All Forum Posts by: Ken Dunn

I would think long and hard before renting to any friends or family.

If it came down to it, would you actually evict your Dad or brothers?

Neither would I….and that is exactly the reason I would never rent to a friend nor a family member.

You are running a business. Keep it separate from your personal life.

Hope this helps,

Ken

@Lauren Zuend - to save me a lot of typing, see my recent response to the post “Aspiring Investor Moving to Dallas, TX”. 

I believe it will give you some helpful input to Part 1 of your two-part question - and a solid list of some of the best RE books ever written.

All the best,

Ken

As a roofing contractor, if I need to quickly give a rough price estimate a good rule of thumb is 1/3 materials, 1/3 labor and 1/3 profit. Of course, upgrading to higher end materials/shingles will throw that component out of balance. 

The low end roofers who do not carry insurance, run their business out of their truck, and use the cheapest materials are fine with only a 25% profit margin. They are also at the front of the line for the 80% of roofers that go out of business every 2-3 years.

Hope that helps.

Ken

@Zachary Beland - Welcome to the BP family. To save me a lot of typing, see my recent response to the post “Aspiring Investor Moving to Dallas, TX”. It should give you some good ideas.

Best regards,

Ken

@Stephanie DeBerry - It’s late and I’m about to sign off but saw your post and wanted to give you some things to consider. 

Since we are getting so close to Thanksgiving and the Holidays/winter it will be more difficult to find a tenant.

Since the tenant will be on a month to month it gives you a lot more flexibility to decide when they need to leave - see my recent response to the post “Mostly Month to Month Tenants in Multifamily - Big Red Flag?”.

I would let the 2nd tenant stay. Even with only 2.3x rent for income, they may never miss a payment. Some folks know how to stretch a dollar. They may also have friends/family willing to help them out.

I would also encourage them to find a well qualified replacement roommate for the tenant that is moving out on Nov 24th. That should easily push them above the 3x rent rule.

On the other hand, if you’re in a hot market, you could give them a 30 day notice so you can get full market rent… or talk to them about making preparations to move out on Jan 1st or Feb/March. 

It really just depends on how flexible you want to be. 

For a tenant that takes good care of the property, is respectful to you, and pays rent on time I tend to be pretty flexible.

I also recommend getting Brandon & Heather Turner’s book on managing rental properties, listening to podcasts /watching YouTube videos on the topic, and building a reference library of books and CD’s so you will be well informed and prepared to manage your property and your tenants.

Hope this helps,

Ken :)

@Hunter Woolsey - I forgot to mention, I also have a mortgage broker in Dallas that has been very helpful with traditional financing, even with multiple mortgages on our credit report. 

We used him to purchase two 4-plex properties last January. My wife says he is the first mortgage broker she has worked with who really understands the needs of RE investors (like the income on your tax return reflects the wonderful write offs the Federal Government provides to RE investors).

He will work to find ways to get you financed. If he cannot, I doubt anyone could.

Feel free to shoot me a PM if you (or anyone else) want his contact info.

Cheers,

Ken

@Hunter Woolsey - I recommend finding a portfolio lender. These are typically local (not national) banks that lend their own money. Because it is their money, they do not need to meet Fannie Mae lending guidelines and are therefore more flexible. They will likely charge a little more in interest (around 1%) and origination fees but it is worth it.

My wife is a former financial advisor and she handles our loans/financing so I do not know a lot about that side of the fence, except for my RE reading/studies. 

I focus on managing our properties/tenants.

I do know that our portfolio lender in Texas (shoot me a PM if you want the name) allows us to purchase our rentals under our LLC and these particular properties do not show up on our credit report - hence no impact on our Debt to Income Ratio.

The properties we have with traditional financing do impact our DTI.

As long as we have the cash reserves, 20% down and income to support the loans (plus an Appraisal Report with positive findings) we are good for another loan.

We do have to report every quarter showing rental status (occupied, not occupied) rent amount, Principal and Interest payments, Insurance and Property Taxes. The spreadsheet automatically calculates the DSCR (Debt Service Coverage Ratio) for each property.

I believe they want a minimum DSCR of 1.20 to do a loan on a property.

Over the years I've been able to move our DSCR average to 1.50 and soon to be 1.60 on our portfolio of properties. Most of this is from raising rents, but we also have refinanced a few properties back in March to lock in these historically low interest rates for 30 years, which reduced our monthly expenses and raised our DSCR since we took no cash out.

Hope this helps.

Ken :)

@Jasmine Smith - welcome to the BP family. I’ve read the responses from others and agree that doing a house hack is likely the best place to start. Probably something that does not need extensive rehab. I also agree that you should not use a wholesaler until you have more experience. Some wholesalers may take advantage of a new investor and if you back out of the deal with one, you will likely lose your earnest money deposit, usually $5K.

Because the FIRST investment deal is so crucial (if it goes well you will most definitely continue your REI journey, if it goes badly you may never want to buy another investment property) I suggest that you first spend a good amount of time (3-6 months or even longer) to educate yourself on how to become a successful real estate investor in the particular niche (house hack, BRRRR, single family, multi-family, wholesale, flip…) that you will pursue.

At the same time, learn your market so you know what rent rate and ARV you can expect for a given property. Go to open houses, check out Zillow, the BP calculators and other online resources. Analyze a lot of deals so you can actually recognize a good one and be ready to jump when a good deal comes across your radar.

Develop your criteria and be specific on what you are looking for - (location, type, minimum cash flow, minimum CoCR..etc). This makes it much easier to quickly eliminate properties that do not meet your criteria and will save you and your realtor many hours.

I recommend keeping any rental units within a 30 minute drive from your home, less drive time is even better. This is critical if you will self manage. 

Get financing in place so you can move quickly on a deal. Find out what documentation your banker requires, what LTV will they give you (what % you need to put down), it helps if you can get a Pre Approval letter. NOTE - if the property needs a lot of rehab, a traditional lender most likely will not touch it. You can refinance after repairs are done using a traditional lender.

Develop your team - investor friendly realtor, investor friendly banker/loan officer, insurance agent, contractors, handyman…etc.

Do not do what I did back in 2006 and spend $3K on a Robert Allen weekend seminar. There are plenty of online resources for FREE. Although I did recoup my $3K, since my first deal shortly after the seminar was a flip with $25K profit. I likely would not have done that flip without some dedicated training to give me some level of confidence… and dogged determination to not waste my $3K by taking no action.

You should start building a resource library of books to read and CD’s / podcasts to listen to while you drive. The BP podcasts are great. There are others that do a great job too. Make you car a “University on Wheels”.

Here is my list of recommendations for some books. The first 3 are absolute must reads:

1) The Richest Man in Babylon by George Clason

2) Rich Dad Poor Dad by Robert Kiyosaki

3) The Millionaire Real Estate Investor by Gary Keller

Several great books by Brandon Turner and David Greene of BP fame.

Build a Rental Property Empire - Mark Ferguson

The Weekend Millionaire’s Secrets to Investing in Real Estate - Mike Summey & Roger Dawson

How to Get Started in Real Estate Investing - Robert Irwin

FLIP: How to Find, Fix, and Sell Houses for Profit - Gary Keller, Clay Davis, Rick Villani

What Every Real Estate Investor Needs to Know About Cash Flow…and 36 Other Key Financial Measures - Frank Gallinelli

Set for Life - Scott Trench of BP

Anything by Ken McElroy (Rich Dad Advisor)

Feel free to PM me if I can be of further assistance. I’m not even sure how that is done, but I’ve seen others post it so it must be doable on this BP site.

“Formal education will make you a living. Self-education will make you a fortune.” ~ Jim Rohn

Hope this helps,

Ken

 I have only evicted for Non Payment of Rent. It is pretty cut and dry, they either paid the rent or they did not. I imagine the only other “slam dunk” evictions would be a drug bust in the property or something similar, or if you have a security camera showing clear proof of violations (like an unauthorized “guest” living in unit and coming and going on a daily basis, damage to property, assault…etc).

You can call witnesses (typically other tenants or neighbors) but they must show up in court as no “hearsay” is admissible. The person giving testimony must have seen/heard the act themselves, in-person. You will likely need to provide a paper trail proving you provided written warnings / cease and desist notices to the tenants for said minor violations.

Even then, you never know for sure if the judge will rule in your favor.

That is why it is always easiest to evict for Non Payment of Rent. Very easy to prove..or for tenant to NOT be able to prove they paid rent. 

Just pay very close attention to the legal steps/requirements to evict in your State, or else the tenant may win on a minor technicality and you have to start all over.

You can always wait for the Lease to expire then give proper notice that you will NOT be renewing the Lease. 

If the tenant stays after this date then they are a “Hold Over Tenant” and can be evicted on those grounds. 

Some Leases allow penalties of up to 3 times the rent (calculated on a daily basis) for Holdover Tenants. Refer to your Lease.

Of course, it is rare to actually collect any $$ on judgements that you win. The real goal of eviction (in my opinion) is to simply get the tenant out so you can gain control of the property and re-rent to a new tenant that will pay rent.

If the eviction goes all the way (where tenant does not vacate, you get a Writ of Possession, the constable shows up and you/your crew remove belongings to the curb) the tenant will have it on their record for 7 years. It will be difficult for them to find a landlord willing to rent to them.

Hope this helps.

Ken

@Joseph Lyons - CONGRATULATIONS on starting your journey in real estate investing and welcome to the BP family!

It’s been a long day and I’m about to log off. See my recent response to post “Mostly Month to Month Tenants in Multifamily”.

Briefly - I would definitely move tenants to paying their own utilities that have their own meter. To reduce your water costs, do a “water walk through” and ensure each and every faucet and toilet does NOT drip or run. New toilet flappers are a cheap, easy fix.

Move quickly on rehab so you can rent ASAP before Thanksgiving and the holidays.

Get Brandon and Heather Turner’s book on managing rental properties.

Build a reference library, listen to RE podcasts and continue to self-educate.

“Formal education will make you a living. Self-education will make you a fortune.” Jim Rohn

Hope this helps.

Ken