All Forum Posts by: Leo R.

@Albert Johnson easy--you retain the cost of fixing the problem out of the tenant's deposit, and send the tenant an itemized report showing exactly how much it cost to fix the problem (and abide by any other local laws/regs regarding deposit retentions and refunds).

This is what the deposit is for!

Generally, you want to do the repairs yourself or hire one of your own pros to do the repairs. Allowing tenants to do repairs (especially anything involving electric) is a massive liability and usually causes more problems than it solves.

@Nathan Gesner it seems like all this stuff could be a lease violation in several ways (depending on how your lease is set up). I think your best option is to have the tenant get a storage unit, so that they can greatly reduce the amount of stuff they're storing at your property.

A few things to consider:   

1. leases often have sections describing appropriate (and inappropriate) use of the unit. Having stuff stacked to the ceiling and spilling out all over the yard seems like an inappropriate use of the property.  Is it possible to add a section to your lease that specifies how much personal belongings someone can store in the unit? ...perhaps the lease could state that if the tenant exceeds that threshold, then they're required to get a storage unit?  ...I have no idea whether it would be legal to have this in a lease, so you'd want to check with an attorney... but if it is legal, then that seems like a reasonable solution...  

2. leases usually have sections describing cleanliness requirements, and this mess would probably be a violation...as others have mentioned, when the tenant leaves, they'll probably also leave you with a giant cleaning bill if you don't take action first...

3. Perhaps most importantly, all this stuff is probably a fire hazard.  Presumably, a lot of it is combustible. Plus, all this stuff lying around could easily impede ingress/egress. I would assume that the fire marshall would not be pleased if they saw this mess...

Lastly, just from a common-sense perspective, if someone has so much stuff that it's stacked to the ceiling and spilling out all over the yard, then that's an unreasonable amount of stuff, and it's time for the tenant to get a storage unit (or rent a larger place).

Think of it this way: If a tenant owned ten cars, you wouldn't let them park all over the yard and take up every parking space. They'd be required to pay for extra parking spaces, or buy parking spaces at some other place. If a tenant wants to have this much stuff, then they need to rent a place that's large enough to hold all the stuff, or pay for a storage unit. Simple as that.

So, ultimately my suggestion is to look into whether you can design your lease such that you're able to prevent and address hoarding situations. It seems reasonable to me to say to the tenant: "This is a problem because of X, Y, Z. You need to either get a storage unit, or rent a larger space" (of course, be aware that if you rent them a larger unit, they'll likely fill it with more stuff!).

Good luck out there!

@Isaiah Cuellar also keep in mind that if you're in your mid 20s and you already own a property, you're WAY ahead of most people. Time is on your side, man. 

 ...And that's exactly why you run the models--they'll show you how to approach this (and they'll show you all kinds of other hidden opportunities, risks, and alternate paths, as well). 

Good luck!

@Isaiah Cuellar since you're pretty young, if I were in your shoes, I'd be more inclined to build up a portfolio of multiple properties instead of paying off one property fast.

The reason being: one property doesn't produce that much cashflow (even if it's paid off).  Let's say you could snap your fingers and this property could be paid off today. What type of cashflow is that? $2k/mo? $3k/mo?  ...even if it's $5-$6k/mo cashflow, to most people, that's not enough to hang their hat on for the rest of their lives (unless they're living a very conservative lifestyle).

Most people can't retire on the cashflow from one single fam property...but 4, 5, or 6 properties? Now you're talking.

Also, I think you have some assumptions that aren't entirely correct. First, you mentioned that you were concerned that a lender was telling you to pay off the mortgage so he could "make more interest" off you--think about that for a moment, and you'll realize it makes no sense. The faster you pay off that mortgage, the LESS interest the bank makes from you. Does that mean you should pay off the mortgage as fast as possible? Maybe, but maybe not (see below).

Another assumption I'd suggest re-evaluating: you seem concerned that if you have a 30 yr mortgage and you just let the tenant pay it off at the minimal rate, you'll have the mortgage until you're in your 50s. Maybe, but maybe not. A LOT will happen in 30 years, and if you stay focused on REI, you will likely be in a MUCH different position in 5, 10, 15, 20 years from now.

As the years pass, your financial picture will constantly change, and you will constantly re-evaluate your position, options, and goals. Maybe in 10 years, you decide to pay off that 30 yr mortgage in a lump sum. Maybe in 5 years you have a lot of equity, and you decide to do a cashout refi and use the money for other investments. Maybe in 15 years, you've improved the property and rents have increased so much that you can put that extra rent toward paying off the property faster. There are a million possible scenarios that could play out OTHER THAN just having your tenant make the minimum payments for 30 years. (And as others mentioned, just having the tenant make the minimum payments for 30 years isn't a bad option, either--someone else bought you a house!).

The problem is, you probably have relatively little understanding of all the possible scenarios that could play out over the next 5, 10, 15, 20, 30 years--because (I'm assuming), you haven't run many (or any) projection models.

My suggestion is to take a step back, and start running a LOT of projection models. Run projection models for 5, 10, and 15 years with various scenarios (like paying off the property, not paying off the property, acquiring more properties, raising rents at 2%, raising rents at 5%, using rent increases to pay off the mortgage at a snowballing rate, putting cashflow into CDs, putting cashflow into a DP for another property, remodeling the property to increase rents, renting the property by the room, adding tenant storage or other amenities to increase rents, building an ADU at the property, selling the property, STR'ing the property, etc., etc.). Run models that investigate every possible path you can imagine. Seriously, spend three months living, eating, breathing projection models--run projection models until you're running them in your sleep. I'm speaking from experience here: I run projection models almost daily, and over the years, it has made me (and saved me) a LOT of money. In fact, I'd go as far as saying that my net worth is probably double what it would have been thanks to everything I've learned from running countless projection models--without them, I'd be flying blind.

The purpose of running projection models is NOT to perfectly predict the future (nobody can do that). Instead, the purpose of the models is to give you a MUCH better understanding of your options, and what outcomes could occur given various events and decisions--this will give you a much better understanding of what path works best for you (and also which paths would not work well). Running the models will show you not just WHETHER paying off this property fast is the right/wrong move, but WHY it's the right/wrong move (which is critical).

Here's a post I wrote a while back about how to use projection models, and why they're such a critical tool for any real estate investor: https://www.biggerpockets.com/forums/48/topics/1164330-are-y...

Good luck out there!

@Kevin S. as others mentioned, it depends on a million different factors specific to the investor (such as their current cashflow, future cashflow needs, current debts, net worth, other investments, their level of experience in REI, whether they have a w2, their tax situation, how much risk they can tolerate, how active/passive they need to be in the investing strategy, their health status, whether they have dependents, what type of lifestyle they want to have in retirement, etc., etc., etc.). ...A great strategy for one investor might be a terrible strategy for another investor, depending on these types of factors...

You mentioned the option of buying a single property that would cashflow $65k/yr...for some folks, $65k/yr is more than enough to live the lifestyle they want, and for others, $65k/yr would be a drop in the ocean...

Another consideration: let's say they buy that property that cashflows $65k/yr. What grade is that property, what grade is the neighborhood, and how much effort does that property take to manage?  $65k/yr cashflow might be great if it's an A grade property that attracts only the most qualified tenants, and only takes an average of 1-2 hours per month to manage...but $65k/yr to manage a D property that ruins your life? No thanks--I'm not interested in that type of hassle for any amount of money.

...so, as with anything in investing, it all depends...

Good luck out there!

@Shivam Patel  This is one of the most commonly discussed topics on the forums, so here’s my response taken from a previous thread:

Usually, "new investor" and "out of state" don't mix.

I'd suggest reading up on the topic on the forums, where you'll find many examples of inexperienced investors crashing and burning hard trying to do out of state (OOS) REI...the story is usually the same--they had no experience with REI, they couldn't find any cashflowing properties locally, but they saw that properties in other states (often the Midwest) cashflowed well on paper. So, they bought an OOS property (usually a freshly rehabbed A-grade house in a C or D area) because the house looked awesome in pictures, and the cashflow looked good on paper. Fast forward a few months, and they have non-paying tenants who are wrecking the place, and a MIA property manager who (understandably) won't put in the ENORMOUS amount of effort required to manage a property in a C or D area for a small-time client from another state. Think of it from the PM's perspective: if you were them, would you deal with the headaches of a C or D area (non-paying tenants, trashed properties, crime, etc.) for a 10% cut of a single property that rents for $1100-1800/month? ...I wouldn't.

To make matters worse, the property isn't appreciating (because it's in a low appreciation market, or even a depreciating market), and the tenant pool is primarily made up of people with bad credit, low/no income, and a history of property damage at the previous places they've rented. So, now the investor is stuck with a non-appreciating (or even depreciating) property, that only attracts bad tenants, that no PM in their right mind wants to manage. Not a good situation.

Let's put all that aside for a moment, though, and assume you can avoid all those pitfalls. You find an OOS property that appreciates, attracts good tenants, and is easy to manage. Even then, OOS REI will come with some significant challenges...

Specifically, one of the MANY reasons OOS REI is so difficult (esp. for beginners) is that it requires you to assemble, manage, and incentivize a team of people you'll be completely reliant on from hundreds of miles away (sometimes without even meeting those people face to face). That's a huge challenge, even for experienced real estate investors who understand everything their team needs to do, and who have the money to incentivize their team's performance. But, if you're not experienced with the things your team is doing (e.g.; finding, analyzing, acquiring, and managing a property), then it becomes exponentially more difficult.

Think of it this way: forming and managing a team of real estate professionals (agent, inspector, property manager, contractor, etc., etc.) without any real estate experience is a bit like trying to form and manage a law firm without any legal experience, or trying to establish and manage an auto repair shop without any automotive experience--those would be monumental challenges even locally, but doing it from hundreds of miles away is near impossible. Can it be done? Yes. Are there ways of getting started in REI that are a thousand times easier? Definitely.

Trying to go OOS for your first REI deal is a bit like trying to surf a monster 100 foot wave before you've learned to swim, or trying to ski a double black diamond for your very first run.

Fortunately, there are simpler strategies that are much better suited for a first time RE investor (house hacking, specifically). I've written a lot on the forums about all the reasons house hacking is the best strategy for beginner investors--feel free to take a look at those posts.

I'd suggest starting with a more beginner-friendly strategy, get your experience from that, and THEN (if you want), try the more difficult strategies like OOS REI.

If you're dead-set on OOS REI, then I'd suggest studying up on the books, articles, forum posts, videos, etc. on the subject, and talking with as many OOS investors as possible (ESPECIALLY inexperienced investors who tried OOS REI for one of their first deals). There are plenty of those folks in the forums. In particular, I'd suggest asking those folks about what types of challenges they encountered, lessons they learned, and mistakes they made with OOS REI ...It's a lot easier, safer, quicker, and cheaper to learn from other peoples' mistakes than to make your own...

Good luck out there!

Please do--new investors interested in OOS investing seems super common in the forums--it comes up a lot.

I see you're in the 'Burgh (I lived there for years--one of America's most underrated cities, and one of my favorites!). 

Funny enough (and very relevant to this thread), I was seriously looking into OOS investing in PGH for a while (had a local agent checking properties, and got very close to making an offer on a small portfolio), but never quite pulled the trigger (in part because of one of the problems I mentioned in my post--it's hard to assemble a team of boots on the ground from the other side of the country! Finding folks who say they can help is easy, but finding truly competent pros you can trust to execute complex, high stakes REI maneuvers is tough)...either way, PGH is an awesome city!

@Jorge Liang

If a tenant is not paying what they owe, that alone is reason enough to begin pursuing all legal methods to have the tenant leave. You don't want to continue doing business with someone who doesn't reliably pay their debts--end of story.

In my experience, when a tenant doesn't pay what they owe, it's a major sign that the tenant will only cause you more and more problems in the future. It starts with late payments and excuses, then it becomes non payments and squatting, and it often ends with the tenant threatening the landlord with lawsuits (regardless of whether they have a legitimate claim), and trashing the property when they leave.

A problematic tenant often only becomes more problematic with time--so the longer you wait to take action, the worse the problems will become. ...maybe not always, but in my experience, that's how it goes 9 out of 10 times...

Fortunately, there are legal ways to end the business association with the tenant--you'll want to study up on your lease and the local laws on this topic, and consult your attorney before taking action.

These scenarios are a major headache, but in a few years, you'll look back at it as a minor road bump and a learning experience. Specifically, use the lessons from this experience to beef up your lease and tenant screening and management procedures—this will ensure future tenants are reliable, and that you have maximum leverage in the rare instances when a tenant doesn’t pay. Every setback in REI is a learning opportunity, and the most successful real estate investors have weathered plenty of setbacks, and learned plenty of lessons in the process.

Good luck out there!

@Donnie Tucker usually, "new investor" and "out of state" don't mix. I'd suggest reading up on the topic on the forums, where you'll find many examples of inexperienced investors crashing and burning hard trying to do OOS REI...the story is usually the same--they had no experience with REI, they couldn't find any cashflowing properties locally, but they saw that properties in other states (often the Midwest) cashflowed well on paper. So, they bought an OOS property (usually a freshly rehabbed A-grade house in a C or D area) because the house looked awesome in pictures, and the cashflow looked good on paper. Fast forward a few months, and they have non-paying tenants who are wrecking the place, and a MIA property manager who (understandably) won't put in the ENORMOUS amount of effort required to manage a property in a C or D area for a small-time client from another state. Think of it from the PM's perspective: if you were them, would you deal with the headaches of a C or D area (non-paying tenants, trashed properties, crime, etc.) for a 10% cut of a single property that rents for $1100-1800/month? ...I wouldn't.

To make matters worse, the property isn't appreciating (because it's in a low appreciation market, or even a depreciating market), and the tenant pool is primarily made up of people with bad credit, low/no income, and a history of property damage at the previous places they've rented. So, now they're stuck with a non-appreciating (or even depreciating) property, that only attracts bad tenants, that no PM in their right mind wants to manage. Not a good situation.

Let's put all that aside for a moment, though, and assume you can avoid all those pitfalls. You find an OOS property that appreciates, attracts good tenants, and is easy to manage. Even then, OOS REI will come with some significant challenges...

Specifically, one of the MANY reasons OOS REI is so difficult (esp. for beginners) is that it requires you to assemble, manage, and incentivize a team of people you'll be completely reliant on from hundreds of miles away (sometimes without even meeting those people face to face). That's a huge challenge, even for experienced real estate investors who understand everything their team needs to do, and who have the money to incentivize their team's performance. But, if you're not experienced with the things your team is doing (e.g.; finding, analyzing, acquiring, and managing a property), then it becomes exponentially more difficult.

Think of it this way: forming and managing a team of real estate professionals (agent, inspector, property manager, contractor, etc., etc.) without any real estate experience is a bit like trying to form and manage a law firm without any legal experience, or trying to establish and manage an auto repair shop without any automotive experience--those would be monumental challenges even locally, but doing it from hundreds of miles away is near impossible. Can it be done? Yes. Are there ways of getting started in REI that are a thousand times easier? Definitely.

Trying to go OOS for your first REI deal is a bit like trying to surf a monster 100 foot wave before you've learned to swim, or trying to ski a double black diamond for your very first run.

Fortunately, there are simpler strategies that are much better suited for a first time RE investor (house hacking, specifically). I've written a lot on the forums about all the reasons house hacking is the best strategy for beginner investors--feel free to take a look at those posts.

I'd suggest starting with a more beginner-friendly strategy, get your experience from that, and THEN (if you want), try the more difficult strategies like OOS REI.

If you're dead-set on OOS REI, then I'd suggest studying up on the books, articles, forum posts, videos, etc. on the subject, and talking with as many OOS investors as possible (ESPECIALLY inexperienced investors who tried OOS REI for one of their first deals). There are plenty of those folks in the forums. In particular, I'd suggest asking those folks about what types of challenges they encountered, lessons they learned, and mistakes they made with OOS REI ...It's a lot easier, safer, quicker, and cheaper to learn from other peoples' mistakes than to make your own...

Good luck out there!