All Forum Posts by: Rich Davis

Online charlatans with psych licenses will interview you for three minutes and send you a stamped letter saying you require a service animal.  Anyone can get one.  

I've had a couple tenants use this loophole to either avoid pet rent/deposits, or to get a pet into a no pets building.

The classic renovation question:

Where do you start and where do you stop?

All renovations follow a law of diminishing returns curve.  Every additional dollar spent yields less return than the previous dollar.

That stopping point is also market specific, and class specific. 

"Doors" is a function of class. Investing $1M in Boston vs. Toledo will result in a vastly different door count but may get the same IRR. Doors has no value.

Doors is however, a valid metric for a PM.

Most states, and some towns/cities, have specific laws surrounding this rental method.  I am in Maine, and in Maine if you rent more than 4 rooms individually, you are a rooming house.  Once this threshold is crossed, all the laws change, some for the better, some for the worse.

Example: You are no longer a landlord, you are a business owner (like a hotel).  You have guests, not tenants.  There are no leases, but rather a guest agreement. There must be someone available 24 hrs a day. If the guest's stay is under 6 months, you don't need to legally evict them. You can eject (legal term) them immediately.  Over 6 months and they are then considered tenants, and must be evicted per usual tenant eviction laws.  Guest logs must be kept.  A safe must be made available to guests. And a plethora of other strange little things.

Bottom line: Know the laws in your state before you leap into this.

Jonathan,

I've got 32 doors in Lewiston.  It is still a good investment, as money continues to flow into the area. A lot of the older stock is being renovated. I would say Lewiston is desperately trying to crawl out of Class C status, but it'll take some more years.

Check your local and state regulations regarding this business model.  I own a 20 room "rooming house" in Maine.  By law if I rent more than 6 rooms, I must have a residential manager. The residential manager acts as a defacto PM, but they occupy one of the rooms for free, so run your numbers.

It seems that when listening to Bigger Pockets podcasts, I hear the same logic, both from the hosts and the guests (mostly), that as a midsize (5-20) multi unit investor, Cash flow plays a secondary role to appreciation.  That appreciation upon exit is where the real money gets made, and that cash flow is simply a little gravy along along the way.  

I'm calling BS.  I do the exact opposite.

My strategy is to find optimal cash flow investments, and any appreciation at exit is the gravy.  So far so good. I've got 32 Class B doors in Class C markets and and cash flow $6K/door/year. 

When you stop worrying about appreciation, you'll wander into markets that you might have avoided. Even today, I'm finding properties in a Class C town, with 15%-17% CAP rates. In this particular market, the properties won't appreciate much over the next 5 years, maybe 10%-15%, but with that kind of cash flow, I'm good.

THOUGHTS?

 Beth, TenantCloud would cost your around $200/year.  One of its shortcomings, and this would be noticeable from a quickbooks user, is their "accounting" has issues.  It isn't quickbooks.  For example, if I return a screwdriver to Lowes, it counts that as revenue. That said, much of the remainder of the software is really good and worth the $$.

I’m a TenantCloud guy.  It has its strengths and weaknesses.

Curious what other landlords/PMs are using, and what they like/dislike about their software.

As this is commercial, 30yr amortization is likely out of the question.  Most lenders will offer two options:

1: 20% down and 20 yr amortization and 10 yr term.

2. 25% down and 25 yr amortization and 10 year term.

Rates will vary by region, lender, and relationship with your lender.  That said, right now, I see 7.75%.

Good luck.