All Forum Posts by: Mariah Jeffery

I have 19 units out of state, 14 of which are "managed" by my father in law a 5-plex that's managed by a PM co. My FIL really doesn't know much about the legalities or care to learn, so I do a lot of the work myself from a distance. He shows the properties and collect the apps, while I process the apps, place the ads, and do the paperwork. We pay my FIL 5% and the PM company 10%, since my FIL does (at most) half of the PM duties. He's not very familiar with the law so I always remind him what he can.

We had 4 vacancies in March and April, and he leased them out. I had known before that a few times, the tenants planned to move in on the first and he went ahead and gave them the keys a few days early so they could "move in a little here and there" but not pay rent until the first. I gave him a stern talking to, and I think it may have sunk it.

I just found out his method of getting the lease signed was to leave it with them and ask them to drop it off in his mailbox when he got done (because they were "so busy moving!"). Of course, one of the tenants still hasn't gotten around to doing that from March. We have a tenant living in one of our units with effectively no lease!! I pretty much tore him a new one for that. I can't believe he could be that dumb. I think the tenant is just lazy to bring it back and will do so with some reminding, but it still bugs the **** out of me.

To be fair, my FIL hasn't been doing this all that long. We've had one property since March '07 that we bought with tenants and it only had the first vacancy in Jan '10. We started buying more in Oct. '10 and he really never dealt with vacancies until Feb.-March '10. He's made a few other dumb mistakes, but nothing this serious.

The extra PM fees would eat into our cashflow seriously (the 14 units he manages bring in almost $10,000/month in rent, so the extra 5% to pay the PM co. would be ~$500/month). On the other hand, getting sued because he does something dumb or having to evict a tenant without a rental agreement would be pretty costly too.

I'm looking for opinions - should I keep him and work harder on trying to "train" him, or fire him and go with the PM co. despite it being twice as expensive?

About 1/3 of my tenants are on Section 8. I have to sign a one-year lease with them, but after that it's a month-to-month contract. If the tenant violates the lease, I can kick him off. In fact, tenants on Section 8 are typically scared of pissing off their landlord, in my experience, because their landlord can get them kicked off of housing. I've never had a problem with rent decreases. In fact, I've been very happy with the yearly automatic increases (as long as I remember to request them).

The downside is that I've found that on average, Section 8 tenants don't take as good of care of the place. Their damages usually exceed the security deposit, although only once has it been by more than $500.

It seems that the best luck I've had, for some reason, has been with tenants where section 8 pays the majority of their rent and they pay around 20-30%. I'm not sure why, but these tenants always seem to take good care of their places and pay their portion on time, and not cause problems.

Update: my offer of $45K was rejected in favor of a higher offer. I did learn a lot from this analysis and will be better prepared the next time an opportunity like this comes around. Thanks everyone for your valuable advice!

I've been thinking of changing the exit strategy on this one to sell after a year due to the 1031 exchange issue. That would allow me to get a renter in ASAP, skip the more expensive vacant property insurance issue, and get this on the market 5-6 months before the year is up. If I do get an FHA buyer, that should allow plenty of time for the closing, with the renter paying rent in the mean time. I'll just keep the rent a little low and be very diligent about screening that particular tenant.

In this particular RE market, sellers probably do pay some concessions, but it's not an extreme buyer's market like a lot of areas. There was never much of a bubble in South Dakota so the landing is very soft. Still, I've asked my agent to tell me how common this is so I can guestimate whether I'll have to pay any of these costs, since I think this is a very good point.

I do have several other data points to support the value, and I am waiting for the realtor to send me comps. I do feel at this point that the $80K is conservative, but if the market analysis shows otherwise, I will pull my offer when the bank calls for highest and best.

I put in a cash offer for $45K last night, btw.

"Your personal residence, with the exception of the home-office situation referenced above, does not qualify for a 1031 exchange. Nor does "property held for resale." What is property held for resale?

Prime examples are "fix and flips" -- those ugly properties you buy, fix up, and put back on the market a few months later. These properties are bought with the intention of immediately reselling them, so they do not qualify.

Does that mean that you can’t buy ugly properties, fix them up, and do an exchange? It does not. You can do a 1031 exchange on "fix and flips," but you have to hold them long enough to qualify them as investment property. Typically this means that you have to hold them for at least a year and a day. The principal reason for this is that the IRS does not want you to turn short-term capital gains (which typically are taxed at higher tax rates) into long-term capital gains (which typically are taxed at much lower rates) by doing a 1031 exchange."

I estimate it will bring $700/month in rent. At $58K total invested, it's not profitable enough to keep long-term as a rental, but certainly wouldn't lose money either. Another possible strategy would be to rent it immediately on month-to-month terms and try to sell it with a tenant in place, so I could hold out for a higher price.

It was listed on Friday and already has multiple offers. It is full of rodents and feces.