All Forum Posts by: Wesley W.

Hello folks,

I once again am imploring the collective wisdom of those on this forum with more experience than I.

Some background: my wife and I currently own 3 financed properties: our primary residence (HELOC, my name only), and two 4-family rentals (both our names on one loan, just hers on the other). They are held in our personal names. We both have great credit, no debt (aside from RE), and well paying, secure W-2 jobs.

We will soon purchase our next property (another 4-family rental), which I plan to put in my wife’s name exclusively. My wife will be leaving her job in the fall to go back to school, at which time we will buy another property (in her name) near the school for her to live (and rent out the other units). This will give her 4 financed properties. I will then leverage my W-2 job to pick up additional properties while she is attending school. Once she is done, we will flee South where we will both become self-employed (myself via RE holdings).

This latest property (currently under contract) will have a purchase price of around $105K, with between $20K-$40K of rehab needed, depending on how updated we want to make it.

QUESTION: How should I finance this next purchase, given our long-term plan?

Option #1: Buy this next property with cash and pull most of the equity out with a refi/HELOC. How soon can a refi be done after closing? (We want to redeploy the capital.) After a refinance, does this expose us to any more liability? An asset search would still yield the property as leveraged, correct? Right now we have a commercial umbrella policy in lieu of using LLCs to hold title. (Since we were taking out conforming loans, we couldn't hold in an LLC without risk of DOS clause.)

Option #2: Once again buy using a conventional loan. My concern here is spending an inordinate amount in closing costs compared to the actual loan amount. We want to use loans whenever possible at this point so we can leverage our W-2 jobs while we have them – but I am wondering if it’s the right thing to do given the size of the loan (~$75K) and the expected closing costs.

Option #3: Something that I haven’t considered, but one of you insightful people will suggest.

Thanks again for your suggestions and advice!

I've had estimates has high as $10K for this kind of thing, and like @JD Martinsaid, it is absolutely a benefit to you if this is a long term hold.  I looked at a duplex recently that had one meter and the utilites were paid by the landlord, and there were 5 window air conditioners running with the doors and windows wide open.

Hi Alicia,

First of all, welcome to BP!  If you can't find the answer here, you won't find it anywhere.  The collective experience of the members here have seen it all.  I've had lots of help since joining.

Definitely check with a local attorney to get the lay of the land as far as how the courts view eviction cases that are NOT due to non-payment.  Where I am, it's a tough row to hoe.  My best advice is remain professional, and document all communication with this tenant, preferably in writing.  All official notices should be delivered as required by your local municipality.  (e.g. concurrent certified & first class mailings)  This is especially important if you are going to evict this tenant for violation of lease.  In my market, the "burden of proof" is greater for that kind of thing, so build your case with a lengthy paper trail.

Just know that there will be a fair amount of testing from the inherited tenants whenever there is a new owner.  In my limited experience, most buildings that are for sale are poorly managed and the "inmates are running the asylum."  The ones that are well-managed and have great tenants are not for sale;  they are making money!

I guess what I am trying to say it is not totally unusual to have a problem tenant in your building when you first purchase it.

I know if feels difficult right now, but I can assure you - it well get better.  Once you get your "sea legs" for the landlording thing, you'll know how to handle situations like these.  Good luck!

Here's a copy of the letter I used on my most recent acquistion:

Hi Mr. & Mrs. Smith,

Please find enclosed a new lease for you to sign and return. After doing a market analysis on your rental unit, we have determined that the average 3-bedroom unit in [city] is currently renting for $933/month. As a courtesy to you as an existing tenant, your monthly rent will increase to $890/month. We hope you’ll see this increase as a more than fair amount given market conditions.

Given you have pets, our company also requires a non-refundable pet fee of $200. This is a one-time fee, good for your entire residency. There WILL NOT be a monthly pet surcharge as some landlords charge. I realize an increase in rent and a one-time $200 fee might tax your household’s budget, so I am willing to work with you on a payment plan if you need additional time to come up with the pet fee.

Please fill out all the highlighted parts of both documents. (Please initial in the lefthand margin next to each of the 28 paragraphs of the lease). I will be stopping by next week to pick both up. I realize this is a lot to digest; please call me and I would be happy to answer any questions you have about the lease, pet policy, or anything else.

As a reminder - beginning with rent for September, please pay your rent by depositing the entire amount into the following bank account at [bank]: account # 12345; routing # 12345. We do not accept rent checks at our P.O. Box; rent can only be paid by deposit.

If you have any questions, concerns or maintenance issues, you may call or text my cell phone at (x), or you may email me at the gmail address listed at the top of this notice.

Thank you in advance for your cooperation. I look forward to working with you during your continued tenancy.

Here's the letter I sent to current tenants of my most recent property purchase:

Dear tenant residing at 123 Main Street:

We are excited to announce that our company is in the process of purchasing the building within which you reside.

As part of the purchase and sale process, I am asking each of you to completely fill out the attached estoppel agreement. This particular document is for informational purposes only; we will use it to verify what the current owner has already told us about your tenancy. This information will not be shared with anyone outside this transaction.

Being a local company, providing quality housing and great service is very important to us. I look forward to continuing to maintain your address with the same pride and quality that Ms. Smith has taken in it over the past 19 years.

Oftentimes, when a building is purchased, this creates some anxiety for its current residents. We do not plan to occupy any of the units. As we proceed further along in the transaction, I will keep you informed as to what to expect during this time of transition.

In the meantime, please feel free to contact me directly if you have any particular questions or concerns.

 I'll show my ignorance here, but does the property have to have a wi-fi account locally (e.g. something the vacation home's owner or landlord provides as an amenity to guests/tenants) or does it have a transmitter or something?

I do what @Rick Bassettand @Rex T.do.  None of that "check is in the mail" dialogue, and those without bank accounts can pay in cash (or wampum, for all I care just so long as it clears the float!).  I have a separate bank account for each building, and each unit has a slightly different monthly rent so I can tell who's paid.  I can view the deposits online, and know if I payment is past the grace period where a late charge would be levied.  (All of my current tenants are excellent at paying on time, and if they are late they make arrangements with me ahead of time as to the date of their rent + late fee deposit.

I charge a $200 non-refundable fee per pet.  Almost no one bats an eye at paying. It's a bargain to the tenant whom considers the pet as a member of the family.

The animal needs to be spayed/neutered and have current shots and registered with the municipality.  I accept most dogs (except for dangerous breeds per insurance carrier) and cats.  In our market, a lot of landlords don't accept pets, so this gives me a competitive advantage - just make sure you screen the tenants well.  What's worse than a problem tenant?  A problem tenant with a problem pet!

My rents are all MTM, so the one-time charge incentivizes the tenants to stay longer to amortize the cost.

Al Williamson is passionate about leveraging additional income streams from rental properties.  Perhaps he could weigh in...

One of the referenced units is about $75 under market, but they are extremely long-term (inherited) tenants and have "worn out" their unit and live kinda messy; it would take about $7000 to turn it over.  Last year, I raised their rent $30; I was considering doing something similar this year.  These tenants sometimes pay late, but always with a late fee.

The other unit has model tenants.  They keep their place neat and clean, and always pay on time.  They get a significant discount because of shared utilities with a common area, which amounts to considerable savings over and above their additional expense.  They would be pretty close to market if they were paying full price.  It's weird, though, because market price fluctuates quite a bit with the seasons;  in 2 or 3 months, all the market rents across the city will be higher.  In February, they are near the bottom of the annual local cycle.

My gut tells me the first tenant needs to get an increase, but like a few of you said, it's a balancing act.  If they move, it will trigger a big cap ex, but then I can raise rent by about $100 (we have the reserves, but a long recapture period).  Our expenses are about $30/month higher at this property than they were last year (see OP), and this unit is by far the lowest under market.