All Forum Posts by: Matt Kowske

Here's the story. We closed on a 4 unit and 12 unit building in January under a single deal. Since then, we have discovered a few minor things that were not disclosed prior to closing (broken stoves, a minor plumbing issue) and so we were inclined to just let those go. Just this last week we discovered that one of the apartments has water leaking from the ceiling and several mold spots on the drywall. After ripping out the drywall and having a 2nd roof inspection (we had one before we closed too) we find out the roof is shot. The decking is rotting and it needs to be replaced. We don't have a bid yet but I'm guessing around $20,000 for this.

We were pretty disappointed that the inspection we had done prior to closing did NOT catch this. We were told that there was pooling (flat roof) and that isn't good, but the membrane looked OK and should last a few more years probably. The inspector that did the final inspection also did not catch the mold in the bedrooms. It's possible this was covered up by a bookshelf or bed though. Obviously, we should have done a more through inspection ourselves... but we're still new at this and leaning.

The property manager has told us verbally that the previous owner knew about the leaking roof. He said he knew about it a year ago and didn't do anything. There was mold showing on the walls previously and he bleached it and painted over it.

Now, what do we do about this? We talked to an attorney and he basically said the legal fees for litigation would probably make it not worth our time to pursue. We talked to the roofer who inspected it previous to the sale and he will not budge or give us compensation. Our next step is to call the previous owner, but any tips you all could provide as to what we should present in that conversation would be very helpful. 

Or are there other avenues we should be pursuing? We have enough cash flow on the property (assuming no more 20k surprises) to cover this, but it will make our returns for the year almost zilch. Thanks for any feedback.

 Hi Andrew,

I've seen this mentioned a couple different times in the forums: using one piece of software for property management and another for the accounting. Could you explain how this would work? I am looking at Buildium and RentPost right now, but I am an accounting guy and used to much more in depth accounting programs. I feel like I would miss these features -- so I can continue to use my current software maybe, but won't i be doing double entry into Buildium then? How does one separate the accounting from the rent tracking & expenses incurred in the PM software?

Thank you for the suggestions. I'm going to look into local non-profit resources here and possibly hit up craigslist to find a translator.  Perhaps we can find a couple different people that would be willing to be "on-call" for us. I'm sure we will have to compensate for this inconvenience to them, but I'm sure it will be less than the $800/month we're losing right now to the current property manager.

Hello, 

We recently bought 2 buildings side by side that have 95% hispanic tenants. The majority of them speak none to very little English.  We didn't expect this to be an issue as there is a long time on-site manager who does speak Spanish (and decent English).

Well, he isn't working out as we expected and have decided we would be better off managing ourselves. The main issue here though is the language barrier. We need to be able to communicate with our tenants, especially in the case of an emergency. I'm wondering if anyone else has experience with a scenario like this? 

I am learning Spanish now, but I'm sure it will be several more months until I can have a conversation with someone. In the mean time -- I thought about posting a craigslist ad to hire a "on call" translator who we would pay to compensate for their time and need to be available 24/7 for the rare emergency call. I figure we can set up a Google voice # and use 3 way calling to make it work. Does it sound doable or just too complicated? I'd love some feedback -- thanks.

Not selfish at all.. I completely agree which is why I'm asking. I ran the numbers and if I did that it would turn our 50/50 split (in which we both are making a 14% CoC return) into us getting a 19% return and them getting a 10% return. Not sure if they'll be okay with that... I'm just wondering if that kind of disparity between active investor and private lender return is typical?

Or would it be a better idea to simply structure it in a way that we guarantee a certain rate of return for their money and then just keep whatever is left over?

Hi folks,

I'm looking for some advice on how to structure a partnership and how others typically do this kind of thing. My wife and I jumped into real estate investing recently with another couple. We formed an LLC in which we are 50% owners and they are 50%. My wife is a realtor and knows the local market well. We bring the talent. They have a good sum of money and are able to bring the capital. We decided to split any down payments 50/50, but with the combination of capital we are able to purchase larger buildings.

This worked pretty well for a SFR we bought as our first deal as it wasn't much work. Our 2nd deal was a 12 unit and 4 unit building sold together. This has been MUCH more work for us. There is a property manager but he doesn't do as much as we'd like. As I learn more about the business it seems like we got the short end of the stick here. They're getting a great return for almost zero work while we work our butts off and make the same return on these properties.

They DO want us to be compensated and we have been paying ourselves $25/hr for our time from the business -- but this really isn't enough. We want to re-structure and/or pay ourselves more. We are considering doing future deals on our own. Thanks to BP I've figured out that we probably do have enough (with creative financing) to do this on our own which I think would be better for us in the long-term. 

I'm looking for advice as to how to establish fair terms of a partnership or if we should just get out completely. There are other considerations I need to learn more about too. If we can get better financing doing it as individuals rather than an LLC that is important. Our two mortgages on these investment properties are 7 year ARMs but I keep reading about other investors buying multifamily properties with fixed rate financing -- we haven't been able to find this in my area but that would be great if we could. I really like the idea of a portfolio of multi-family buildings that focus on cash flow. I'm not sure if operating as a LLC immediately puts us into "commercial lending" world and doing things as a sole proprietorship would help with future deals.

Sorry this got long winded. What are some options we should consider? We could a) do future deals on our own b) change our splits to something like 60/40, c) simply use them as private lenders with favorable loan terms for both of us, d) charge more for our services (finding deals and property management) .... we are new to this and want to make sure whatever we do will not impede us for future investing.

Thanks for any help!

I am still using it and it works pretty well for what I need. I like it because it is extremely flexible and there is a great community behind it. It usually appeals to the technical accounting type people because it is a true double entry accounting system, but there is a fairly steep learning curve with it.

If you just want to get up and running quickly I wouldn't recommend it. You would probably be better off paying for one of the more popular software packages. If you don't mind digging into the details a little and spending some time learning it can be a great solution. And seeing that you're a programmer you might like the open source nature of it. It isn't difficult to make scripts that directly manipulate the data file and it can also work with a SQL back end which opens up a whole other bunch of neat stuff you can do with the data. For 99% of users though this stuff doesn't matter.

I've done a lot of that work and have a bunch of saved e-mails and solutions specifically that help with real estate so if you go that route let me know and I can share that stuff with you. The mailing list is also a really helpful bunch of folks... from general accounting questions to things specific to the software.

Hello all,

Just wanted to post my introduction here. My wife and I have been pursuing real estate halfheartedly for a little over a year now, but I'm motivated to get more serious about it now and thought joining this community would be a great place to start.

We both work full time (her as a realtor, myself as a DBA) and we have a goal of living off of our passive income in 10 years time. This strategy began with passive index investing and the more I learn about RE the more I think it is the direction we should be heading. Given our short timeline we need larger returns than the stock market can deliver. We currently have a single family, a 4-plex, and a 12 unit apt building that are all owned 50% by us via a LLC we have with another couple. I'm not sure on our exact strategy going forward, but given the limited free time we have it seems the buy-and-hold rentals strategy is the way to go (and the one we understand most), but there are so many other RE vehicles I know little about and would like to explore them more.

This site seems like a great resource and am excited to learn learn learn and network with some of you more seasoned investors out there!

-Matt

Thanks for the responses. Yes, he has agreed to leave after the 45 days, but we do feel like we're being taken advantage of too. I called him with the intention of telling him he has to pay Feb rent but he can stay the first half of March for free -- then he started talking about how the lease is not valid and I didn't follow through. We obviously have a lot to learn, it just doesn't feel like a good start (what I meant by feeling deflated).

He also has a pretty convincing sob story about how he needs the rent money he should be paying me to put a security deposit down for another apartment. Without this he has no way to find a place. He has been living in a crappy apartment with no windows and no stove and supporting two kids. I feel bad about it but also feel bad about being manipulated.  Welcome to landlording??

Hi folks,

I have a question for you seasoned landlords. We recently bought an apartment building that is zoned by the city as a 4 unit dwelling. The previous landlord put in a 5th unit in the basement with no windows (also does not meet fire code). The city already knew about this unit and we had been given a deadline to vacate shortly after the sale. We served the tenant a notice of 45 days (which is what is written in their lease). 

Now this tenant is refusing to pay rent for February and the 2 weeks of March we said he could stay there before vacating. He says that since the apartment is not legal, the lease is null and void so we have no grounds to demand rent or evict him.

We also have no security deposit. He says he paid it and gave it to the property manager who gave it to the previous owner before we bought the place. It says no security deposit was paid on the lease, but the tenant claims this is not the case.

Anyway, I know we should probably talk to an attorney but the legal fees + eviction fees I'm sure would not be worth the $700 we are losing from this tenant. It is our first building and this isn't a great way to start! We're feeling a little deflated about the whole situation. Any advice on how we should handle this? Thanks --