All Forum Posts by: Randall Alan

Just remember, Birds are in cages, but their owners let them out to enjoy them.  It’s what they do while out that you have to worry about.  

All the best! 

Randy 

I’m totally renting to someone who will front a years worth of rent!  Barring them being some criminal or drug lord! 

I personally wouldn’t call the mortgage company.  I don’t think there is a reason too, and like the saying goes, it’s probably better to ask for forgiveness than Permission.  If you are in doubt, read through your mortgage paperwork, but I don’t think you will find anything that says you must notify them.

When you buy an investment property there’s always a lot of paperwork about assignment of rents in the event of default.  My guess is that if you do call them they could have some sort of protocol that might trigger some of that investment paperwork... but as far as I know, mortgages are sort of “at that time” type of instruments.  I have had a personal house I rent out for 10+ years and have never had one flinch from the lender.

Just like buying your car and then driving for Uber... yeah, you are using it differently than initially intended, but only the insurance company is going to care.  The lender is relying on the insurance company to protect them in the event something happens to the car, and likewise the house.

Randy 

The mortgage company won't really care as long as they keep getting their mortgage payments.  You CAN change your insurance from homeowners to "dwelling" which removes the personal content coverage and save some money (it's on the renter to insure their personal property).  

Who DOES care is your taxing authority if you are getting a homestead exemption.  You should let them know... because they will figure it out by cross referencing where you live now against where the homestead exemption is, and they will go after you for any savings you got that you shouldn't have.  On the down side, this will definitely increase your taxes on the property... but hopefully if you own a new house, you will just move your homestead exemption to that one and save there.

As for your mortgage company, they still have you on the line for the note / mortgage, and as long as you don't give them a reason to come after you (ie. quit paying your mortgage) you will never hear from them about your property being a rental. 

Randy

I have your answer!  :)   We use Rentec Direct.  Seriously, it was perfect for us starting out.  It works out to about $4 a property per month.  We have 40 properties and pay under $150 now.  Their pricing scales with the number of properties.  I think they have an "under 10 unit" pricing.  The thing I love about it most is that they have a client facing web portal where tenants pay their rent, and Rentec Direct charges NOTHING (ie no fee) for ACH transactions that they direct deposit into your bank account for you... just a straight up $4ish dollars per month per unit base fee. A lot of others want to charge you a percentage of your rent that they collect.  No thank you!  It does so much more... markets our properties when they are vacant through Zillow affiliate marketing, does background checks, tracks all the expenses, generates billing, lots of reporting, and on and on and on.

 I know I probably sound like a cheerleader... but it is my most favorite business asset for my real estate!!  Simple, intuitive interface that does what I want, for a cheap price. Definitely worth checking out.

Randy

Find a portfolio lender that can write you a commercial loan - versus a residential lender.  If you don't know what a portfolio lender is, it is a lender that holds their own loans in house (versus packaging them for Fannie Mae to buy).  Portfolio lenders have more flexibility to look at the bigger picture (what are the person's other assets, does the person have investment accounts he could access for cash in an emergency, etc, etc.)  Commercial in general looks to the property to justify the loan, versus the person as much.  

Fannie Mae forces a lot of rules and regulations that will get in your way on the residential side. A commercial loan is probably your best bet.  It will be at a slightly higher interest rate, and sometimes shorter term... but it will probably get you deal done.  You can literally just call up the commercial loan department of your local banks and ask them if they hold their own loans, or sell them... any loan officer will instantly know the answer.  You will want to look to the local banks... not the 'big boys'.

Randy

You will get a hundred different approaches by asking that!  To maximize your cash flow, you want to spend as little as possible to generate the most rental income (if you are talking about rental properties).  I have seen others recommned everything from laundry mats to self storage, etc.  But I do rentals... so thats what I would say.  Leveraging (financing) your properties will always yield more net income than paying cash

Specifically,  my formula, for my area,  is to buy units for under $75,000 a door, that will rent for $1,000 or more.  It gives me about $400-500 cash flow per door per month after Principal, interest, taxes, insurance, and a $100 reserve.  The better either part of that is (lower purchase price, higher rent) the better the deal becomes.  It takes about 30% down (with closing costs) to buy a property... so at $75k, that's around $22,000 to get into a single family home.  You have to have reserves, etc to meet your lender's requirements so you can't go all the way up to the $85k you have probably... unless you have other liquid reserves (investment accounts, etc)... in which case you could.  With an $85k bonus, you probably do.  :)

So at $22,000 you could most likely get 3 investment properties that were returning $400-500 positive cash flow a month, plus provide you a ton of write offs for taxes, etc.  We cash flow over $200,000 off 40 doors and we had a loss on taxes relative to that income.  :)

That $1,500 a month translates to an $18,000 return on your $66k investment (27% cash on cash) before you take into consideration other overhead expenses you might incur... excessive repairs, renovations, rehabbing if the property isn't quite where you want it when you buy it, etc... but you get the gist of how rentals kicks wall street's butt!

All the numbers above are for my area... but with that said, do comparative analysis for what things rent for in your area... take a $75k home, a $100k home, a $150k home, and just crunch the numbers... What you will likely find is that you don't make more off the $150k home than you do the 75k home... so the equation is a race to the bottom... how cheap can you get a home that still cash flows well.  Where the two lines on the graph cross is what you should target.

Randy 

Obviously you are at the mercy of the lending criteria of your lender.  They want to know how they are going to get paid back.  Many can work with self employed, and they will ask for a year's worth of bank statements to document how much comes in on a regular basis.

 Part of this might be shopping around for the right mortgage broker.  I would try reaching out to a mortgage broker (versus a straight up bank)... they usually have more lenders to pick from... you can't be the first one to have this issue, and somewhere is going to have a solution for you.  As long as you can show them consistent income to their liking, I don't think income will be a problem... all the other pieces have to of course fall in line... debt to income, credit, etc.

I'm pretty sure what they will say is "prove to us you make that much consistently"  when it comes to documenting income.  

It's easy to get caught in the "Look poor to the IRS for tax purposes, even though you have a lot coming in" situation.  So it will likely depend on how you recognize your income.  If you don't run it through your bank, you may be stuck.  If you can show that your business pays for all your bills, that's different.  Our business pays for a crazy amount of our monthly expenses... cars, car insurance, health insurance, phone, internet, etc.  If that is what you do as well, make sure you show them that... because they may be able to switch that to the "income" column for you as those would be things they would normally expect you to pay personally. 

PM me if you would like a referral to one we use that might be able to help you pull it off.

Our philosophy is this... if we can't find a tenant that meets the income threshold, we explain to them that they don't meet the minimum requirements, and because of that risk, we ask for more up front (for us, it's last month's rent, as well as 1st month's rent and security deposit.). If you already charge First/Last and Security deposit, perhaps consider adding another month?  The idea is to protect yourself if they flake out and quit paying, right?  If it is going to take you 45 days to evict them, you add that amount of additional rent on file, with the stipulation in their lease that when they are "however many days late you choose", you get to file for eviction, even though they have additional funds on deposit.  

I just did this with tenants that had a somewhat rough looking background... one had a 6 year old eviction, the roommate had some sort of domestic issue... but not drugs or criminal.  After speaking with them we liked them...but keeping in mind their past, we asked ourselves, "what would make us feel comfortable renting to these guys."   We tacked on an extra month of rent and said if you get to day 8 of rent being due, we get to file to move you out.  (Our normal policy is rent is due on the 1st, late after the 5th... and typically we tolerate and work with people the best we can... within reason when they are late after that.  For these two we said, "We believe in second chances... but it comes with restrictions... and laid it out to them."  They were grateful, paid the extra rent, and so far so good.

Hope it helps.

Randy 

The way I think about it is, "Will the animal due damage to my unit."  My kids have 2 parakeets, and as crazy as it sounds, they eat the blinds, and the paint off the wall, etc. So as innocuous as birds sound, I might suggest charging SOMETHING... but maybe not the same as a dog / cat.   

As for fish, I doubt you have THAT problem, but tanks leak and can lead to water damage on occasion.  I've never encountered the Fish / Bird Debate.  We charge for Dogs and Cats... with cats being less than dogs.  I think I might charge something minimal for birds... but probably not for fish... with the caveat that if somehow the unit is water damaged by the fish, you would deduct it out of their security deposit.  

My 2 cents.

Randy