All Forum Posts by: Peter Falk

It sounds like the Title Co. was not aware that the tenant prepaid rent and just prorated the current rent for the month of closing, so agree if they had no knowledge of it, would not have ever gone on the settlement statement as a credit to the buyer and they likely will not do anything post closing to help obtain those funds.  I am guessing that the tenant may be short on funds to pay twice for Jan, until reimbursed by the old owner, so would first make your case to the old owner who has the funds you are owed and certainly hope once reminded of that will refund them.  It sounds like the tenant has solid evidence their check or auto payment was received by the wrong party.  

If the seller isn't responsive, then do like the idea of telling the tenant you tried, and see if they can get some free legal assistance from a tenant resource center.

It is a good reminder as closing approaches to ask the seller to keep tenants updated on the pending sale and when ownership is scheduled to change.

Hi Carlos,

I am in Madison, WI and we shopped around a lot when moving a few years ago and used Neckerman Agency (now McClone) who are insurance brokers.  Our actual carriers used to be Secura, but they seem to be getting out of a lot of insurance lines or pricing so high as to have customers drop off, and we just moved policies in Nov. to Hanover Insurance.  We have rentals, home, auto and umbrella with them.  I would at least recommend you have them shop a policy for you.

One thing we did note is that with hail damage to roofs, they seem to be decreasing coverage/increasing deductibles on that if ever needed.

You could start by reaching out to any local corporations that do assisted living in your area and see what they are looking for (location, space specs, etc).  My wife used to work for REM Wisconsin in accounting.  This was a few years ago, but at that time as I recall they were looking to do more long-term property leases over owning properties and doing pretty landlord friendly leases where they would do repairs and even pay property taxes.  My guess is that finding good staff in this industry remains hard to find.

Welcome Sean. I am not sure if you've been watching the inventory there much yet. I am in Madison, but set up a search in Sheboygan and Port Washington as we have some family in that area who thought could keep an eye on things and the entry prices are less (in Dane County the median MLS 4-unit sale this year is $603k with 31 sales and for Sheboygan Co. this year only saw 4 sales of 4-units noted, but a median price of $252k . From what I've seen, think you should have no issues finding something needing some updating to hopefully further build equity and push rents. Like in our area, most of what I see hit the MLS there goes under contract quickly, so would be nice if you can find someone selling off market. Good luck!

Hi David,

Glad you are considering investing in real estate. I am a Broker in Madison, WI as well as an appraiser and self manage some rentals. As an out of town owner, one benefit of Madison is that we do have a good supply of property management companies to consider. If cash flow is your main driver, not sure how well the Madison, WI market would stack up. I generally rule out most single family homes as viable rentals, as prices are pretty high relative to rents, so aside from some downtown neighborhoods, typically you do not find large areas of single family rental neighborhoods (a median sale price on a 3 bed, 2 bath home so far this year in Dane County on MLS sales data is at $430k). So to help cover expenses and see some cash flow would focus on multi-unit property. Even with multiple units, with current interest rates and a competitive market (prices have continued to rise even with higher interest rates) think the Madison market is a stronger long term ownership strategy, where the bulk of your return will come when you sell from appreciation in rents and property value. We are a growing market with low unemployment but you will see a lot of the rental income going to covering expenses and setting aside reserves. We also have pretty high property tax bills (around 2% of the purchase price/property value) that eat into a lot of the rental income. Happy to talk further on the area (we are large enough to offer options to focus on student rentals/UW Madison campus, and anything from Class C to A locations or suburban/surrounding communities) but to help you consider broad initial search, you could start by deciding how important cash flow is.

If your company goal is to buy and hold real estate and develop, I think that will keep you plenty busy and just skip flip projects.  If your partner is a contractor and wants to keep busy, that could be a different story, but I at least consider looking at long term ownership plans and flipping as very different businesses and a lot to learn on both, so not sure I'd risk losing money and time dealing with flips.  You can still get a feel for contractors working with on properties you plan to hold.  When developing, I'd first talk with the city building/zoning about what they want to see more of and where, and try a simple project that should be smooth sailing on plan approvals, saving you time and money.  Right now, in Madison the City seems very interested in adding apartments with infill apartment buildings going up all over, but if you are in Milwaukee am sure there is plenty there and adjoining communities to start with.  

If landlord pays water/sewer, and with more occupants you know you will see higher water usage, think you could make a logical case for some additional rent or per person fee to cover that.  You could also consider things would get a bit more wear and tear (more adults doing laundry if you provide that, etc. as a reason for higher rent).  Obviously the tenant hope of bringing in more occupants (and sharing more common area space/bathrooms as a sacrifice) would be to lower the rental cost per person.  I'd run things by your local legal expert in landlord/tenant law.  I did have a case where during a lease 2 roommates brought in a 3rd and I did not increase the rent, but do not think that is outright prohibited from discussion.  If you don't want to deal with it, could always say you won't consider amending the lease to add new adult occupants, but then run the risk of tenants just trying to sneak in "guests".  I had a recent applicant who hadn't been on a lease in a few years and said she just was staying with friends who had leases and helping them pay rent (I did explain that as I could not verify any payments or housing history based on not being on a lease).

As far as occupancy, HUD has a Keating memo on reasonable space, our local apt association suggested for some guidance on how many could reasonably fit in a space (not just looking at bedrooms).

Also check local ordinances.  City of Madison recently really increased there occupancy limits.  In the past basic zoning pretty much allowed you to rent a house to 2 unrelated people (family/kids obviously don't count as they are related to the adult(s).  Now to help with affordability, zoning allows for up to 5 unrelated adults in a unit, but again, as long as reasonable occupancy standards are met for the size of the unit.  So some grey area on what you may find reasonable and what perhaps some hopeful tenants find reasonable and be sure to not violate any fair housing law in setting occupancy standards, but I generally think most renters are reasonable on if 3 adults, they are looking for a 2 or 3 bed rental and not a studio.

I agree as well with the value being based off of current market rental rates, regardless of what the current lease rents are at or if a unit is vacant.  You are purchasing assuming market rents (set by the condition, amenities, location, etc. of the property) so agree that a seller would likely question a request for a lower price or their receiving less at closing.  I do get you having some concern maybe going into winter in WI and wondering if tenant activity will be there to fill a vacancy (with lots of leases and moving around happening spring-summer).  Not sure when closing is, but you could ask the seller for permission to advertise the units now and hopefully allow for rental showings to try to get new tenants lined up with leases to be signed with you right after closing.  If the units do need work, getting that done over the winter will also put you in good shape for spring, but do get your concern if you were hoping for that rental income in your first few months of ownership. If your Offer lets you "review and approve" of leases, and you feel they are not as expected and decide you can't live with the turnover right after purchase, than can discuss backing out with your agent.  However, as mentioned already, there are positives to consider and as a rental property owner, turn over and vacancy is a part of the investment, so just getting some experience with that sooner in the process than you had planned on before review of the leases.  If tenants are moving out right after closing, do double check the leases clearly show the security deposit they paid the seller and you collect that amount at closing from the seller (credit to you) so you have those funds to then return to the tenants when they vacant under your ownership. 

We've used State Farm and Farmers in the past.  When we last did major shopping around, did use a broker (McClone Insurance in Madison which used to be the Neckerman Agency if you are in the area and recall that name).  With them, we had been using Secura, but now they/we are moving to Hanover Insurance due to Secura changing their focus/pricing.  If you don't have one already, would think about getting an Umbrella policy.  I don't think I've ever paid over $200 a year for a million dollar umbrella policy for some additional coverage.  Also, when you do move out and no longer owner occupy one of the 4 units, be sure to notify your insurance so they know it's a full rental policy.