All Forum Posts by: Nancy Roth

Hi, Leslie, that's really interesting. My daughter lives in Houston and I am exploring that rental market a little.

What you are describing sounds like a halfway house, in which people who are returning to the mainstream from prison, or are recovering from addiction and learning to live an abstinent life under supervision (and daily testing). I have a colleague who runs housing like that for recovering alcoholics, and he hired the director. It's quite lucrative. But it is a little more hands-on than I want, at least for now. I want to provide housing, period, and let the social workers do their job. 

As far as keeping full, yes, absolutely you'd need to partner with area service agencies. But they seem to have an endless supply of clients for whom there simply is no appropriate housing, so I think once it's up and going the vacancy issue is not going to be a big one. 

Hi, everyone, thanks so much for responding. To clarify one point, although I live in Washington DC, my rental business is all in Baltimore City (hope to expand to County). I grew up there and know it very well, and the market is much better suited to rentals than we have in DC. 

Glenn, your model is exactly what I'm trying to achieve. I'm interested to know if your group houses must be staffed or if the residents are allowed to live independently with case workers visiting to keep them on track. I'm finding in Maryland the practice seems to be keeping the number of occupants down to 3 or at most 4 per household. Do you have those limits in Iowa?

Also, did your houses have to go through a licensing process by the state? In Maryland that is one path to becoming a housing supplier for special-needs tenants, but I'd rather not do that. Another path seems to be partnering with/subcontracting to a nonprofit that already has a license. I'm exploring that now, and trying to identify the right partner. 

You are exactly right that it's better for the rent to be paid or supplemented by Medicaid, because these folks may be able to work but don't have much earning power and cannot pay market rates. One more question: are your tenants paying by the room, or is the agency paying overall a single price for the unit? I'm so far finding nonprofits want to pay for the unit, which is less lucrative.

Jim, yes, there is legal compliance with this, but the whole rental business, in Baltimore City especially, has a lot of legal compliance issues you have to be mindful of. Of course housing for special-needs tenants has to be compliant with Fair Housing but so does everything else. As for ADA compliance, it depends whether the tenants have physical challenges. With this two-unit I expect to make the lower unit wheelchair accessible but the upper-level unit is better suited to able-bodied residents, as there is no elevator. At this point I don't see why I should go to the expense of making it accessible although it's not problem to enhance safety with grab bars, etc. 

Greg, the goal of my business is to achieve a stable, predictable passive income flow. There is such a dearth of housing for this population in the Baltimore area that when you get someone with physical disabilities or other challenges moved in, and their support systems are set up, they are not going anywhere. So they constitute an unusually stable source of rental income. Plus there is a pent-up market for this kind of housing, so you can replicate this kind of rental unit almost endlessly. Another upside, as Glenn mentions, is there is an intermediary who is responsible to see the rent gets paid and the maintenance done, which is another stabilizing factor in the income flow. It's not particularly sexy, and not that many in the business are drawn to it. In a way that's why I'm interested in exploring it. 

Many thanks to all,

Nancy Roth

Has anyone been successful (i.e., made the numbers work) renting to adults with cognitive or developmental disabilities? These are individuals who are high-functioning but are probably in a program of some sort, and have caseworkers who look in on them periodically. They are renting rooms in a house or apartment and sharing common space. Perhaps some or all are able to work. Not talking about a staffed halfway house or assisted living--at least I think I'm not. Would like to hear your experiences doing or trying to do this. I have a 2-unit in Baltimore that I'm thinking of upgrading for this purpose. 

Many thanks,

Nancy Roth

@Mercedes J

Ah, Mercedes, welcome to the sweet life of rental investing in Baltimore. Congratulations on closing on a property.

I see you are located in Baltimore, which is a huge help. Please clarify: this is your first rental unit? What condition is it in? Do you have any repair estimates from contractors you trust? If I may ask, what neighborhood or zip code is it in? Are you too tied up during the day to take a hands-on approach?

I ask because it may be useful education for you to get your unit up and rented on your own before hiring a manager. Are you set up to do this? If not, I could maybe offer more specific guidance if I understand more about your plan.

You should also read the many articles on dealing with property managers on the BP site, and talk to a lot of local landlords. 

Excellent place to start, if you haven't already, is an investors lunch meeting every Friday at noon at the restaurant Spirits West, 2601 Wilkens Ave. Free, except the cost of lunch. I go there as often as I can and have learned a lot as a result.

Also Baltimore REIA (google it) has a monthly landlord meeting, I think it's the last Monday of each month. And there's an excellent group for women RE investors meeting tonight, actually, also offered by Baltimore REIA.

Good luck,

Nancy Roth

@Russell Brazil

Based on recent experience with investor buyers I see the market for rentals tightening in some of the nice bread-and-butter neighborhoods (as opposed to the red-hot ones near the water). Still, the 2% rule of thumb remains achievable in most of Baltimore. 

But as @Ned Carey points out, if you are willing to buy the very cheapest properties and can keep the costs of a full rental rehab down, you can do even better than 2%. Not everyone (like, ahem, me) is comfortable with that model. I have great respect for construction project risks and hazards. But for those less wimpy than I, it is still doable.

I agree with you 100% about the irrational property tax assessment process and rates in Baltimore City. Most assessments appear to have been performed during the height of the market 10 years ago, and have never come down, though those prices are totally irrelevant to today's market! Why one neighborhood, say, Belair-Edison, has very high assessments compared to a similar neighborhood, say, Gwynn Oak west of Hilton Ave., no one can explain (please speak up, BP readers, if you know!). I suspect it's about politics (certainly not the market) and city assessors are under pressure to keep assessments high. It's dishonest and outrageous and it breeds cynicism about the government's motives.

FWIW I have had good results using specialists to appeal the assessments on my rental properties. Though it's possible, I wouldn't advise filing an appeal yourself, as the law is complex, the procedure involves 3 levels of appeal, and you need more than a passing acquaintance with the arguments that will sway the city to give up some income. Well worth the cost of 50% of the first year's savings property tax savings in my opinion.

Good luck to you, Russell!

Nancy Roth

@James W. 

You are responsible for maintaining safe and healthy living conditions for whomever is living in your property. The water in the house is not conducive to safety and health, and it behooves you to take steps to stop the inflow. 

What's more, it's quite possibly a cheap and easy adjustment of the gutters, or filling a crack in the concrete outside that is conducting the water into the building. 

Whatever you think about the tenant's personal habits, letting that water continue to leak in, you leave yourself vulnerable in any dispute with the tenant, however unrelated. The tenant can show that you've been a negligent landlord. Doing nothing adds to the tenant's potential arsenal against you, in a liability lawsuit or rent-related legal proceeding.

One more element of self interest: water problems never fix themselves. They only get worse. Take care of it now or else you'll probably be dealing with something more expensive later on. 

Fix the problem for your own wellbeing, if not for the tenant's. 

Good luck,

Nancy Roth

@Rudy D.

There are many houses for $25K and under in Baltimore but they almost always need a great deal of repair. You do have tenants in there--so why is the current owner giving it up for so cheap? What is the status of their lease? Are they current on rent? Are they on the point of eviction? Are they trustworthy residents, i.e. law abiding and not destructive? Inherited tenants are not always a blessing. Usually it's not an instant cash-flow prospect, no matter what the marketers tell you. In fact, do you even know the marketers? 

You can't judge the house from a picture on the web, and an inspector can't tell you if the house is right for you. You know nothing about that neighborhood, which is quite spotty and troubled in many places.  

You stand to lose a chunk of change going about it this way. I know it seems cheap, but don't kid yourself. Bad tenants, deferred maintenance expenses plus ridiculously high property taxes in much of Baltimore will bleed you, I can promise you that, having made that mistake myself.  Also there are a lot of property managers who will exploit your naivete and the long distance between you and the property. 

Don't do it, Rudy D. Stick closer to home for your first investment. 

Nancy Roth

@Jared Sleeth

Maryland is an extremely tenant-friendly state. Stay away a bit longer and let the process work. Why jeopardize everything at this stage? 

Good luck, and onward!

Nancy Roth

@Michael E.

I like what @Carl Fischer said about borrowing at 30 and repaying as if it were at 15-year amortization, except when you don't want to. That gives you built-in flexibility to cope with changes in your circumstances, as you might sometimes need extra cash. Very creative.

Also what @Anish Tolia contributed makes eminent sense to me. You can set it up to do what you want it to. 

So I work a lot in Maryland, and am wondering what part of central Maryland you are working in. If you are trying to work a deal in Montgomery County, for example, I'm sure you've found it's very hard to make rental numbers work due to the very high cost of acquisition. In the real estate kingdoms of Montgomery, Howard and most of Anne Arundel Counties (all in central MD), appreciation rules. 

But you can achieve decent numbers in many other parts of the state where you are able to acquire for less and rent at a sensible rate.

High-appreciation markets like the Washington DC area attract already-wealthy investors, who do not need the cash flow (see: everything written about Southern California, in any of the gazillion forums on BP). So a high-appreciation market is not a fruitful arena for the rest of us not-already-wealthy investors. We need high cash-flow markets where we can start with modest investments and build. Look around, there are plenty in Maryland!

Good luck,

Nancy Roth

@Jason Hatfield

Not sure you are asking the right question. IMO the right question is: will the deal make money? 

I tried to compare your costs to those I paid for my recent hard-money loan for a Baltimore rehab, and the expense categories don't line up well, so it's impossible to get a clear idea. But just eyeballing the numbers, it looks like I paid more than your lender is asking. My lender operates in Northern Virginia, where everything costs more!

But I'm a first-time rehabber, and this was the best loan I could get. Maybe I could aim for a lower-cost loan next time. But for now, I expect to clear a nice profit, so I'm not that worried about it. 

Also, you didn't tell us the interest rate and points on the loan. Consider that conventional banks often charge more points on lower-interest loans. So if you got good terms on the loan, perhaps you can justify paying higher upfront costs.

Guess the other question is, is this the only lender that will work with you? Maybe you need to build up a track record and some relationships in MD to get the advantageous interest rates you want, and for now you have to take less-than-stellar terms. 

If this is your situation, but the deal is a moneymaker, I'd say, go after the deal. If the terms of the loan are going to make or break the deal, it's not a deal.

Good luck, Jason, and let us know how you fare.

Nancy Roth