All Forum Posts by: Liam Goble

I live in a college town and have managed one room/room rental property in the past. There are SIGNIFICANT headaches to deal with on a property like that. Who cleans the kitchen (trust me, it doesn't get clean). Bathrooms? How do you tell someone that they should shower w/ the curtain/door pulled in place so the water doesn't leak into the bedroom below?

True story: I got a panicked call on a Saturday that the glass sliding door had broken the previous Friday night at some point. Upon not very much questioning, it turned out that a couple had been showering there at 2am and the door 'popped off the track and smashed to the floor. Could I come replace it before the owners found out?'

No, I didn't spend my Saturday trying to cover for an amorous couple.

In a semi-previous-life (different position at the same company) I used to conduct energy audits on large MF properties. 100% of the time, we found that if Management was paying for heating/cooling, the tenants kept their units at 75+degF in the WINTER and 64degF in the SUMMER. (One unit we surveyed had their t-stat set at 84degF and complained it was too cold).

I do not purchase small MFs that don't have separate utilities for each unit (heating, and electric). I try to find units that also have separate water bills, but that doesn't always happen.

If I am faced with a good deal on a property that has one central system, I subtract the cost to install separate systems into my offer (usually discounted slightly, ie: if cost were to be $12,000, I would subtract $10,000, assuming my savings would be $2,000 for the year).

I've got a similar situation...sort of. I have a duplex in which I gutted one side (~$15k in repairs...it was near condemnation when I purchased), the fixed side is renting at $625/month right now. The non-fixed side is renting at $515/month. The improved side rented in about two weeks when I put it on the market and I had a significant number of inquiries on the property. The tenants are not 'cream of the crop', but I never expected it. I just wanted good, hardworking tenants in my units.

My dilemma is this: do I raise the rent on the 'non-fixed' side to market rent ($625) and have the family move out, which would require me to fix their side (~$5-8k in repairs/improvements), or continue to allow them to live there at below market rents?

Originally, I was going to raise rents, move them out, fix the place, then move someone else back in...all for an additional $1,200/year in rent. Now, I think I will probably leave them in place, fix the minor issues using my monthly repair reserves, and start saving a little cash until I'm ready to really move them out.

Shayne, You've come to the right place. BP is an awesome platform for meeting people and bouncing ideas/strategies off of seasoned investors. I joined BP in October or November last year and I'm amazed at how freely the seasoned guys will provide their thoughts on your predicament.

For instance, I'm in the process of flipping a house and I posted a comment about the first contractor I had on the job. Rather than simply remove the first four feet of drywall in the bathroom like I had asked, he removed all the drywall. One very seasoned flipper (@J. Scott), recommended I fire the contractor immediately. I didn't. One week later, after I had explicitly told the contractor what I wanted to have done, I was reviewing the work, and my partner asked "How much did you want removed?" I said "just the drywall, nothing else, why?" My partner replied, "Well, the bathroom is gone." My brother is a magician and I don't think he could have pulled a better David Blaine and made the bathroom disappear. The room was literally gone. You wouldn't know it ever existed.

My advice: Listen to the advice of the pros who have done this many many more times than we mere mortals have. (One day after the bathroom disappeared, the contractor was fired and a new one is going to be working on site.)

Good luck with your investment activities.

I have a section 8 tenant, and I know the split he's paying (eg, S8 pays 85%, he is responsible for 15%). Our local Section 8 admins have posted the rates they will pay for each type of unit and family status. I use that to determine how much to raise Section 8 rents.

Shane, To me, your numbers seem a little rosy. I have a few properties, nothing larger than a duplex though, but at my initial anaylsis, I always estimate 10% vacancy, that way, I'm looking at a bonus at the end of the year rather than a loss (most of the banks I use assume 5-7.5% vacancy). Also, you don't account for repair reserves. I also estimate 10%/month for repair reserves.

Have you used rentometer or any of the other online rental estimators to determine what the rent should be?

All of my units are 25-35 minutes and I work 8-6pm. It makes for some long days sometimes, BUT a strong team of contractors in the local market makes for much easier management. For instance, one of my unit's furnaces went out this weekend (Sunday 3am). I grumbled thinking I was going to run down and fix it, but realized that I own a phone and can call a local contractor. Problem solved and I went back to sleep.

As for the financing, I would be extremely conservative and assume 0% appreciation. I would do this because your refi won't be 'at arms length', meaning it's not another investor that is not offering a certain price for the asset. Also, the commercial loans I am familiar with are 5/5/5 ARMs. You can sometimes get them amortized over 20 years, but I generally choose to amortize over 15 for some faster principle pay down.

Lastly, since it's a commercial property (w/ 4+ units), you may be valued by the cash flow, which would make much more sense to increase the rent to increase the value. Don't miss the low hanging fruit to increase ROI (outside light, is it an LED? Low flow fixtures in the bathrooms and kitchens?)

Bottom line IMO: I think this could be a good deal if you're willing to put in some time and money to get the place up to snuff so you're renting at market rent, not slumlord rent. However, you need to know there will probably be a steep learning curve.

(Do you have any involvement in the trades, or are you unfamiliar with contractors and how to pick apart their estimates?)

The first thing going through my head is: can you also buy the vacant property and turn that into a rental as well?

Unsure about renting while in short sale process. Are there implications that would force you to pay the true owner or lender what you made while renting?

Usually there is a clause in a mortgage which essentially states that if the current title holder transfers title to a new holder, the existing loan has to be paid off in full. If you were to buy the property, someone would have to put up the remaining balance on the loan, either the $94k or $131k. Because of the need to pay off the loan, owner financing is probably out.

If you can verify that the existing balance is truly $94k, I'm sure there is some way you could work with the bank to purchase the house for that amount, rather than the $131k; you would want to verify the $94k though.

Given your location, I would also recommend paying off the CC and car loans. After those loans are paid off, I would look for a 3plex or 4plex that would cash flow with you living in one of the units. That would allow you to continue to live 'rent free', while learning the landlord trade and building a track record in regards to actual property management.

I'm at the far end of the spectrum they show (born 1981). I am also an owner in a partially-employee-owned-business. I have seen that some of my younger colleagues are not well prepared for the work world. It seems to take a very long time to 'train' them to be ready for work each and every day, to stop texting on the cell phone, to concentrate on the task at hand, and to stop worrying about the next Apple product.

I probably should be partially distressed, but I actually see an enormous opportunity being created by the vast chasm of my generation's lack/inability to get prepared for the future. From the BP perspective, if less Millennials want to own homes, why not rent to them?