All Forum Posts by: Sam W.

My first concern would be the deposit. What did you agree to when they signed the lease? At any rate, I would recommend you set a deadline for complete payment (7 days from tomorrow, etc) and inform them in writing. If they don't pay then I would ask them to leave.

On the second issue...

Do they not have access to a telephone either?

If not, is there a set time (the first Wednesday afternoon of the month; every other Tuesday before 11:00 am, etc) that the tenant can set aside to allow you to do preventative and routine maintenance?

Good luck

The 50% rule is a "rule of thumb" used as a screening tool when evaluating the cash flow a property.

It holds that, averaged over the long term (several years), 50% of the gross income will go towards paying the non-cost of capital expenses. Some months will be less than 50%, some will be more (much more), but it will average 50%.

Some obvious expenses are repairs, taxes, insurance, advertising, management fees, etc. Some not so obvious expenses are the cost of vacancy, legal fees, etc. The 50% can be adjusted for your particular circumstance. For example, if you are going to self-manage, subtract the ~10% manangement cost and go with the "40% rule". If taxes are particularly high in your area, add 5% more and go with the "55% rule". It is just a tool.

After taking 50% off the top of the gross income (rents), you will then have an adjusted gross. Take your cost of capital (mortgage (PI only) out of the adjusted gross. What's left is your average cash flow for the property.

No..all of this said, there are many people on BP with a great deal more experience than I have on explaining this - and I know they will have no problems gently pointing out my errors ;).

Deborah Burian,

Meant to mention earlier - I have 1 garage apartment and it is never vacant....single folks love it.

Deborah Burian,

I normally don't spin too much regarding absestos or lead abatement - or firewalls. Before I purchase I do check with the city to see if the multi-family property is conforming (and legal).

As Bill Gulley said, evaluating a SFH and MFH is fairly similar. That said, there are a few differences to consider (and ask):

- How are utilities metered/paid (already addressed)?
- How are common areas maintained?
- Who does yard work / snow removal?
- How is the sound-proofing between units? I learned this the hard way.
- How homogenious is the unit "mix"? For instance, if a duplex has a 3 bedroom side and a 1 bedroom side I like it less than 2 x 2 bedroom units. In my experience, that 1 bedroom unit will be a revolving door in that situation.
- Is there enough parking? Assigned parking areas/spaces is ideal in my experience.

Certainly there are more MFH peculiar areas to look at, but these are the ones that come to mind while I'm sitting here.

Good luck.

Here is a sample of the letters I send to tenants who are renting properties which I purchase. Not saying it's THE WAY........just A WAY. I would not have a BBQ....just me. While I truly care about my tenant and want to have a good relationship with them, I do not necessarily want to be their friends (and they don't want to be mine).

Dear Resident,

The purpose of this letter is to inform you that we have purchased the property that you currently lease.

If you have a current and valid lease, it will remain in effect through its normal expiration. If your lease has expired, you may continue to live in your apartment on a month-to-month basis until October 31st. Beginning November 1, 20XX, you must have a current signed lease or vacate the apartment. We will give you a copy of the new lease for your review and signature by October 1, 20XX. If you do not intend to renew your lease you are reminded of the requirement to provide a 30 day notice to this effect.

Please note the new address and phone number of your contact for rent payment, repairs and any other questions or concerns you have with your home:

XXXX XXXXXXXXXX
XXX XXXXXX
XXXX, XX XXXXX
(XXX) XXX-XXXX

Effective immediately, this is the new address and contact information for your monthly rent payments.

Over the next month there will be quite a bit of activity around the property as some repairs and improvements are made. It may be a little inconvenient but in the long run it will make things much better. We will work hard to make sure there is as little disruption to you as possible. Along these lines, if any of the items behind the house and garage belong to you, please move them inside your garage or basement storage room by August 1st 20XX. After that time the items will be disposed of.

We look forward to getting to know you and hope that you will choose to continue to live at XXXX XXXXXX Street. We are committed to ensuring that the building is a safe and comfortable home for all residents. Thank you for your cooperation in this regard.

Respectfully,

I've been toying with the idea of a website but have absolutely no experience in this area. Shequann Burrwell , you mention a freelancer to spruce up a website...in very general terms, is this an expensive option?

In my experience, tenants appreciate having extras such as free storage areas, washer/dryer hookups (or actual units) and designated parking spaces. If my multifamily units have common basements I am more than happy to allow free designeated storage there...with rules. It has worked well for me and doesn't give the tenant the impression that I'm trying to squeeze money out of them for everything.

I designate each tenant their own space (partitioned if possible) and ask them to keep their items in their space. I have sent notes to tenants asking them to straighten up or I would dispose of the items that were cluttering the common areas.

I believe it is important to give tenants a storage area...and it is not unrealistic to ask them to help keep common areas clear.

Citibank, like most large banks, most certainly requires all offers to be submitted to them by the listing agent. If a property isn't listed yet, it is tough to get them to discuss anything with you (I'm trying that with Huntington right now).

One "war-story" though. I purchased an REO from First Merit (a smaller regional bank). One of the in-place tenants was a Section 8 voucher holder and in order to allow the payments to be transfered to me I needed some paperwork signed by the previous owner (the bank). I went to the regional property management division of First Merit to have this done. While there, the head of the division mentioned that they had another similar property for sale in the area (wasn't listed yet) and asked if I was interested. I wasn't in a position to act, but I filed this knowledge of the bank's regional REO property management team in the back of my mind for future use.

Bottom line...and it might be different because First Merit is regional and much smaller than Citibank....you might be able to work a deal with Citibank's local (regional) REO management team.

In my mind, rather then rising rates, the greatest threat to favorable property valuation over the near-mid term is the large amount of cash coming into the real estate market. You've written about it on this thread and it has been discussed on others as well...particularly the institutional money (hedge funds, etc) that are now playing.

As interest rates rise, the instituational money will chase the higher returns elsewhere. Unfortunately, they will leave inflated valuations in their wake (which is their intent) and made it less profitable for the long-term REI.