All Forum Posts by: Peter Falk

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.

It sounds like you want to be a rental property owner/investor and not just looking to minimize your out of pocket housing expenses (getting a roommate to help cover your mortgage with a single family home).  If that is the case, and a 4-unit is in your price range, I would consider jumping in and owner occupying one unit in a 4 unit building and renting out the other 3.   If the unit you occupy is large enough, could get a roommate and see how it goes.  

I've always been self employed, but if you have a stable W2 job, lender underwriting should be pretty easy and painless to get approved for a loan and see what you qualify for on financing.

Good luck!

I'm in Madison, WI with pretty high property taxes (around 2% of the value/purchase price) and also think the quick ballpark 45-50% expense ratio is pretty close for operating expenses including reserves, assumed management, taxes, maintenance...

At this time with higher interest rates, and continued upward prices, cash flow is pretty slim.   I think most buyers are looking at long term appreciation and rental increases over time as we are in a growing city with lots of great amenities, stable employment, college town, etc) or some may think they can move rents higher if below market, but many 2-8 units sell for 12-14 x gross rental income making cash flow not too exciting after operating expenses and debt service with more challenging areas looking better on paper as always.

The WRA residential lease maintenance section I think does a good job of covering both that tenant shall maintain (change batteries) but not waiving owner responsibility for maintaining the smoke alarms and replacing when needed.  Also don't forget about CO alarms as applicable in many cases in WI (unless all electric heat and appliances....)

State of WI Carbon Monoxide Alarm Rules for Single-Family/Duplex Buildings | Fire | City of Madison, WI