All Forum Posts by: Peter Falk

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.  

I am a Realtor in Madison, WI and so far as stated earlier, other than an offer of compensation no longer being listed in the MLS, not a lot has changed as far as sellers typically being agreeable to pay buyers agents at closing a buyer agency commission, and sellers just viewing that as a closing cost and focus on reaching a net proceed number they are happy with (if competing, one buyer may ask you to pay their buyer agent fee, but at a higher price where you could still net more than a lower priced Offer). In Madison, and I assume your market, we have always had discount broker options to basically just get your listing on the MLS and not much else as well as sellers just exposing it to the market themselves off the MLS and hoping to maybe pay no buyer agent commission, where the buyers have no agent they are working with or the buyer agrees to pay their agent directly. You can always add on the commission you are willing to offer to your asking price and let the buyer finance that with their mortgage/purchase price paid and negotiate commission along with other Offer terms as Offers come in. The marketplace is always evolving, so may eventually see more listings where sellers only set their listing agent commission for marketing the property and negotiating on their behalf, and not offer any buyer agency fee up front, and just settle on that in the Offer the buyer agent brings them.

Madison and Dane County continues to be a growing market, with price increases reflecting that. So far this year from MLS data, in Dane County, the median 3 bed, 2 bath home sold for $440k and $429,950, so with our high taxes (around 2% of the purchase price), you may decide to focus on multi-family property for help with income/cash flow. If you search for rentals in the area, I think it is logical with this pricing why you don't see a ton of single family homes for rent. Madison has pretty strict short term rental rules if you don't live at the property, so mid term furnished rentals is a strategy I have seen done here. In a rental I manage, we did see about a 40% higher rent for a furnished unit, but may see some higher vacancy periods and tenants probably expect more included (utilities, internet, etc), but agree it's something to consider.

WI is a big market.  Do you have a specific geographic area you are most familiar with and hope to be in?  It wasn't clear if you plan to self manage and need the property pretty close to home.  Good luck wherever you end up.  If it's the Madison area, I can provide a bit more detail.  Also, as far as multifamily, wasn't sure what you are thinking on max price range, but guessing you are thinking 1-4 units to start off with conventional financing.

Thanks Marcus.  I'm a member of the Apt Assoc of South Central WI in Madison and know they too were watching those cases closely as well and will look into the RPAWI.  

It sounds like you are the one wanting to get an option to buy during your lease term.  In most cases, the owner/possible seller would want an option fee paid up front to entice them to entering into the option to purchase agreement, so assuming that is the case, would enter into the agreement with a pretty firm plan to purchase and not lose that option fee.  It also can get challenging to set a price now to possibly buy in the future that the owner and you will feel is fair (with markets still appreciating at a healthy pace).

You can also keep your eyes open for a seller willing and able to do a land contract with you (but there usually would want much more money down and likely want a full pay off in a few years, but can see what you can negotiate on terms).

I agree nothing illegal about options/option fees in WI to my knowledge, but generally seem much less frequently used in single residential transactions than commercial transactions where due diligence and closing timelines may be very drawn out.