malfactors of great wealth" and note the party of the president who said it. AND, before people start whining, note the size of estates before estate taxes commence. Most sales of the "family farm" came not from having to pay estate taxes, but from the one sibling desiring to carry on not being able to buy out the others -- the number of siblings is a real factor, as even in the late 1950s, the US department of agriculture had a question on its farm loan applications: How many sons do you have?

"OK. So I have no incentive to sell in my lifetime. My kids have no incentive to sell in theirs. Same for the grandkids. Lands stays in families forever. Leave it to Joe Biden to come up with a formula to get us back to the middle ages. "
------------------------------------
Estate taxes. Your kids sell when you die.

"IMHO you can have an income requirement that requires funds equal to the duration of the lease term (which could likely be around $50k or a little more than $4k/month for one year) as part of your policy as long as you apply it consistently."

----------------------------------

I thing you will encounter that courts would not find requiring a year's lease amount in liquid assets separate and apart from income to be commercially reasonable. Rather, the court would find that such a requirement is a pretext, and had a disparate impact on a protected class (race).

"if $50K saving is discriminitary, then you can say 3X income is also discriminatory since blacks and latino are less likely to earn that income...."
----------------------------------------------
You miss the salient point: Rational relationship. Income that is 3X rent has been shown to be rationally related to one's ability to afford the rent (look up "rent burdened" some time). Therefore 3X rent/income ratio is acceptable.

That is not the case with having renters have $50k in savings, which is just about the median income of families in the US. I don't know if you want $50k per tenant, but that just makes your position even more ridiculous. People pay rent out of current income, not savings. Saving are only to help for a rough patch.

So unless you can show a rational relationship between insisting on $50k in liquid assets and paying rent, you are running a severe risk of disparate impact discrimination.

"so Sue's comment about the $50k is not discriminatory as long you apply it to ALL your applicants"

------------------------------------------------------

Actually, you and Sue are wrong. Unless the owner can show that there is a reasonable relationship between a minimum of $50,000 in liquid savings and protecting the landlord's interests, and that a lesser sum would not do, the owner stands to get nailed for disparate impact racial discrimination. Far fewer black or latino prospective tenants will have the requisite trump than white prospective tenants. For background, start with Griggs v Duke Power.

"How are 3 people going to share 1 bathroom? Seriously?"

---------------------------------------

You must be quite the princess if you think 3 people cannot easily share a bathroom. My parents and three siblings (a total of six of us) shared one bathroom when I was growing up. Inconvenient? At times.

Look at the local government's laws for the number of square feet required per occupant. That is different from the number of people per bedroom. Also see if there is a requirement of one bedroom per person unless they are sleeping together. If they are planning on converting a living room into a bedroom, for example, you MAY have a reason to say "No." I don't know. Check your local laws.

But three to a bathroom? No problem.