All Forum Posts by: Jon Coleman

@Lynette P. Congrats on your first post (and possibly first investment?)!  How long have the tenants been living there?  Has the seller given you any indication as to how the tenants have been, such as payment history or issues?  If the inherited tenants have been paying on time and not had issues then it'd be good to try and keep them.

Regarding length of the rental agreement, it may be good to find out more about the tenants' situations and preferences.  Since MTM tends to have higher rates than a 1 year lease, it could be a good opportunity to offer the tenants options, especially if you are looking to bring the rents closer to market rates.  

I'm not familiar with CA rent caps but I doubt a change in ownership would result in an exemption as it seems like it'd be a loophole owners could exploit to circumvent the law (i.e. sell the property to a spouse and then jack up rent).  A quick search turned up info indicating that the cap may be 5% + inflation so there is a bit more flexibility there.  That being said, it is also helpful to balance profitability with the needs of the tenant.  How do your numbers look at the current rent?  How would they look at the max rent increase?  How would they look somewhere in the middle?

Best of luck and I hope everything goes well with your property and tenants!

@Ryan Talmadge The PM company recommended a vendor (since they don't handle snow removal themselves) but the quote was far too high so I wanted to explore other options.  As luck would have it, one of the long-term tenants has been handling the snow for a modest fee so I've asked the PM to see if he is willing to continue.  He is currently paid $25/snowfall to shovel/salt sidewalk and walkways but I'm going to see if he will take on clearing around the cars and a section of the alley for $50/snowfall.  

I ended up hearing from a number of folks that they have their tenants handle snow removal, either for a fee or as a requirement of tenancy, with the latter involving a rotating schedule for who is responsible.  I don't like the idea of foisting the work onto tenants for that, especially since some may be physically unable to do it, and I don't mind paying (I'd just prefer not to have to pay $150 per snowfall!).

I also heard from some people that you should be careful if you pay up front for a season as opposed to paying per snowfall.  The rationale was that they don't have much motivation to get your snow cleared since you've already paid.  I can see that logic although I still find it appealing to be able to pay a flat seasonal amount rather than have another variable expense. 

@Joshua Christensen Thank you for sharing your story!  Folks like to share their successes but rarely want to admit where they've stumbled so it is appreciated that you're willing to be candid about your experiences.

I only recently closed on my first investment property and you're absolutely right that it seems people want to present REI as a massive cash cow and the sure path to wealth (and those same people conveniently can't wait to sell you their advice/books/seminars). While it certainly has benefits, the more I've learned about it the more clearly it seems like less of an investment and more of a job. Having a PM takes some of that work away but it is still night and day compared to the minimal effort required for investments like mutual funds. So many of the experienced investors I've spoken to since I started have talked about shifting their funds into passive investments since they feel, despite their relative success, that REI is more work than it is worth.

It sounds like you have a tremendous amount of experience in REI and that you've gained insight from being on many different sides of it (MLO, realtor, flipper, etc.). Given how many new investors there are on BP and how they may not be able to bring anything but capital and enthusiasm to the table you should have opportunities for partnerships. Splitting profits is certainly going to eat into your earnings and I'm sure the newer investors will need a lot more of your time than an experienced investor but it'd be a way to grow without having to come up with capital. A lot hinges on if you enjoy the mentoring aspect and if you don't mind putting in the extra time/energy, though. Best of luck to you!

I agree with @Jonathan R McLaughlin that if you are thinking you'll be dipping into the money you should avoid retirement accounts.  Having retirement accounts is very important but doesn't sound like a good fit for the funds you are planning to have access to.  

What you should do with the funds depends largely on your goals.  It is good that you have already made a point to lay those out, including having easy access and only keeping it there for 1-2 years.  You certainly could put the funds in the market but you'd need to make sure you have the risk tolerance for it, particularly since it is a fairly short period of time.  The fact that you mentioned cryptocurrency tells me you probably have a fairly high risk tolerance, though!

You may want to consider using a variety of investment vehicles so that you can have varying degrees of liquidity and returns.  While a savings account is rarely the most appealing option, it could be beneficial to keep some funds there for quick/easy access, minimal tax impact (since you'll barely make anything) and allow you to hedge in case the market tanks.  That would allow you to make some riskier investments so that you have opportunities for higher returns.

Starting with the decidedly boring savings account can also be helpful in case you run into sizable expenses on your new purchase.  If you haven't already, you'll want to make sure you have a plan to set aside enough funds to cover for all of the upcoming repairs/replacements on older parts of the home (HVAC, roof, water heater, etc.) as well as funds for the unexpected issues.  If you have that money tied up in riskier investments that are less liquid and potentially lose a lot of their value if the market hits a downturn you'll be in a tough spot.

@Kaitlyn Seigfried That sounds like a very challenging situation.  My understanding is that you will be required to make a reasonable accommodation and allow the animal even if you have a no pets/animals policy.  That being said, they have to provide documentation to prove that it is a service/assistance animal from a reliable source.  You have to give them a reasonable amount of time to do it but just stating "it is an emotional support animal" isn't enough and they should refer to "Guidance on Documenting an Individual’s Need for Assistance Animals in Housing". Here is a helpful piece about documentation: 

"Some websites sell certificates, registrations, and licensing documents for assistance animals to anyone who answers certain questions or participates in a short interview and pays a fee. Under the Fair Housing Act, a housing provider may request reliable documentation when an individual requesting a reasonable accommodation has a disability and disability-related need for an accommodation that are not obvious or otherwise known.35 In HUD's experience, such documentation from the internet is not, by itself, sufficient to reliably establish that an individual has a non-observable disability or disability-related need for an assistance animal. By contrast, many legitimate, licensed health care professionals deliver services remotely, including over the internet. One reliable form of documentation is a note from a person's health care professional that confirms a person's disability and/or need for an animal when the provider has personal knowledge of the individual."

If the tenant doesn't provide you reliable documentation within a reasonable timeframe it appears you aren't required to make an accommodation.  That being said, it'll be a challenging situation and they may not have a hard time convincing a health care professional to give them that documentation.

As far as pet fees/deposits go, it doesn't really look like you can charge them: "A housing provider may exclude or charge a fee or deposit for pets in its discretion and subject to local law but not for service animals or other assistance animals".  While you may not be able to charge your normal pet fees, I don't see where you can't require them to complete an animal addendum (or similar form) so that you have record of the animal.  This may discourage them from trying to sneak in other animals as you can remind them that any animals need to have that form filled out (and you may also need documentation showing the tenant needs multiple emotional support animals, although I'm not sure what the requirements are if someone has more than one).

HUD has a document (Assessing a Person's Request to Have an Animal as a Reasonable Accommodation Under
the Fair Housing Act) providing guidance that, while lengthy, may prove useful for you.  That is where I pulled some of the info from that I provided in this response.

In summary, the tenant will likely be able to keep the animal and you'll be unable to charge fees for it.  While having a signed lease wouldn't have prevented this, it may be good practice in the future to get all documentation signed before move-in and ensure that the prospective tenants are familiar with all of your rules.  Although you'll likely be stuck with the animal despite your policy, don't forget that the tenants still have to follow all of your other rules and terms of the lease.  You obviously shouldn't retaliate against them but if they end up breaking rules or violating the lease they are still just as accountable as your other tenants.

On a side note, you can remind the tenant about the terms of entering the apartment and when notice is given.  I'm assuming your lease has this spelled out but it seems common to list out how much notice is given (12 hours, 24 hours, etc.) as well as the situations where no notice is given (such as where property damage is imminent, like what you've described).

@Kevin Janssen You're right, they are 1 bed/1 bath units.  I'm fortunate that the building is in great shape so there is little work needed.  I didn't spend a ton of time researching rents since we didn't feel we'd need to increase them but from what I could find in the area it seems that $700 wouldn't be unreasonable.  Rents for the property are currently $600 and for most of the units have only gone up about $50 in the last decade.  I have no plans to increase the rent, though, so I haven't spent much time researching it.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Milwaukee.

Purchase price: $254,900
Cash invested: $254,900

First investment property purchase! Cashflow is estimated and the intention is to strike a balance between profitability, affordability, and quality to make the investment a win for all stakeholders.

What made you interested in investing in this type of deal?

We wanted a property that would allow us to keep rents affordable for tenants while ensuring both the quality of the property and the prosperity of the business. This property checked all of the boxes and had been very well maintained by the previous owners.

How did you find this deal and how did you negotiate it?

This property was found by my business partner who had been on the lookout for a 3+ unit brick property in good condition and in an area that balanced safety and affordability. We came in $5K over asking price based on the state of the market but still asked for repairs after the inspection (and received a credit in lieu of repairs). The sellers were great to work with and the whole process was amicable.

How did you finance this deal?

Cash. We considered using traditional financing to capitalize on low rates but elected to maximize cashflow.

How did you add value to the deal?

We are starting off with minor work to address potential tenant concerns and plan to add additional secure storage in the basement for tenants.

What was the outcome?

A quick and smooth closing!

Lessons learned? Challenges?

Getting input from others who work in different parts of real estate has been invaluable. Recommendations in particular were a big help and made it both easier and faster to compare quotes and services. We were fortunate that most everything worked out well for us through closing but the biggest challenge has been working through all of the minutiae and hoping I haven't missed anything.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Investor/mentor - Mike Brumm: A friend-of-a-friend I reached out to and provided me a great deal of valuable advice and input. He also connected me to my realtor, who proved to also be extremely helpful.
Realtor - Paul McKenna: Paul is a fellow investor so he had much more to offer than your average realtor and had both sharp insight and helpful connections.
BP resource - Marcus Auerbach: While we didn't actually work together, his advice on BP and YouTube videos have been very informative.

Find the best balance between making rent affordable, ensure the tenants have good quality of life, and make a reasonable profit.

@Zachary Dorff To add my two cents about Milwaukee, note that the taxes can actually be quite high.  I live in a suburb of Milwaukee and my property taxes are about 2.5%.  I have a property under contract in a different part of Milwaukee and it was last assessed at $167K with property taxes over $4,300 (also about 2.5%).

I've heard it suggested before to budget 5.5-7% of gross operating income for property taxes.  In my (admittedly limited) experience this ballpark value is far too low in Milwaukee and can result in your estimates being far off as the actual taxes could be three to four times that.  If you are analyzing properties in Milwaukee I'd encourage you to check the actual property taxes to get a better picture of the deal (and also note that the taxes may get assessed even higher given soaring property values).  Best of luck!

@Greg M. Good call on potentially adding in the storage as a free bonus.  Once I price out the project I can get a better idea of the feasibility and what a future rent increase might be needed to cover it, although I'm guessing given how long the storage should last with minimal maintenance it wouldn't take much to recoup costs.  Thanks!