All Forum Posts by: Mark Smith

Can't speak to the legality but if you are ok for them to stay, offer them the 12 month lease at the market rate you were planning to bump the rent too, if they accept no issue.  They are asking for 3 months so they have time to find a new place and move.  

What you don't want to do is force a legal fight during covid, you may run into issues forcing them out and once they realize that, they may just stop paying all together.  If this is true in your area, you will need to sort out how much pain you want to put these tenants through and if offering them a 3 month extension at the current rate works, then I'd do that.

At 16 your signature is not legally binding which will be your number 1 issue.  I know at 16 two years seems like an eternity but it will pass.  During those two years you should be doing the following:

Learn as much as you can in the area you want to invest in.

Learn how to market yourself via social media and build a network of investors.

Find some other cash based business you can dabble in like gumball machines.  No joke, it will teach you people skills, selling, follow up, budgeting, risk management, and making business focused decisions. All skills transferable to investing. Cost of entry is not significant and with 10 machines you could earn passive 200 or more a month depending on location. 

Get a part time job that is close to what you want to do and learn. So if you want to flip homes, most high schools have a program you can earn credit with other students building homes.  If you want to go into rentals, see if you can find work for some complex, a wholesaler, a job working for an agent could be help you learn.

Save money

Locate a mentor, not some guru you pay for but a real person with success in what you want to do.  See if there is any assistant like work you could do for that mentor to add value and learn as you go. Like running around every Friday and Sunday putting up and taking down bandit signs or cold calling prospects or list/lead generation.

Learn accounting and book keeping, just do it, start now.

Once you own the property, you own the environmental risk that comes with it.  Force the mitigation before you buy or walk every other buyer will do the same if they have any savvy or are being helped by a marginally competent attorney or realtor.

Your options as I see it:

1. Have your attorney write up a contingency something like a credit of 3K will be granted from buyer to seller at closing with confirmation a licensed storage tank contractor under a permit has removed the tank and all landscaping restored. If the work has not been completed by closing, the buyer can walk with the earnest money.
2. You could negotiate a five digit escrow at closing to mitigate this risk ( unlikely the seller will agree I'm sure)
3. You could gamble buy it and hope there is no contamination
4. You could require the seller to produce a recent Phase 2 environmental showing no spillage or ground contamination and with that buy it and remediate the tank yourself

If the seller balks at options 1 or 2 or 4, then all you can do is watch the listing age out and test the seller for motivation every month or so. If door number 3 looks good to you then drive on and I hope that works out for you.

The beauty of option 1 is you are not out any money upfront and you've capped your risk to 3K, if the seller bites and initiates the work and opens a can of worms, the seller still own the risk.  If presented to the seller as "If I paid you 2K at closing to remove the tank before closing, would that work for you?  Ok how about 3K?  Good done."  Even if you went as high as 5K it may still be worth it since it caps your risk.  If the seller is totally resistant to this then they may know the big answer already, there was a leak.

I looked at this a few years ago and the fundamental problem I found is there isn't a common, well understood set of statutes  and definitions that govern these kind of homes.  The successful communities of tiny homes skirted these issues or just hoped someone wouldn't notice or the tiny home owner was parking the home on a lot in mom and dads back yard or out in the middle of nowhere on cheap land.

You end up with financing issues, occupancy permit issues, zoning issue and so on.  Now, this may have changed in the past couple years so YMMV.

I thought I could take a small ugly mobile home park and setup nice, cool, super energy efficient tiny homes on those lots.  Perhaps even building out tiny "spec" homes and selling them.  The more I looked at the legal issues, permits and even the size of my target market and location, it didn't seem to me the risk was worth it.

This is a no brainer, take the 1Mil, leverage it to purchase a poorly managed multi-family. Add significantly value by cleaning up the expenses, pushing rents and filling vacant. When turnaround is complete, sell at a good profit as a turn key situation.

 Not to mention paylease drops the data directly into our books!  Sure simplifies accounts receivables.

Blayke, if I were to take this project on with limited funds, this is how I would approach it.

- Negotiate aggressively with the seller and get this for about 50% or less what it's listed at now. Or on a master lease for the park and buy out all the homes for like 5K or less so you control those titles (or an agreement with the owner you can sell them would work too).
- If the owner has allowed the homes to degrade to such poor levels, I'm going to assume the tenants he has found are not the best quality either and I will not be able to "fix" the park using them.
- I'll need to "replace" the current tenants with homeowner minded people who are willing to put in the elbow grease and have the money to fix and improve the homes.
- Once I had control, I would put everyone under a new month to month lease and as soon as I identify my most problematic tenant, give them notice. Now, if you are in one of those areas where you can't get an eviction processed, you may need to wait until the covid fog clears do do this. If not, go for it.
- Once the first tenant is out, I would sell that home at a discount to anyone who can show the means, skills and motivation to fix it up.
- Once that deal is closed and that work is underway, identify your next worse tenant, rinse/repeat.
- After the second one, your current 3 tenants will get "wise" and you may get a volunteer to leave. Find a new owner and off you go.

Finance it out from the master lease once the turnaround plan is complete.

The key to this plan is how many people in your local market are able to rehab their own home like this and how would you attract them to your little park? Have you run a test ad in facebook marketplace for something like this to see how many calls you get a week?

The other key is this isn't passive investing, you would need to be very active in managing all of these steps.

In all of this, never forget once these lots convert to owners, you only get lot rent, not home rent so the business case for all of this must work based on lot rent alone.

Our first year, we ran everything in excel, learned a lot by doing the book keeping and calculations that way. In our second year, since we are a rental company, we switched over to rent manager. Since you are planning on flipping and doing rentals, you may need two solutions because those business models are very different. You may need to consider 1 LLC for the rental business and one for the fix and flip, talk to your accountant and attorney to see if that makes sense.

A local builder could give you a better idea of the average cost to build per square foot.  I did a quick google lookup and it appears in CA the cost per square foot ranges from 190ish to 250 on up depending on location and build quality.

I would avoid a legal battle right now, even in our landlord friendly area, it's not easy or quick to process an eviction in the Covid era.  If your location has any kind of moritorums the legal approach will likely get you a tenant that stops paying, you can't evict and your other tenants are still complaining.

I think you are on the right track put controls on the thermostat.  Google "HC7176 Residential Thermostat"  It's a landlord tamper proof thermostat.  Set it and forget it, the tenant can't control it.

Or, put a locked enclosure around the current one.  Again, google should help you locate suitable versions.