All Forum Posts by: Mike Holland

From my basic understanding of accounting and finance  you need to determine what your cost of debt is in the leverage you are trying to do.  Factor in your opportunity costs of that debt and you will have the actual cost of your debt.  Now if you are using this as a % down, calculate the cash-on-cash return and see if its worth the risk.  If you are using it to purchase out right determine your cap rate and see if its worth the risk. 

Using either method will allow you to analyze to potential cash flows from leveraging your property.   If the cost of debt is $200 for $40,000 in leverage and you use that to purchase a property that cash flows $1,000 out the door then that would seem a good deal.  It's when the cost of debt begins to exceed the potential returns that leveraging becomes less and less desirable.  My idea on the subject is never leverage more than you can afford to pay for out of pocket and still put food on the table and a roof over your head.  There are times of plenty and times of famine but planning for famine will always ensure you will have times of plenty.

Tomorrow starts the repair/ remodel portion of the property.  I did have a one year time line to push out the modernization of the property but this incident combined with ALLOT of great deals pushed things up a bit.

I'm putting 12.5mm laminate flooring both bedrooms; replacing the sinks, vanities, and counter in both bathrooms; and replacing the cabinets.  I've got a great supplier for the flooring which has a 30 year warranty at 72% off retail because of the bulk sales.  I have guys that install it at $1 a square foot and no I didn't get them in a parking lot.  So the flooring total is about $2.50 a square foot.

 I found Lowes is having a sale in a week or so at 20% off +10% veterans/military discount on finished cabinets.   Its coming to $5,179 for all 4 units so that will be about $7K for cabinets, countertops, base units, and install.  That's 104 linear feet of finished Oak cabinets for just over $67 a linear foot finished and installed.

Because of the explosions in the units I am just replacing all windows on the property. The good thing is that Farmers pays for code upgrades in their repairs.  Since everything is single pane plate glass, that is not to code now.  7 of 20 windows are being paid for.  All of the windows are double pane extra thick impact resistant glass in a taper resistant vinyl casing  and steel double set locking.  The 13 windows I have to replace only come to $4100.

The tile in the bathrooms are good so I'm just replacing the messed up wood counters by the bathtub, sinks, and vanity.  I'll be doing that myself so it should be about $350 a bathroom.  Simple bathroom upgrades.

The renovation is going to be  about $5,500 out of pocket per unit.  That allows me to bring the rents up about 10% and still have enough value added for them to want to pay that price point and stay.  The turnover rate in the Vegas area for 4plexes is roughly 6-8 months by extending this to a year or even 18 months that will save a significant amount in the long run turnover costs.  I do have 2 long term tenants that like the area and want to stay as long as possible.  One has been there 7 years and the other has been there 2.5.   

My plan is to use the equity added in the property to do a deal with the neighbor next to me who wants me to make an offer on his property.  In total I have 2 deals going with the potential to acquire 5 more of these 4 plex's.   I just need to find a way to get these transactions moving before they are gone. 

I'm not too convinced that that SFR's are the way to go with the recent market swings. With more foreclosures hitting the market, renters are putting more pressures on the mainstream complexes and allot of those were lover middle class families that could not afford a house. They end up in the 4plex market for a year or two. As soon as a unit has come open I have had no problems in filling shortly. There is allot of untapped potential and working class families need a place to lay their head too.

The reason I got into smaller multifamily properties in Las Vegas because there is a good size market for them, you can pick them up between 130K and 160K at 10% cap.  People in the working neighborhoods need a place to sleep too.  I've actually got an eye on 5 more fourplexes within the same area.  There is allot of potential in this area that many do not focus on.  A big chance to make a difference too.

A short tale of frustration, insurance, and tenant land lord relationship.  I would have posted this sooner but things have been hectic to say the least.  Here is the tale.

So on Valentine’s Day I was in LA for a wedding.  I had just finished helping my sister-in-law get ready because she was a brides maid and leaving before everyone else to get to the church.  I jump in the shower real quick and when I get out I have 3 missed calls and 3 voice mails.  2 are from separate tenants in my fourplex property in Las Vegas and one is from a number I don’t recognize.

I decided to listen to the unknown numbers voice mail.  It turns out to be a Lt. from the Las Vegas Metro Police Department needing additional information about my property and tenants.  I listen to the other voice mail and things begin to clarify.  The message said there were 50 cops outside the apartments with shotguns and military vehicles and they were screaming at everyone.  The second message was similar except a different unit.

I start out to call Metro central commands nonemergency line since the brilliant Lt. said his contact number was 311 and just ask for the badge number.  I left a message and called the tenants to see if they were ok.  The one I called is very outspoken and vocal so she very animatedly told how everything went down with everyone being woke up early, guns, yelling, and everyone being pulled out of the property.  Not only that, they brought in negotiators.  It seems all hell was breaking loose and I am almost 300 miles away.

Oddly enough the tenant started yelling, “Hey head police guy I got the owner on the phone!  You come speak to him now and get this thing over with.”  So I started answering questions about who the tenant in #1 was what they look like and who lives there.He just kept saying, “NO, NO, Not what we are looking for.”  Then I here from the vocal tenant in the back ground, “SHE DON’T LIVE THERE NO MORE!!! SHE LEFT ON THE 4th!!!  WHAT SHE DIDN’T TELL HIM?!?”

So I spend the next 30 minutes talking with the Lt. and drawing plans for the house because the county did not have them on file.  I do vulnerability analysis and threat assessment in the military for years.Not only that I would conduct aggressor penetrations testing of facility structures and layouts.  I highlighted all the blind spots, kill zones, and clearest lines of sites for ingress and room clearing.I get that over to them in a picture and things start to roll.

What happened is the tenant in unit 1 abandoned the unit on the 4th and left the door unlocked.On the 14th someone decided to sell an Iphone 6 at a gas station and got robbed at gun point.  There was a police chase, car wreck, and one suspect ended up finding the unlocked door and locked themselves in the unit.  There was a 6 hour SWAT standoff with an explosive breach entry with guys stacked and clearing the unit.

I don’t hear anything for a while then I get a call saying they are going to “blow up” the unit.That’s SWAT speak for breaching charges and concussion grenades.  So it looks like things are about to get REAL!” real quick back in Vegas.Knowing what’s about to happen I call my insurance company, FARMERS.So the operator answers and asks if I had a claim to open.  My answer to that was, “Well when the search warrant gets signed I will.”I further explain the situation and what was about to happen then ask, “SOOOOO am I covered for that?”

I hear typing and a few seconds later the operator comes back, “Yes, you are covered for that.”  SCORE!!!  Needless to say I have a full remodel to do on one unit, water mitigation in another 2 bathrooms, 7 windows blown out from 2 concussion grenades, rebuilding a storage unit and repaneling because of a third one concussion grenade thrown in the 4X4 storage unit, and a full door casing and door to replace because of breach charges.

There are 2 morals to this story.

1. Make sure you have quality rental property insurance that covers you in odd situations because those are the ones that will cost the most. 

2. Build a good report with your tenants.A trusting relationship will empower them to WANT to call you when something is wrong. Without the tenants calling I would have not know the details until days later.

Final note to this little ordeal, the suspect was not in the unit.  Just as they ran in and locked the door; the cops were banging on the front door.  The suspect proceeded to open the 6’X4’ kitchen window and walk out the back.  The negotiators and SWAT team were racking and stacking on an empty apartment.

So here is a link to the news article.

http://presscovery.com/news/news/las-vegas-police-arrest-female-robbery-suspect/

I have more picture but I cannot figure out how to post them at the moment.  I'm going on 4 days with 3 hours of sleep a night.  Been working too hard at working.

The problem with that response is the tenant is required by the lease to allow specific things to happen and they obstructed the sale of the property. They were to allow showings of the property per the lease and realty showings are without tenants present. This was only during the last 30 days that we put the property for sale as per the lease agreement.  They were not getting bugged by the PM they were obstructing the sale of the house when she was trying to put the house on the market.  Coordinating showings and the tenant not being present is standard practice in Nebraska because it prevents them from actively sinking the sale of the property (which the tenant was doing).  They were also require to clean the carpets, repair holes, and clean the house before they left and they didn't.  There was food  stains on the ceiling.

I got rid of the previous property manager because he was not following up on the maintenance issues and refused to schedule and coordinate repairs to the property. This caused undue maintenance expenses and put the tenants in a place where they were not able to enjoy the use of the house.

I am following the letter of the law with this to make sure I do not infringe on the rights of the tenants and make sure I'm not being a sucker and eating an expense I do not have to. This is why I'm being meticulous in making sure all normal wear and tear expenses are separate from the specific items listed that were required to be accomplished by the tenant.   

The tenant was refusing to cooperate with my Realtor and refused to provide a copy of the key.   They were refusing to vacate the premises  for showings,  scheduling them for times the husband was asleep,  refusing showings that were in the specified times,  and actively engaging the prospective buyers taking them everything they thought was wrong.   The house was never able to properly show while they were in it.   There is a stipulation in the lease that the security deposit will be forfeited if this occurred.  

Also, the paint in referring to is they painted rooms and walls without written consent.  They were supposed to have them painted back to original color prior to moving and carpets were not cleaned professionally.  In addition to this there was significant damage to the banister and was that was required to be repaired.  All of these were in the lease as required actions prior to vacating the premises.  

I am not seeming wear and tear by any means.  In fact I am having the handy man give an itemized estimate with pictures so I can properly bill the tenant for damages (not wear items).  I consulted with a real estate attorney and he has been advising me.   All the mentioned items are specific requirements listed and agreed to by the tenants on a legal binding lease.   In NE if the security deposit is forfeited due to gross negligence in accomplishing terms of the lease that specified forfeiture, then the security deposit shall not be applied to repairing or maintenance of the property and becomes the sole financial responsibility of the tenant. 

My previous property manager was a lazy *** and refused to uphold terms of our lease so i had to cancel the contract.  He did send me quarterly walk through's though and i do have ask email correspondence with the tenants too.  

One big thing on my side is they are military and I have a direct line to their First Sergeant. There is also a tenant pays legal expenses in court clause as well.  Collections should be easier but i think I'm going to consult with an attorney locally to make sure I'm found down the right path.  

I also have the option to direct bill for services since these terms were in the lease and they violated them.   I just need to provide them with an itemized last of repairs and cost  which is being done this week.

I am selling a single family home in Bellevue,  NE in which the tenants refused to allow showings,  shorter notice showings, and lock boxes for the last 30 days of their lease.   In the lease they're are stipulations for all of these things to occur and if not the lease will be forfeited.  

They vacated the premises yesterday with significant painting,  patching,  and repairs needed.  Again per the lease, all such repairs required professional work to be accomplished.  They did not have these professionally fixed prior to lease termination. In addition to this, there were items in need of repair that they did not report by the terms of the lease that got worse because of the lack of reporting.  

With the security deposit being forfeited as a penalty for delaying/refusing entry; costing us potential buyers and an extra month on the market, can the tenant be billed for the repairs for the damage to the property.  As a whole,  I'm estimating the repairs to exceed the amount for the security deposit.  

Thanks in advance for the assistance.  

Mike H.