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.

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

Not an attorney, but is my understanding you can charge applicants your actual cost for running a credit check on them (up to $25), but do think an application fee must be refunded if not leased.  That is why most owners/companies don't seem to bother with application fees in the Madison, WI market as it's not worth the hassle of collecting it and refunding it (it's been very competitive with often multiple applications, so would be mailing checks back much of the time.

I think this section covers it and appears like LL could retain it if tenant approved and then decides not to sign the lease, but LL has a list of caveats to disclose up front about lease terms, etc.  They can withhold for the credit check up to $25 (again confirm current if you want).

ATCP 134.05.

Sounds like you have a plan to consult with some brokers and expose it to the open market. I feel that should definitely get you the most interested parties seeing it and therefore obtain the highest and best offer terms. As noted, commission are always negotiable as are brokerage options (full service to discount companies that pretty much just post it on the MLS and you work with all calls, offers, etc) and an agent can go over likely net out scenarios with you and give you an idea what you likely will be able to net after closing expenses and paying off the mortgage balance. I would at least start there and good timing to figure out a plan with spring slowly approaching and our busier sales season in WI.