All Forum Posts by: Ray Hill

Thank you all for the great advice! I am going to have a talk with him in a couple days. I was going to do it today because I had to fix something in the bathroom but he wasn’t feeling well so I told him I’ll come up in a couple days when he’s doing better. 

I’m having some anxiety over an issue I’m having with my tenant. I own a two family house. I live on the first floor and I have a tenant on the 2nd floor. In June 2018 a retired cop moved in. During the interview we talked about no pets and it was written on the one year lease. A few months goes by and he asked me, if for one night, his girlfriend can bring her dog over. He was having a rough patch and said if not he’ll figure something else out but wanted to ask anyway. I said no problem. Since then the dog has been back once every week sometimes once in two weeks without him asking. I’ve never said anything and figured I could have much worse problems and I let it go. Besides, I’ve got a 2 year old and we’re not the perfect neighbors as it is.

I had a new lease, same terms, same everything that I dropped off in his mailbox one year later and I never got it back. Partly because I’ve neglected to ask for it back. Technically he’s on month to month now unless he’s going to claim that he signed the lease but just forgot to return it.

Fast forward to just a couple weeks ago. We’re outside and he says that we gotta talk. He’s got a puppy with him. He says that because of 9/11, PTSD, his psychiatrist recommended he get a dog. He’s got a doctors note. Caught off guard I told him that it’s okay as long as he keeps the place clean and takes extra care that nothing gets damaged.

Next week I close on my second house. In less than three weeks I’ll be moved out and I’m currently trying to find a tent for my 1st floor. The other day the girlfriend’s dog was back along with this dog and now some days I have two dogs when originally I didn’t want any.

I spoke with my attorney and he suggests I write up a new lease for March 1st and increase his rent $150. I would be okay with the dog if that happened even if the girlfriends dog was here sometimes. I mean for the right price he could have an animal sanctuary up there. I’m just not happy with the current situation. His 2 bedroom apartment with a finished attic would go for 2000-2300 around here and he’s paying 1800. I’m not looking to evict him and have two vacancies to deal with. So far we’ve had a good tenant/landlord relationship. He pays on time, I’ve fixed anything that he’s asked me to and neither one of us has ever complained about anything.

What would you do? Thanks.

 I’m really trying to see this from your point of view but I’m having trouble comparing companies with a certain level of debt to a single person carrying a mortgage. I don’t know the stats but I wouldn’t disagree that companies with a higher debt might be more likely to go bankrupt but that is a little bit vague, you mean a higher debt to income ratio right? I would think that if a company was going bankrupt and they were offered the option to extend the term of their loan for a lower payment it would, if anything, help them survive a little bit longer. If a company is going bankrupt, it would probably be more about them not being able to generate the cash flow due to whatever shortcomings they're having. If a person can’t make their loan payment, it’s not really because of the level of debt, it’s because their debt to income ratio changed. As long as we’re talking about a fixed mortgage, it’s not the debt that changed but the income. Whether it be a company or person, it’s not the total debt but debt in the form of payments. When the time comes that you can no longer make the payment you’re screwed. If the company’s assets can’t be sold to cover the debt then they go bankrupt. If a person cannot make their payments then they’ll have to sell the house. *The only time a 15 year would be more beneficial than a 30 is that you would have more equity. But two things have to happen for you to reap that benefit: #1 housing market tanks and (at the same time) #2 you are losing income and have to sell the house (for a loss). You’d hope to have enough equity to be able to pay back the loan. If the market tanks, your debt didn’t change and if your income didn’t change either then what the market does is irrelevant. If the market stays the same and your income drops, if you can’t get a lower payment you can always sell. 

I was always a 15 year guy. I refinanced to a 15 year years ago and I also add extra to my payment every month. I realized that I did this because I truly hate owing money and I cannot wait for the day to come that I’m paid free and clear and I’ve got all that extra rental income. This discussion here, and in writing this, is changing the way I think about things (it’s got my head spinning). Is there any opportunity that I’m missing out on because I’m using my available cash to pay off my loan?

By using more of my own cash to rid myself of a loan, I’m not seeing the opportunity cost. Borrowing money gives me the opportunity to make more money because I don’t have enough money in the bank to make the deals I’d like to make on my own. My risk in borrowing comes not from my level of debt but from some failure on the income side of things that would affect my ability to pay it back. I guess what I’m saying is being responsible and certain that you can pay your debts is the key to leverage. 

I had a small fire due to an old exhaust fan in the bathroom. The ceiling had been ripped apart and it was pretty nasty in the bathroom after the fire department got done with it. I had new tenants, mom and dad plus a 3 year old girl. This happened on a Friday at 4pm and insurance couldn’t get people out to deal with it till Monday. I decided to put them into a hotel and I spent the weekend cleaning and prepping. Monday a cleaning crew came and two days after that I had the bathroom back in order. They decided to only stay at the hotel for two days and came back while I was finishing up.

A couple people told me that it was their responsibility to get renters insurance. I wasn’t sure if they had it or not and didn’t bother asking. When I got to the house that day on my way home from work the fire department was there and everyone was standing out on the street. I didn’t have the heart to let them just fend for themselves. Whether it was the best course of action or not from a business point of view, I felt that since I was supplying them with a home and in that home something they had no control over put them out on the street, I had to make sure they were taken care of. So that’s what I did.

Just curious why those two towns? I live nearby in New Milford which is right next to Bergenfield. Houses in Bergenfield and Teaneck can be fairly low if your going to put some work into it. Taxes are around 8-12K for a 300-400k house. 

@Jay Hinrichs

Haha, I just added to that verbatim.

What a great discussion going on here and it comes at a time when I’m trying to fine tune my math. In my cash on cash I’m using the following metrics to arrive at a price in which I would buy (with a loan):

Closing-

Down payment (20%)-

Interest (erring on the high side)-

Tax (looking ahead 2-3 years)-

Insurance (erring on the high side)-

Capex/repairs (looking ahead 10 years)-

Rent (the lowest I’d expect to get)

I determine the total out of pocket and then I divide that by net income (annually) for my cash on cash number. The percentage one is willing to accept is a totally personal thing, I feel 10%+ makes it a good deal.

I live in NJ. Trying to find something with a 10% return usually has me anywhere between 25-100K below the asking in a market where it’s likely for the seller to get the asking. 

One thing that is confusing to me is using appreciation in their formula. My math is based on a buy and hold, a long term rental, not selling an appreciated house. To me appreciation is just speculation anyway. If I do end up selling, I consider appreciation and the principle that has been paid down as icing on the cake (if in fact the value of the home had increased). 

I am fairly new at this. Maybe my math and thinking is way off. I do feel that it has prevented me from getting into what I had perceived as a few bad deals. If anyone has any criticism I’m all ears. 

If you’re not knowledgeable in real estate, rehabbing and all of that but you’re sure you got a good deal and you are not under pressure to move quickly then so what? Nothing wrong with that. Finding a deal, finding something undervalued is pretty much the first step in any investment. It doesn’t sound like you went out on limb in danger of losing it all. You gotta learn somehow. People don’t just wake up one morning and become experts.

I say explore your options. Find out what other houses have sold for that are similar. Talk to local contractors and see what it would cost to bring the house into a condition in which it will sell at a price that makes sense. Or do something else.

You get some of these people that come here with analysis paralysis and people will say “just got for it”, “just do it”. Then you get people such as yourself that will put themselves out there without a clear view or understanding. People will get on your case either way.

For what it’s worth I think you’ve gotten some good advice so far. It doesn’t sound like you’ve done anything very risky. You’ll learn something here and when you find the next deal, it’s clear you’re not afraid to pull the trigger, I’m sure things will work out. I’m hoping you’ll keep us posted as to what happens. Good luck.