All Forum Posts by: David P.

@Account Closed use the property analysis spreadsheet/web link "Analyze" above to help determine if this is a good deal.  A good deal is something that makes you money - X per month.  Now I roughly figured 10% management fee on top of your expenses and it appears you are making $228 per month.  Now if your total out of pocket is $38K is 7% a reasonable return on your money with someone else making the mortgage payment and managing the property?  Only you can decide that and the risk associated with the deal.  

Even though you have them in the property you can raise the rent - lets say $25 per month after the lease has matured.  That amount will probably cover your increase in insurance and taxes so you need comfortable with 7% return over the life of the property.  Having vacancy for a period of time will also decrease your return as will capital expenditures so hopefully the $1K is good enough to cover your costs.

As others said, this may not be the best investment but only you can decide that and what your minimum target return will be.  This is why each and every property I review I run the property analysis before and after - it sometimes changes my exit strategy as well!

Good luck and I wish you success!

@Ayodeji Kuponiyi taking out any loan prior to purchasing your "Primary" property (or less than 4 units) can hurt you - your credit score, debt to income ratio etc.  When talking with your lender they should be able to recommend strategies to you based upon your plan.  The position you don't really want to be in - if you refinance/cash-out of your duplex and your income doesn't meet the minimum for your "Primary" residence.  Lenders are pretty savvy to what investors do with trying to lend on more than they can afford.  I am advising caution only and since I don't fully understand your financial picture I just don't want to see you not fulfill your dreams! 

The HELOC offers flexibility in your financing - hence the variable terms. It should be used as a tool to help you build your empire, not long term financing which can be accomplished with fixed terms. Financing is not cut and dry and once you understand the many varieties of financing available you will become a better investor and using OPM to make you more money!

This is two fold issue we are discussing here but the more you know the better decisions you can and will make. Good luck!

I agree with @Jonathan Key do both, but instead of having your dad find the tenant, he should be teaching you how to fish!  He isn't doing you any favors by doing all the work and then the tenants are surprised when you take over.  I suggest that you find the tenant - with the guidance from your dad - a he can guide you through the process.  This way the tenants know you and not your dad.  Now I am not saying that the tenants shouldn't know who your dad is, but he can act like the "Repair Guy" or something of the sort.  So when it comes time for you to do maintenance on the property your dad may also come along to do repairs or more importantly when you go on vacation and your dad goes by to collect the rent or do a repair.

As others have said - keep looking for your next deal!  The numbers MUST work otherwise don't buy.  You need to figure out with this means for you and your comfort level.  And with your dad at your side (Mentor) you have a great start to Real Estate Investing and don't have to learn the hard way!

Good luck and I wish you success!

@Ayodeji Kuponiyi yes I have had same issues with property taxes, but what I have found is other expense items compensate for the taxes such as insurance, local license fee, etc. 

One way or another it seem to balance out in the different markets I am in.  It seems as if property taxes are lower in areas that have a higher consumption tax. (merchandise)  I like areas where the property taxes are lower as the properties tend to make better investments overall.

I would use caution if you take @Charles Morgan advice to refinance your duplex.  Mortgage companies are becoming more forgiving on refi-cash-out loans especially with investment properties, however this will affect your credit score and could potentially prevent you from purchasing another property - personal or investment.  This is where working with a lender will help as they will typically guide you in the right direction and keep you from making a choice that could hurt your strategy.  

Although I am a big fan of using equity from investment properties to re-invest into other investment properties, there are consequences to take into account.  I would maybe suggest an equity line on your investment property instead - its line of credit that is revolving and you can use as you need it and most often is interest only for a period of time, but the rates are a little higher and not fixed.  So be careful with this as well as you don't want to have it long term - but it could be the "Cash Bridge" to getting a deal completed quickly and then finance the property after seasoning period is completed.

@Ayodeji Kuponiyi I think you are doing the right thing.  You already have one duplex in your portfolio and now maybe get another property like a quad or multifamily (>4 units) where you live in and manage too. 

Using your strategy you are accomplishing the american dream and if you don't want to live near your tenants any longer, then ensure the cash-flow from your investments pay for your new home and then some.

You are doing the right thing by investing in areas that have sustaining and growing economies such as Universities/Colleges.  My strategies include such these things as well and also items like no fire places, no pools, and no HOAs.  I also look at multifamily units where utilities are individually metered if possible.  I also like 2+ bedrooms and properties that are not stacked like condos.  I have broken my rules above based on the numbers for the property - but use them as a general guideline and I encourage you to develop your criteria as well - it will make the search much easier!

Good luck and I wish you success!

@Colleen F. I think this maybe up to each program.  I know when I raised the rent, the tenant said that was above what Section 8 would pay and the absorbed the difference as it was their choice.  I would recommend that you get in touch with one of the case workers to ask questions.  Every case worker I have dealt with has really explained the program and answered all my questions.   

@Bob E. you are absolutely right!  After the tenants moved out I wrote into the leases that they will receive a $100 (non refundable) credit towards the water each month.   It is a duplex and budgeted $200 per month.  When the last tenants were there I don't think I ever received a water bill below that amount.  Both leases now have this statement contained in the lease and I have yet to receive the water bill over $100 per month.  It is probably the 1 most important thing I did to help reduce the cost.  Additionally, each unit has two toilets - and these were replaced with low-flow toilets, and has helped reduce over-flows issues.  Not that I had ever received any, but unless the tenant keeps flushing a clogged toilet then it is their responsible for cleaning up the mess (unless the toilet failed for some reason).

@Ryan D. I am not sure how you/them determined the "minimum" you would take. I have always seen charts that refer to a family status - # children vs how many they think should be allowed in each bedroom etc. I cannot remember ever being asked how much I would accept as the minimum so this could be reflective to the state/county your property is located. You may want to search for Section 8 allowance and then determine your fair market rent for the property. As @Bradley Bogdan indicates for larger cities they typically pass the additional rent onto the tenant but they often don't set the amount based your your decision - at least what I have seen.  I think this would be up to interpretation and most agencies don't allow this due to favoritism.

There are other factors such as annual inspections that Section 8 does on an annual basis that you the landlord need to abide by and to provide safe housing. Again this is a business and you must run your business to satisfy your bottom-line not Section 8.  

By all means, this is not for everyone and understanding the risk is critical to your success. I am by no means the expert; but after testing the waters and learning as much as I can about the system, I am veryy happy with the outcome!

@Holly Stiles welcome to BP!   This site is great tool/resource for real estate investors; I learn something almost every time coming on to the site.  I encourage you to give back as well and answer a post or two when you have time.  There are some great discussions going on and the more information a person has the better informed decisions one can make in any vertical.  

I too attend the meet-ups when time and schedule allows.  Look forward to networking with you as well and would love to take a look at your website business; please PM me with the URL.

Good luck and I wish you success!

Time to let the tenant know that you will not be renewing their lease provide a 30-60 day notice in writing.  You have a choice and if you have a high maintenance tenant then it is time to let them go.  After they move out then do your repairs as if it is a higher end unit. 

I have had some needy tenants as well - this is broke, that is not right etc; and it becomes very difficult to manage because they became used to getting what they want.  After 3 years of them being there, I raised their rent $100 per month.  They asked me why such a large increase?  I told them with all the fixes/repairs I was doing to the property and the fair market rent the unit can now rent for more money per month. (Yes I have had annual increases of $25-$30 per month - but this large increase encouraged them enough to move on their own accord.) 

I hope this helps, and good luck with these tenants!

@Colleen F. increasing rents is all up to you - Section 8 does have what is called fair market value (FMV) for different cities and that is good. My rents are close to this FMV, but just because my cost go up doesn't mean I cannot raise the rent. I can only however raise the one per year (on lease renewal).

What this means is either Section 8 approves the additional amount or the tenant can choose to either absorb the additional cost or move.  I include trash and water as part of my rent - and when these cost go up or the tenant decides to leave the water running and I receive a high water bill - I the landlord can only absorb these cost for so long before I start losing money.  

I think most landlords think that once the have a Section 8 tenant that they can never charge more than the FMV for rent when renting to Section 8. To give an example, one of my units was renting for X (at FMV) and when the non- section 8 tenant moved out the market (not FMV) was approximately $150 higher. When I listed this property at this price which was +100 above the Section 8 limit I received all kinds of calls. The tenant I screened for the property just so happened to be Section 8. The choose to rent my property because it was nicer and the also chose to pay the difference above and beyond the FMV. I am not discriminating against Section 8 - this is the rent I want for my property and anyone can choose to pay the rent I wish to charge for my property.

The thing to remember when renting to Section 8 - there are many factors involved in the decision making process - not just the price of the rent but the utilities included.  Each state is different but I bet most have the same type of policies regarding the rent a Section 8 tenant can pay but they allow variances as well. 

Word of advice - know what you are getting into.  Talk to the tenant's case worker and read the policies, guidelines, etc.  Think of it this way - everyone needs a place to live and just because someone is Section 8 doesn't mean they have to live in Class C and below properties.  The system isn't perfect but the more you know the better you can manage your property (aka ==> your business)!

Best of luck; I wish you success!