All Forum Posts by: Matthew Dennehy

I always recommend to buyers that they break out the real or projected costs when analyzing deals of any kind. Rules of thumb are great if you’re searching for properties and want to know which ones to analyze, but when it comes down to the specifics, there’s no substitute for actually putting the numbers together.

Also, just a word of warning that pro forma is Latin for lie (thanks @David Greene and @Brandon Turner). I’m not sure if brokers don’t know how to put together all the income and expense numbers, or if they intentionally provide incomplete numbers for the benefit of unskilled investors, but you often can’t trust anything provided by a listing broker and you need to do your own due diligence.

You can always find a great property manager and see if you can get average or sample expenses for the type of asset your looking at. They manage properties every day, so they have a pretty good handle on what things cost. Then it’s just a matter of comparing your sample data to the deals you’re analyzing and looking for large discrepancies. Similar assets should have similar expenses. If they don’t, that warrants an explanation.

You can use this as an opportunity to renegotiate with the seller. “There is an additional 11k in costs here that exist right now”. Also, there are ways to incorporate this into the price such that the loan covers it. A great agent should be able to help you out.

But at the end of the day, stick to your criteria. If the seller won’t budge on price, but it still makes sense, then move forward. If not, then walk. Don’t be afraid of losing any deal to walk away from a bad deal.

I would say it comes down to how they left things on the way out the door. There are legitimate reasons why people need to break a lease and move. It would be unreasonable to expect everyone to plan for every contingency and stay no matter what. The real question is whether they packed up and moved out in the middle of the night or if they did it the right way. If they let you know they needed to leave and paid through a mutually agreed upon date or timeframe, then they haven’t done anything wrong. They are just making the best of a bad situation.

So you can tell them you won’t allow another broken lease, but if they have a parent that dies and they have to move out to care for the existing parent, that may be something they have to deal with. Sometimes bad things happen, and sometimes they happen multiple times.

In sum, if you know something unfortunate happened and the tenant tried to do the right thing and work with you, then you can’t really ask for more than that. Just re-screen like you would a new tenant, and outline the same standards again. At the end of the day, if you aren’t losing money, then no harm no foul.

It’s always best to add all occupants 18 and over to the lease and make them all sign the lease. Otherwise you run the risk of a roommate fight causing your original tenant to leave and now you only have the occupant who never actually signed your lease. Not an ideal situation to be in. Yes the original tenant is still liable under the lease, but your occupant might not be.  It's better to make all persons 18 and over "jointly and severally" liable for the lease.  If someone moves out, you write an addendum to the lease, or write a new lease.

Also, it's important to know that depending on your state laws, a person can likely become a "tenant" just by staying at your property for a period of time (that's why leases limit how long a guest can stay).  So even if they aren't on the lease as a tenant, they may still have legal protections preventing you from kicking them out without going through the eviction process.  And it doesn't matter if they sign a document in which they agree to leave when asked, they can't waive their rights under the law, and that provision of your contract will likely be voided by a court.

As far as screening, always use the same process and criteria for everyone. For income, you can consider the 3x of the rental rate “household” income and consider both tenants together, but I wouldn’t use this as justification to abbreviate your application process.

Yes is sounds like your tenants are searching for a way to take advantage of the situation. It would probably be a good idea to start a conversation with an attorney to find out if you have any liability.

Generally, you are expected to act reasonably, and now that you know there is confirmed asbestos, you just need an expert to confirm that it isn’t hazardous to future tenants. It sounds like this is what you are doing, so great.

And secondly, as others have said, get something in writing right away as to when the tenants are leaving and will turn possession over to you. Don’t delay.

Your point in the eviction process makes a difference. If the court orders a tenant to pay a certain amount and the tenant fails to do so, you might be able to finish the process and get the eviction.

If on the other hand you are still early in the eviction process, it could be considered a partial payment and commonly it is not a good practice to accept partial payments. Here in NH we generally accept partial payments, but we are required by law to notify the tenants that we still intend to proceed with the eviction.

You always want your contracts to comply with specific state laws. So you either need an attorney to draft up the purchase contract, or you need a real estate agent (if allows by state law) to prepare a purchase contract on a fillable form. In NH real estate agents fill out purchase and sales contracts and attorneys are seldom involved in the process for residential real estate.

This isn’t something you really want to avoid as it could have significant implications during the buying process.

Also, currently in the industry, sellers typically pay realtor fees for both sides of the transaction, so buyers agents are “free” to the buyers. It makes sense to use one of the commission is already being paid.

In the beginning, DIY seems like a great choice because you can "save" so much by doing things yourself, instead of paying someone else to do it.  Unfortunately, you might find out very quickly that doing everything yourself is more burdensome and less rewarding.

DIY makes a lot of sense for those people who already have the skills to do the the tasks.  Also, you will greatly benefit from learning the processes, getting your hands dirty once in a while, or focusing on select tasks with a high return on your time.

Instead of learning how to do all the jobs for your business yourself, start by focusing on how to be the best at your job, real estate investor, and finding a Rockstar Team to help with the rest.  Every time I think about doing things myself, I recall @Brandon Turner story about a toilet, I chuckle a little to myself, and then sigh because it's too easy to get sucked into the DIY mindset.  Business is about people and systems, not DIY

I agree with @Matt Crusinberry, and not just because he has a great first name, that it's important how you're getting to your monthly cash flow number.  If you are taking into account all your operating costs, capital costs, and you have a reserve, then you can easily accept it and move forward.

You should also calculate the opportunity cost of this investment.  Opportunity cost is always described by what you could do with the money tied up in your investment if you were to move it elsewhere.  For example, if you flip this property, can you reinvest the capital into another long term rental and receive higher cashflow?  The answer to that depends on your current market and how much buyers are paying for their investments.  An investor friendly agent in your area should be able to help you answer this question.

If you have stopped accepting pets, then you should use that as your answer.  Explain that you have recently instituted a "no pet" policy and while their current dog may be "grandfathered in" it precludes them from getting any more pets.

Secondly, I would consider breeding to be a commercial activity and wouldn't advise any commercial activities in a residential apartment.  Especially one that includes a lot of untrained dogs.  Additionally, this should never be allowed under a normal lease and would require a very specific and separate agreement.

Don't even worry about going to the city to find out about the legality of breeding.  You have your policies, make sure you communicate them to the tenants and then stick to them.