All Forum Posts by: Joseph Taub

We rent rooms in our house, and one morning woke up smelling gas *throughout* the house. Our tenants somehow had not turned off the gas range all the way after cooking. These tenants also liked candles....

OK, so I guess no more candles allowed. Lesson learned. But even so, natural gas could be ignited by other things too.

It seems like every natural gas detector I see online is "plug-in" only. Well, that's not really tenant proof if the tenant can just go "Oh, I need this outlet for a few minutes to charge my iphone so I can post to Instagram," then totally forget about it. Then cook. Then blow up the house.

I would just replace it with an electric range, except we live here too and use it to cook, and we are in CA where electricity costs more than bitcoin. 

Anyone have any ideas for "tenant-proof" natural gas detection and alarm?

Hi folks, as the title suggests, I'm trying to figure out if there are any limits on the number of renters you can have in a single family house in La Mirada, CA (which is in LA County). I know some municipalities only allow "x number of unrelated adults." I can pay a visit to the city, but I was hoping to find an answer online today.

I'm in escrow to buy a house, nearing the end of my inspection period. I plan on renting some rooms to students of the local university. I know other landlords in the area rent out to large numbers of students at a time, but for all I know, they might be violating local ordinances. Just want to cover all my bases. 

I've read sections of the municipal code on residential zoning before, but not for this question, and now I'm having trouble finding the text of the code again, and I don't know what section I would find the answer in anyway.  I don't recall seeing anything limiting the number of residents, other than a square footage per person requirement. 

Anyone in the LA County area have some insight on this, or how best to find out? It would be much appreciated :)

I don't have any properties yet myself, but I've wondered about the same thing. As you say, the number you use for CapEx can dramatically alter the deal. Not conservative enough, and poof there goes your cash flow. Too conservative and you'll never buy anything. 1, 2, and 5 look arbitrary, whereas 3 & 4 require a detailed dataset to get right. What to do...

I imagine that as I gain experience and track accurate data on my portfolio this will allow for greater and greater accuracy in capex projections. I guess my thought in the meantime is to use method #2 (or #5) to make sure there's a good probability of cash flow, then just keep enough cash reserves on hand to manage risk. How much will depend on one's risk tolerance. I hear a lot of folks say keep 6 months operating expenses on hand. 

So I'm thinking maybe keep that amount plus a buffer amount in case I need to sustain operations for 6mo and make a capex. Maybe as one's portfolio grows and diversifies you can fine tune this. When I have to dip into it, replenish it (from cash flow, w2, whatever) with a sense of urgency. Over time, unload any properties that aren't performing, try to get more precise with the next property.

In cases where you do a rehab or a BRRRR or something, seems like you can get a better idea of your expected capex, since you know the condition of everything.

But heck, what do I know?

Thanks @Jana Cain for your thoughts. It sounds like I'm not crazy at least. I can appreciate the complexity of distributing bulk expenses across many properties. It just seemed like this seller did not want to give me much of anything to work with for seeing income history. They did give me leases to look at, but there were some other issues that arose to the point where I was uncertain whether I could make the deal work.

Thanks @Ben Day. You know, the funny thing is, I'm told this seller has been a developer of houses and small multifamilies in the area for many years. So I'm surprised by the minimalist bookkeeping.

Thanks @Linda Weygant....I had the same thought about the IRS: I bet if they were audited they'd come up with some figures pretty quick! I ended up passing on this deal (they also gave me resistance on the Estoppels, which I did ask for), but I like all of your suggestions. It gives me a good picture of what to do when I encounter this sort of thing again, which unfortunately seems pretty likely :/

Hi folks,

TLDR: How would you (or would you?) accommodate a buyer's request for detailed rental and financial history, when selling only a small segment of your overall portfolio? Part II: what are some best practices when just getting started, to keep the whole transaction history for my first property separate so I can easily provide that information to a buyer years down the road?

This is a follow-up to my last post, wherein I was contemplating walking away from my first potential deal (I did), mainly because of the inability to see any sort of detailed financial history for the 8-unit property.

I tried doing some searching for my particular question in the forums, but I can't seem to figure out the right keywords. I just dig up all the threads about bookkeeping software.

The issue was, the seller did not separate his income & expenses, profit & loss, etc. for this property from all his others--I don't know how many, lets say he has 100 doors. Nor did he keep a rent roll in his self-management, to my knowledge. So he was either unable or unwilling to show me those detailed financials. I told my agent I need to see details like that to be comfortable moving on a deal of this size (8 units is big for me). My agent, also an investor with say around 100 doors, expressed skepticism that sellers will be willing or able to break out these kind of details when selling a small segment of their portfolio, and cited the expenses of a CPA keeping track of 100 LLC's as a deterrent to keeping properties separate.

I had assumed that it is a relatively easy matter to keep transactions for separate properties separate. Isn't this just what a good bookkeeper does? Does each property have to be in a separate LLC for this? Is, therefore, paying a CPA out the nose the only way to have a reasonably clear financial history for each property you own? Is it difficult/impossible if you use only one bank account?

 Thanks Joel, this was kind of what I was thinking. And when I underwrote the deal with "worst outcome" assumptions, it quickly became a not so great deal at the seller's asking price. 

Thanks also to everyone else who contributed, if I didn't tag you--I still considered your advice :) I've decided to walk away from this one. Just too many question marks (and it seems like every time I got an answer from the seller, it just raised more questions). I'll be writing a follow-up post with some more questions that arose from this situation.

Thanks @Paul Younger, at this point I'm basically looking to make some kind of addendum. Since the seller hasn't differentiated this property's income from his other properties, and hasn't kept a detailed rent roll, I've asked to see copies of all current and previous leases to try to reconstruct some kind of occupancy timeline. Then I've also asked to have tenants sign an estoppel document before closing. If the seller is amenable to this, I'll put some verbiage about it in the contract.

Looking at what other apartments of similar quality in the area are charging and Cabot's overall rental occupancy rate, I think it's reasonable to expect this property to rent well. So my thought is I mainly need to make sure there aren't unacceptable terms in the current leases.

On the other hand, I've now found out that tenants don't pay water, so I'll have to find out if they're even set up to be metered separately, or if they can be sub-metered. The deal's income won't support paying water bills.

@Wayne Brooks, I would have thought so too. I tried all of those approaches yesterday. So far, I can't figure out the county site. Maybe they can help me over the phone on Monday. I relayed questions to the seller about these items, and didn't really get complete answers back...including no clarity on the tax ID. The listing says they were built in 2016, but the listing agent is saying that since they are new they don't have tax records yet...is this normal?

@Mike McCarthy, thanks for pointing that out. I did see that clause as well the last time I read it over, so I will be pointing it out if it comes up again.

My agent was at least able to convey to the seller that I will want to see leases and proof of income history (as will the lender). They're willing to share leases with names and personal info blacked out, but profit and loss is lumped together with all the seller's other properties and they can't break it out. I assume this just means it would be a major hassle to break it out, not literally impossible? 

It's worth pointing out that my agent is also a pretty successful investor, which is why I wanted to work with him, and doesn't seem to be bothered by any of  this. He seems to think more along the lines of "if the inherited tenants stop paying, just evict them." But my thinking is, the property is advertised with very high rent for the area, so I want to see proof that it has actually been getting it. If rent were much lower, the deal isn't nearly as attractive.

Another question: is it normal for communication between buyer and seller to be this difficult? It seems like what I want to know, or what I'm offering to do on my end, keeps getting lost in the shuffle. 

Thank you all for your feedback.

@Wayne Brooks, I don't know that she implied that she's been the one to do it when we spoke. That's probably just me not knowing how to talk about it correctly. She's seen it done at least, so it seems. As you say, if the seller is willing--hope I didn't sound flippant about your advice. If I do end up getting this deal done I'll come back and let you know what procedure we follow.

@Steve Babiak, thanks for bringing up those items. I had not considered all of those specifically, though I did expect there would likely be complications. My mindset was, if I try to answer every question up front I may never get started. Getting two residential loans would require splitting the parcel so if we couldn't do it then I'm of the understanding my financing contingency would apply. From what I understand, the seller is the original owner who built the buildings or had them built, so he should know a lot about the way they're set up. Sounds like next steps are to find out about these items and whether it's likely to even be possible. Thank you.

@Dustin Davis, thank you. Sounds like I'm not being super unreasonable. Is there particular verbiage you use to make the contract contingent upon your "approval" of the lease, rent roll, etc.? Do you think it's bad for reputation to back out of the deal if a contingency is not met, or just if you back out for no good reason?

@Wayne Brooks, do you just make the due diligence clause based on "buyer's sole opinion" of what's good enough? I'm having trouble figuring out how to indicate that I'm serious about this deal and not going to nitpick every little discrepancy; I just want to see proof of income, as with any business. Regarding the one parcel, my lender seems to think it will not be a problem to divide it, something she's done before. I guess I'll make sure we confirm that it's possible before spending a bunch of money on inspections/appraisals. Thanks for bringing that up.