All Forum Posts by: Joe Scaparra

One more thing I should address:  Installing cameras inside of a residence with other tenants can be a HUGE legal violation.  Within a residence there is a presumed right to privacy and installing cameras by you or your tenants can bring you legal issues.  Advice to install cameras may get you in legal trouble.

@Leeling Chew, Sounds like you have an irrational tenant.  So advice to get the house against him and he will move out on his own is HIGHLY unlikely.  From what you stated, you have enough to substantiate his eviction, but you must be able to prove those incidents.  This is where you might be lacking.  

You have not documented these incidents, nor have YOU informed your tenant this behavior is unacceptable.  Any Judge you tell that in court, will NOT be sympathetic to you, if you have not informed the tenant of these violations.  Nor will you get a Constable to go with you if you have not confronted the issues ahead of time......unless you encounter physical violence or a threat to your life, I highly doubt you will get any support in giving an eviction notice to a tenant.  You can't even get an officer to a traffic accident anymore and how many domestic violence situations happen with little to no attention.  

DISCLOSURE

THE FOLLOWING IS FOR INFORMATION ONLY, AS I AM NOT AN ATTORNEY, YOU SHOULD SEEK PROFESSIONAL LEGAL ADVICE.

So what must you do?  Start by being actively involved with your PROPERTY MANAGEMENT duties.  You don't have a property manager, because if you did they would be handling these duties.  But you are putting your other tenants in danger by not managing YOUR RESPONSIBILITIES.  You need to either, hire a competent property manager or GROW a BACKBØNE and manage your properties.  

Steps to do now.  

1.  Type up a DEMAND LETTER (some people call it a NOTICE TO EVICT).  Out-line in that letter the violations according to the lease that he is in violation.  I am assuming this is in TEXAS (I am editing this as I thought I was in the Austin Fourm, I understand now that you might not be in Texas)  as each state has their own set of laws that property managers must follow.  You have to give a time period for him to fix or "cure" these violations. Until you do this step, no court will even address your concerns.  For MOST counties the time period is at least 3 days notice required (for your tenant to comply).  If not then the letter says he must move out. In many cases, this solves your problem, either they start complying or they actually move out!!!!! You must give him this letter in writing, or certified mail, or tape the letter on his door.  

2. If he doesn't move out you have to go to your county precinct office and file for eviction, at which time they will give you a court date and a constable will notify your tenant of the court date.  Then at the court you will be the "prosecutor" and must out line the violations according to the lease, and show the efforts you gave your tenant to solve those items.

3.  If you do a good job, the judge will reward you with an eviction, usually 5 days for the tenant to vacate (five days because that is the time period that tenant has to file for an appeal of the judges verdict).  Now, if the tenant does not vacate after 5 days, then you must go back to the court to get a Writ of Possession. Then the court will send out a constable to physically remove the tenant.  

Now some food for thought. The fact you brought this up on this board with this situation tells me that you are fairly new to renting by the room.  This is usually done to increase your rental income but it comes with a price as you are finding out.  Additionally, I am beginning to believe you don't live there to be the "house monitor" as this seems to be going on for a time period. 

YOU need to understand that you are ASSUMING a lot of RISK managing your property as you are (room by room).  YOU and ONLY YOU, are responsible for maintaining order in your house.  If you were renting to an only a couple as a long term tenant and they beat each other up (domestic violence) your liability is minimal.  But because you rent by the room and YOU SELECTED the roommates (for which the other roommates had no control over), that makes you directly responsible to the other tenants should any harm or damage come to them.  If the rules are violated and you were lazy-fare in addressing the violations, YOU become directly responsible legal and otherwise.  

You should consult a lawyer to completely understand your responsibilities and your liabilities as they are magnified when renting room by room.   Good luck.

Can we all agree a dollar made in Austin TX or Bryan TX or Dallas TX or San Francisco CA, or Nashville TN or any where spends the same wherever you choose to spend that dollar.  

So, when asking is Austin still a good place to invest, maybe one should add: relative to what other location.  Also, your real estate goal matters too.  One looking for cash flow might find a better place than someone looking for appreciation. 

Due to the last few years in Austin, I now refer Austin as Austin California.  I have often stated there are two ways to make money in Real Estate....The California method and the Texas method (I certainly understand there are many more ways to look at investing but I am OVER simplifying).  The California method is you buy High and you sell HIGHER.  Nine out of ten years it usually works in your favor, but that one down year could take a big bite out or your ***.  The Texas method is you buy where you buy and you don't care because the CASH FLOW IS THERE.  Used to be that way all over TEXAS.  Not in Austin TX, now it is Austin CA where you make your money on Appreciation but you have to hope the market rewards you.  

If you have deep pockets, I think Austin will eventually reward you, but if you are a newbie in real estate looking to cash flow positive day one or shortly thereafter, Austin is probably not your best bet in TEXAS.  An investor with shallow pockets could get burned in Austin at this time.........proceed with caution.  Cheers.

@Tim Holt, Yes INDEED house hacking is the best option for most 1st time buyers.  The question to ask is:  Is my housing cost better by househacking vs renting.  Small multi-family property is where I would start.  If you are single or married with a small child, buying a duplex or 4plex should work well.  Usually living in it for a few years may be enough for it to cash flow positive when you move out.  

Once your property is cash flow positive then you have tenants buying your property for you.  It may even take a 3-5 years to get cash flow positive but if during that time it is cheaper to own monthly, than pay rent, you are way ahead.  Remember there are 4 ways you are getting ahead by owning a small multifamily property (houeshacking initially).

1.  Monthly housing cost less (due to tenants paying rents in the other units)

2. Principal buy down that occurs with each payment met.

3. Property appreciation that you realize that you don't get if you rent.

4. When you move out you begin to experience POSITIVE CASH FLOW in which your tenants help you buy the property.....where eventually you own it out right, and now it becomes like a pension..........Predictable and Sustainable income for life.   

This is one of the last investments that the common man or woman can make and get ahead in life.  Good luck.

Another reason to send it by mail is in many cases you will be deducting damages from deposit.  By sending a check, in many states, if the tenant cashes the check they are de facto agreeing with your damage assessment and will have little ground to dispute your accounting.  However, if you send by Zelle they had no discretion or opportunity to object and they would retain the opportunity to contest the payment.  Most tenants, when receiving a check in the mail are going to cash it.

@Greg Friedman, I am going to dive a little deeper into your question and give you something more to think about than just a property manager.  There are still some unanswered questions that could have major implications going forward.   So, I am going to make a few assumptions that could be wrong.  These assumptions greatly influence my answer.

Assumptions:

1.  You have little to NO INVESTMENT real estate experience.

2. Your current home is in a nice neighborhood and is mostly if not all owner occupied (based on your estimate rents $4,500-$5000).

3. You like the idea of being able to move back into the home but sounds like that is not a priority. It is likely you won't be coming back for several years or more.

4.  Part of your decision to rent is born out of easy way to go verse selling.  Normally that means money is not tight and you have some or a lot of equity in the home. 

Ok buckle up if these assumptions are good:

Over the years I have seen a lot of things go wrong and very few right when someone took a primary residence and made it into a rent home, having no experience and the property is not something you would buy originally as a rental property.  Meaning if you had the equity out of this home, and you were looking to buy and INVESTMENT PROPERTY would you be looking at a home like the one you live in now.  MOST OF THE TIME THE ANSWER IS NO.

Renters do not take care of property they don't OWN....by and large.  The risk that you come back to this property trashed is HIGH!!!  I don't see a lot of appreciation in the near term due to the unprecedented run up in property values since COVID.  My recommendation is sell and take up to a $500k TAX FREE PROFIT (assuming your married). If your conservative you can put the profits in a risk free T-Bill paying better than 5% with no phone calls to unclog a toilet.

If you decide not to sell, then let's tackle your question about PM.  If you are confident that you can line up a GREAT tenant before you leave, I would opt to manage it myself.  However, you need to find a very good handyman that you trust to do most anything to your property.  It could even be a friend that you trust to handle the coordination to hire a professional tradesman if needed.  Also, locate a good Real Estate agent specializing in locating rentals looking to rent.  The agent will handle all the issues with acquiring a tenant and then hand them over to you to collect the rent.  Yes they usually charge 1/2 to 1 full month of rent.  If you hire a PM to do it all you won't be happy long term.  Most people are not especially with housing that is NOT a TYPICAL rental property.  Some property managers charge a months rent just to renew the client so read the fine print.  Most keep the late fees ect.  It never cost just the stated 8-10% as quoted.  Be sure to know the exit plan should you want to fire them!!!!!

I have been a real estate INVESTOR for 21 years.  I have small multifamily duplexes that I bullet proof with no carpet and usually 2 bedrooms.  I would NEVER consider renting out a large family home that is generally occupied by owners......not renters as you WILL BE disappoint on the care of you home.

If on the other hand this is a one year trial and you do plan on moving back to it in a year then disregard my advice.

@David Lutz

Lets look at your major cost vs what I would expect here in TEXAS

Major costs over last 3 years on 5 homes:

• $10K in missed rent leading to and waiting for eviction
• $3K Eviction costs (lawyers, travel, writ, etc.)
• Evictions outside the Pandemic takes 4 weeks in Texas.  Cost to file $150, no need for a lawyer, follow the rules.....easy peasy!  Best way to prevent: select better tenants...yes that is not always the case but it helps.
• $2.5K additional lost rent due to 4 month instead of 2 month property turn
• Loss rent on Small Multi-Family properties minimal unless you had to evict.  Evictions usually take an extra two weeks to fix up due to property condition.  In 21 years of managing my 20 properties, I probably have had 4 evictions.
• $3.8K for a new furnace
• $7.4K for a new HVAC
• In Texas HVAC is used, furnace not so much.  Systems cost have risen from 3.5k to 6.5k but last 12-15years.  In Texas HVAC/Heaters are one system 
• $700 for a bathroom re-pipe
• I began recently upgrading my 1980s bathrooms with New Tub, New Bath/Shower faucets, and NICE, NEW tile from tub to ceiling......Cost labor and materials, $1700 per bathroom.
• $12K turn on large home, included new high quality carpet and full repaint
• Here lies the major deviation: Property type matters.....I have NO LARGE HOMES, I install NO CARPET.  MY paint cost is $1-$1.5 per sq foot.  My units rarely go over a 1000sq ft. Hence my cost to repaint $1000-1500 per unit.  Luxury Vynl flooring is my FRIEND!!!!
• $5.5K in unnecessary plumbing issues caused by tenant in eviction (no way to recover costs)
• Hire a handyman when possible, they are cheaper.  Small units have lower cost to repair.
• $1.5K in utility bills during vacancy or owner responsibilities
• My vacancy rate in the Austin area has been less than a week on average, usually a day.  I begin advertising when given 30 day notice that the current tenant is leaving.  Property type matters.
• $900 for a refrigerator
• I replace appliances with used appliances......hence a fridge cost no more than $250
• $4.8K for concrete piers to shore up a foundation
• I haven't bought a property needing foundation repair yet! Yes some settling but nothing serious.....maybe because I buy 1980 year old homes the foundation would show signs of failing before I buy.
• $5.6K for a roof (insurance claim)
• $5.2K for another roof
• Yes my insurance deductibles are 1% of insured value so about 3-4k.
• $1.3K for new AC line set (punctured in second roof replacement)
• Roofers would have paid that
• $1.6 for a water heater
• $1.3 for a water heater
• $2K for a water heater
• My water heaters cost $400-$500 from home depot and $200 labor to install, again I use handyman vs plumber cost less.
• $1.7K for new water line from meter to house
• Haven't had to do a water line.  New construction?  Sewage lines in Texas used cast iron pipes before 1970s and they are rusting out.....hence I don't buy older than 1980 homes.  Property type, location, and age of property matters.
• … this actually isn’t everything but I’m getting depressed.
• Because I MANGE my own properties, let me give you a couple maintenance tips.....Don't hire a CONTRACTOR!  They will double your cost.  Do hire workers directly....find them at  home depot or MacDonalds at lunch time (painters easy to spot).  Driving through your rental property, if you see a remodel going on stop and talk to the workers, head cheese or contractor is probably not there.    Best tip: Go to "B or C" apartment complex, locate the maintenance man, he is jack of all trades, master of none but can do almost anything you need done.....he gets paid at best $15-20 an hour.  Most small jobs he can do in an hour and you give him $50-$100 and you have a friend for LIFE!!!!!

Lastly, don't work harder.........work smarter!!!!!!  Cheers!

@David Lutz, great post!  Some I agree with, some not, but putting your thoughts out there for people to take shots at is noteworthy.  

For me it is ALL ABOUT CASH FLOW!  For me Appreciation is icing on the cake and an after thought as I have NEVER concerned my self about APPRECIATION.  Why?  As a BUY and HOLD investor seeking out cash flow, I have been investing in small multi-family properties that cash flow POSITI◊E from day ONE!  I have yet to sell a property and I bought my first investment property in 2003.  I have come to realize that even though I have not sold, appreciation has really aided me in that it has help fuel my rent increases.....so for that yes appreciation is important even to a Buy and Hold investor.

Yes cash flow positive means net income AFTER vacancy, maintenance, insurance, property tax and interest on the mortgage!!! What about CAPEX....Meh. My biggest CAPEX cost is either a roof or AC replacement. My roofs get replaced with an insurance claim (lots of hail storms in Texas) and I expect AC/Heaters to last 12-15 years so that is usually easily covered in one year of positive cash flow for a unit when I am still paying a loan and covered in 4 months or less of positive cash flow once the property is paid off.

My small multi-family (duplexes) are usually built in the 80s......not NEW! I also self-manage. You are so right that property management will suck you dry!  My vacancy rate is soooooooooo low!  Expecting a unit to go vacancy for a month between renters is ridiculous.  Over the last 20 years, I would guess my vacancy rate averaged NO MORE THAN 2 weeks.  Why is that?  Because PROPERTY TYPE MATTERS!  Small multi-family is in more demand.....why.....because there are more people needing and can afford SMALL MULTI-FAMILY and PEOPLE hate to live in apartment buildings.  

Also, you said you bought $1 million in property with only 100k as if that is a good thing??????  Is that a good thing????  I have been putting down 20-25% down even before 2008 when it was  not even required......why.......because I was seeking POSITIVE CASH FLOW.  

Lastly, where you invest is important. INVEST in a state that is LANDLORD friendly, like TEXAS.  Evictions normally take 4 week once the demand letter is given.  If I used your expense numbers, I don't think I would ever invest.  Cheers.

And now you know the trials and tribulations of RENT BY THE ROOM. Unless you live in one of the rooms to be Mother HEN you will eventually have problems.  If you HAVE TO RENT by the ROOM to make ends meet, you are surviving on borrowed time.    This type of investment, not living there will give you nightmares till the day you die.  Peace is a wonderful commodity.  

@David Shirts, experience is the best teacher, IF YOU CAN SURVIVE!  Losing $800 monthly is going to KILL you if you don't adjust.  Remember this First, CASH IS KING.  Especially for new investors.  Cash is like the blood flow through your body.  If is non-existent you will die!!!

Condos and SFH are NOT solutions for a first time investor. Both have difficulty cash flowing positive in this real estate environment. Avoid anything with condo association fees or homeowner association fees as they DECREASE CASH FLOW with no real contribution to the bottom line.

Lastly, since you are new, when you do get a property DO NOT HIRE A PROPERTY MANAGER.  Do it yourself, learn as much as you can, seek out a grey hair mentor who will advise you for a cup of coffee.  PMs take away from your cash flow that you so desperately need. As as new investor, a PM will take advantage of you and you will probably not see any profits utilizing one!

My property of choice is a duplex!  I don't know much about your living situation but if you are renting now, a duplex is a no brainer.  House hack a duplex.  Rent out one side and if you are serious about FIRE then consider renting out a room on your side too.  Follow coach Carlson on youtube. You can learn a lot from him.  Good luck and Cheers!