All Forum Posts by: Max Briggs

@Marc DeLeonibus I think that @James Wise is right that in most markets $1200 per month rent should cash flow at $100,000 purchase price.  But owning 3 rentals in Cleveland Heights myself I can say that property taxes there can eat up cash flow in a hurry, especially if you are not diligent about challenging them when the county over estimates the valuations.  Depending on who is paying water and sewer at your rental and whether or not you are self-managing I think that it is very possible for you be be negative or barely positive at that price to rent ratio in some inner ring suburbs.  I know that James manages a ton of rentals in those areas, so I'm curious to hear what he has to say.

@Thomas Richardson  I'm just checking in to see if if you went through with this deal and if so how did it turn out?

I do not believe that Ohio requires a grace period, but the leases that I have used, including the one I am using here drafted by my attorney included the grace period. I agree that it trains them that it is okay to pay rent on the fifth. But I’m stuck with it now, and I don’t want to eat in trouble down the road for posting noticed within the grace period called out in the lease. Maybe in the future I will eliminate the grace period clause (assuming my attorney verified that it’s allowed). But I think I’m stuck with rent payments on the fifth and notices posted in the sixth for now. 

@Thomas S. my lease gives an explicit grace period to the 5th. So I am assuming that the first day that I can post is the 6th. 

Thomas,

Thanks for the response. I certainly could have done a better job enforcing the lease to the letter and have learned a lesson as the current tenants seem to sense weakness and are escalating. I do not think that it would be out of the blue for me to ask them to leave as I have brought it up previously in response to late payment and their complaints about utility costs. I’ve decided to post notice today and I will make it clear that if it is not paid eviction will follow. If they do pay then notice will be given in the 6th of every month from here on out. Thanks for advice. I’m hoping to learn from this and improve my process going forward while making the best of the green team bad situation. 

All of our interactions have been through text for the most part, so that’s traceable. This particular tenant does all transactions with money order or cash (didn’t know that until they showed up to sign the lease). So the only record of financials is deposit slips and pictures of the money orders. I only have the security deposit which is equal to first months rent in reserve. 

I have only been landlording for about two years now and have been lucky with tenants to this point.  However a tenant of mine that moved in in November hasn’t been late on his rent each of the first three months (except first month which was prepaid). According to my lease rent is due in the 1st with a grace period of the 5th at which point if it is not paid in full a $75 late fee is owed. In December it was in my mailbox the morning of the 6th, and I did not press the issue of the late fee. In January they paid the rent in time, but paid the utilities late. I told them the late fee was owed. They paid the utilities a few days later with a partial late fee payment. I once again didn’t not press the issue. In February they told me they would have the rent to me by the 8th with utilities and late fee included but it is 10:00 pm and there’s nothing in my mailbox.  They have complained about the utility payments which I went over in detail prior to and during lease signing and I offered to let them out of the lease if they found it unaffordable and they turned down the offer. My inclination is to encourage them to move out, but I want to make sure that I’m not overreacting to my first bad tenant. Just don’t want to keep going down a bad road.

Advice?

I am not sure how I ended up on the Mashvisor distribution list, but it happened, and they recently sent me the following article:

https://www.mashvisor.com/blog/price-to-rent-ratio...

In this article they argue that the best place to buy cash flowing rental properties is in very high price to rent ratio cities like San Francisco.  Their argument is that because the price to rent ratio is high, there is a large incentive to rent so rental demand will be high and will cash flow (FacePalm).  I cannot believe that they are pedaling that advice.  In high price to rent ratio markets purchasing demand is outpacing rental demand, so even though the dollar value of the rent may be quite high, the prices are so high that it is difficult to make them cash flow at all, let alone get them to beat deals in low ratio markets.  I offered a potential compromise in the comments section that maybe they are projecting future rent increases or making appreciation plays, but they reiterated their opinion that "conventional wisdom" points to owning rentals in the highest price to rent ratio markets available for cash flow investors.  I hope this advice was from a rogue blogger and not someone that actually advises clients.

@Tom Ott,

I would be happy to discuss this more off of the message boards, and we have spoken in the past as I was interested in using turnkey providers as I try to scale beyond what I can handle on my own.  And to be honest, I really liked the interactions I had with Smartland and the quality of the rehabs. However, suffice it to say that I was never able to make the numbers add up even though I was buying properties in my the same areas as Smartland and was very familiar with the market.

I started just after your cut off at 34.  I actually think for many people that's a good time to start because it takes some time to raise the capital necessary to fund down payments and repairs.  I know that some people on BP advocate for saving every penny from your first job and buying your first rental as soon as possible, leveraging as much as possible, and going for that 30 year old retirement.  And for all of the people that worked for, Awesome!!! Good for you.

But I think that the more practical path for most people is one similar to mine:  Work and invest in retirement accounts / index funds for 5-10 years until you have a few hundred thousand dollars of net worth.  Then take a chunk of that (one third to one half) of it to fund a few real estate purchases and see how they go.  If they go well, keep on going, putting money into both index funds and rentals, distributed however you feel comfortable.  It's less risk, possibly less reward, but probably more practical for a lot of people than eating Ramen for 5 years, house hacking with a wife, a kid, and one on the way, and praying that the appraisal comes in high enough for you to refinance and try it again or waiting another 5 years for your savings to accumulate again to the point where you can buy another.