All Forum Posts by: Kenny Dahill

@John Lunias, it sounds like you're torn between wanting to treat them fairly and not lose additional profit.  Which is fair but often counterproductive.

My best advice: justify and explain the raised rents if you want to keep the tenants.  Sounds like you already have.

You can literally show the increase in property taxes year-to-year, that's public info.  And most reasonable tenants will understand if you bring it to their attention.  For grandma, bring it to their attention about the extra water another human uses.  In the new lease, either add an extended guest clause with a fee due to the water or add her to the lease which helps justify increased utilities fees.  Nobody likes to pay more but if you can justify why you're raising rents then you'll increase your odds of retaining them.

On the other end, I look at the risk:reward.  For $20 more per month, what if they move out?  Now you have a vacancy, repairs and additional expenses that could easily be $1k+, all for an additional $240 annually.  I wouldn't make that small of an increase as that's annoying and risky.  Ask your tenants if they want to sign another 2-year lease but this time add in the $50 discount as a 2-year offer only and clearly state month-25's rent indicating an automatic increase of $50.

Lastly, I'm sure you mean no mal intent but be aware of your Asian descent comment. National origin and race are both protected classes from FHA. Therefore, you could get in a lot of trouble justifying an increase of rent because their culture "prefers fresh air". Especially when you immediately followed that with there's no outside venting fan.

Hi @Jeffrey Suarez, I'll do my best to provide some high level answers but some of these should be addressed by specialist you retain.

1) Cap Gains: It sounds like you're divorce, not sure if remarried, but it's $250k for individuals and $500k for couples.  You must live in the home 2 of the last 5 years as your primary.  These terms can differ from year-to-year, admin-to-admin tho.

2) Lender:  As long as you keep it your primary, I don't see what the issue would be.  Now, if you refi'd as a primary and moved out completely then that would be mortgage fraud.

3)  Drawings:  Typically your local jurisdiction will require a stamp on those drawings.  Call your building/permitting department and ask them what they will require.  They'll state that anyways it is structurally sound, what about the new load you're adding and yada yada.  The designs will need to meet life safety requirements as well: egress, windows and door sizes, etc.

Can't help you with the Arizona property except to acknowledge it's an awesome state!

@Shivam Patel, as long as you use the property as its intended finance purpose, you should be fine. It would be mortgage fraud if you said primary but used it as a rental.  You already acknowledged having to make that decision tho.

I’m a little biased for software solution but there’s plenty of good options out there.

@Matthew Purvis, it sounds like the tenants are intending to move out but unless the lease is amended, they can always back out of their verbal.  Make sure to get a lease addendum that terminates the lease agreement, or revises the end date.  Then you'll know 100% they're moving out end of the month.

@Nathan Gesner always has legit responses.  Thought that was a great concept of utilizing a 2x rent:income.

Credit score is a point in time.  Do some due diligence to better understand if their credit scores are increasing or decreasing.  A good credit report will show their recent defaults or late payments.  If it's 4 friends/co-workers then perhaps they're all younger and haven't built up their credit.  Big difference from initially building up your credit vs. repairing, IMO.

If they are younger and you decide it's worth progressing in the application process, ask about co-signers.  Typically their parents.  That'll add more responsibility to ensure they don't ruin their parents reputation.  The only times I've rented to 3+ separate individuals, they all had co-signers.

Agree 100% with @Nathan Gesner.

You might be responsible for finding alternative housing as well.

I wouldn't wait on the PM to respond.  If you're able to get in there, or hire a home remediation contractor, with fans and start drying it out ASAP.  You don't want mold.

@Chris Lo, focus on the net expense of property management.  It's more than their monthly fees.

I view property management in different tiers.  Property management makes sense for larger portfolios or investors that I call 'wealthy individuals'.  Essentially those who are diversifying, perhaps their accountant or financial planner advised them too.  Some hire out because they're either afraid or have zero desire to manage.

However, for smaller portfolios and properties with mortgages, it doesn't always make sense.  A single unit doesn't take a lot to manage.  For my 5 rentals, I cannot justify 10-18% annually for something that takes me 5 mins per month.  If you have a mortgage on the property, the gross profit is probably $200-800 per month without management.  So an additional $100 per month in expenses is 15%-50% of potential profit.  And that doesn't include additional maintenance costs, which seems to be the most common frustration amongst landlords.

Similar to real estate, every landlord and their needs are unique.  Depending on your goals and desire, you may or may not justify hiring a property manager.

It's also best to keep any sales tractions as a separate deal/agreement when using the same PM.  It's a great service they provide since they know other landlords who might be selling.  That's one of the best advantages to hiring a PM, IMO.

@Shivam Patel, congrats on the triplex!

Since the leases don't end until June, there's not much you can do to move in early.  Unless you negotiate with the tenants to move out early.

While the tenants still occupy, I'd take this opportunity to get all your contractor pricing, materials ordered, and schedule figured out.  This allows you to start immediately upon tenant move out.

For the third unit, do you want the current tenants to know you're the landlord?  Some prefer to keep it a secret so they're not bother all the time.  If you wish to keep it a secret, I'd use online rent collection so it also provides a more professional experience.  Regardless of keeping it a secret, set your boundaries and communicate them to the tenants.

Best of luck!  BP is your place to be if you need more advice.

Sure thing!

@Semilore Lawal, you're going to hate this response: it depends.

Each has their own unique pro's and con's.  The biggest financial advantage to commercial is the ability to reposition an asset and 'force appreciation'.  You raise the rents, boom, value of asset has increased.

Commercial is more challenging to get into.  Banker's want to know you know your stuff with commercial buildings and won't fail.  The assets generally cost more.

Residential is easier to get into.  Doesn't require as much experience.  Plus, you can get tax benefits from capital gains if you lived in it as your primary for 2 of the last 5 years.