All Forum Posts by: Tim Jacob

The 1st thing to do is get with an agent who has a clue about rehab costs and where you can get quality tenants based on the work that is being done.  They should actually know the market and all the neighborhoods.  Not just tell you a couple neighborhoods they know are safe and the rest of Baltimore is a war zone because that is simply wrong and shows they do not have local knowledge.  They should have experience in renovation of 100 plus year old buildings as well and should have an inspector with decent remodeling experience.  Hopefully that will help you avoid the pitfall of excessively underestimating renovations.  If you have plenty of rehab experience great but if not I would really get with people with appropriate experience.

After I would ask the realtor about a pm.  Some realtors are pms.  I think what might happen sometimes is the person doing the contractor work is owed  some at the end of their work and the excess is extracted from the rent.  Combining them sounds ok but can backfire.  Maybe have the property manager project manage the contractor and pay them separately is an option or have a 1 stop shop if you trust them and they are reputable.  I would not go with a turnkey company up here.  I have heard a lot of bad experiences come from them.  Whomever it is Hopefully they have a quickbook option.  Costs can still snow ball to some degree.

This is just another example of asset class and why going higher makes sense.  If it's A grade their is a good chance the tenant was so clean you can lease it with the exiting tenant still residing their.  Then you can simply have a 10 day window in between and because they left it in such good shape its a handyman for 1 day doing something like replacing blinds their cat destroyed or a few easy fixes.  If it needs lead cert you might think of getting it done before the vacancy to ensure its done in time.  Another reason to go lead free or limited as well to ensure that.  What I just described is typical for A or B grade for me in Baltimore.  Turnover between tenants is in general 2 weeks average or maybe less.

  In general if  you get to C grade or section 8 bump the average time lines.  Even then I still have had good ones.  Even so a couple weeks sounds fair if it is a hefty turnover with a full week of work for full repaint and a trash haul.  As was stated contractors don't wait around for your work so it might take them 2 weeks to mobilize.  Thus it might be even more but in general a couple weeks sounds decent.  This can he voided with a large company with maintenance but maybe not if they are busy as well.  

Equally as important is when they are going to lease it.  If they lease between November and mid March you are adding vacancy to find the right person at an optimum price so I would  make sure they end leases and set new expirations in the spring to early fall to ensure that.

Back to asset class though think of that because if the preexisting tenant is dirty and destructive not only do you need to pay to fix the stuff their deposit won't cover but you also might have 2 to 4 weeks of vacancy before you can even start to lease it.  Then another couple weeks to find someone that probably won't move for another 3 or 4 weeks for an average of an extra 2 months versus just 2 weeks. 

Most title attorney can get this redeemed for you.  It can cost 2-3k at settlement.  Then it is gone forever.  It usually is less than 200 per year in payments 6 months apart of less than $100.  It is tempting with all the closing costs to tell yourself to save the 2-3k. Just know that many ground rent holders might just mail you your notice.  If you move or forget to pay years down the road the place can be foreclosed on.  Many will not do you any favors in letting you know your property is in foreclosure.  If you have a lender they will stop it before foreclosure but by that point lawyers are involved and the cost will be close to what it would be to redeem it in the 1st place.  

What you don't want to do is be cheap And don't redeem it.  Then years later forget about it leading to you or lender spiking your escrow charge for a year costing you a couple thousand then you ask why and it's because of that then you redeem it after feeling the burn.  Thus the whole process costing you a few thousand more.  

Or worse yet you don't have a lender and find out it foreclosed because you didn't pay them $75 once.

I would just be honest with yourself about being realistic about life happening and forgetting about it and make a redemption decision based on that.

Not only will they not reduce it but increase it with Non payment for added legal fees.

I would base accepting them on asset quality.  For me A or B grade means that you can get a tenant with a 700 plus credit score with an income well above the minimum threshold.  This person will most likely always pay on time and their is a higher likelihood they are clean which will mean in the end of their lease you can lease it to the next person while theyvare there and the deposit will cover the small charges.  They will also pay utilites that cant be switched out of your name.  

When you get to C or D grade that isn't the case anymore.  At that point things are more of a gamble.  In most places you can deny on credit and criminal history.  Many here are most likely in this asset class and have dealt with evictions so they favor a larger guarantee and don't mind a hefty turnover if the tenant stays 5 plus years as the higher grade areas there will be more turnovers than that though the charges will be less per turnover.  I'd consider this if you are there.

A lot of places have source of income discrimination laws which is fair so be careful with that.   If you are in a higher asset class many deny on credit score which usually is not seen as income discrimination which is also fair but there are actually a couple left leaning areas where credit score rating can be seen as illegally discriminatory which is ridiculous.  

Fun fact the last section 8 tenant I had left the voucher system bc he didn't want to deal with the annual inspection.  Why you might ask.  Because the last inspection passed everything the 1st time except the fact that he had clothes were on his living room couch thus inspection was rescheduled to ensure tenant cleanliness.  Section 8 wants the landlord to be penalized for not acting like the tenants mom or dad.  They want you to coddle the tenant.  I explained to the tenant I personally didn't care how he lived but had to do this to ensure I would continue to get payments.  The section 8 policy on treatment of tenants had an obvious effect as the hit to dignity caused them to move.  Good for the old tenant and I wonder who thought it was a good idea to do this to people.

I would say look into proximity to a hospital.  There are so many whether they be Hopkins related or not.  Also is there reliable public transportation for nurses as the public bus ans subway system can be dicey in locations.  Also do they have parking there.  It can work in the right location but just screening can be daunting if not.  Otherwise go long term and atleast the amount of time for screening won't make things unfeasible.

1 thing to note in Baltimore is the tenants can now be selective enough to not live in a war zone.  Thus if you were thinking that the entry point would be 50k per home that's not going to work.  I would say each property should be around a bare minimum  150k per for a standard row home in relatively decent shape.  If you like to renovate Im sure you can cut some price but I really wouldnt go too much lower.  Id be real careful with wholesalers bc you are getting to the point where there will be a temptation to deal with them.  High rise housing doesn't work either unless you want that war zone again.  The city has high taxes and free lawyers available at the court house.  If you go into this asset class you are going to deal with court filings for non payment so that will be a pain. I wouldn't completely discount the city compared to the county if it is a good deal.  The other thing is property management.  Property managers want to be paid fairly and if you low grade everything too much you will get a fair amount of service based on that which won't be much.    Good pm companies will not take on the low asset grade problems bc they simply aren't worth it and you are left with the inexperienced or bad ones.  Either way it won't work in D grade in maybe low C grade.  You can always DIY your pm which might be the best option with that.  Just be prepared for managing low grade areas.  The best low grade investors manage their units themselves.

BMore county can be good.  I would try to stay within the beltway as you go too far out you will deal with less of a tenant pool.  Taxes are much cheaper than the city.

There is a lot of opportunity.  As has been said things can turn pretty quickly.  

Some people buy the D or F grade stuff in hopes they can just sit on it until the A grade development comes to their area.  The city is cracking down on that as a lot of the homes are found to difficult to rent and abandoned and then become a vacant house inviting blight and crime which no one wants.  I would not suggest that route.  The city can take back your property for vacant violations which happens to investors after they give up on it being a long term rental as they can't get a good pm because it's not worth the pm's time and don't want to do it themselves.  From California it makes things impossible for that route to work.

  Another thing I see on here is predatory turnkey providers buying just over the line between the A and D grade stuff.  They buy on the D grade side from another investor fleeing because they now know why D grade investing doesn't work.  They then do a cosmetic renovation or might even do a little more but because their point of entry is so low its profitable.  They then make sure to take great pics.  They bank on the pics selling the place and they present comps that don't tell the story.  The buyer then buys the rowhome for over 200k.  The comps show the A grade stuff just a few blocks away going for the mid 300s this is further backed by New construction closer to the harbor within a mile that might have an extra 700 square feet but is now going for over 700k.  The buyers see this and think they are getting a deal.  In reality they are buying a problem.  I see people on here complain after the fact about the turnkey provider and they never actually visited Baltimore when buying it.

I wouldn't go turnkey.  I would get an agent on here that you trust that has a level of transparency about things.   I would trust them in the buyer phase which could lead to them leasing a property.  I would go A or B grade not buying something that's a problem.  After they lease it maybe you can manage it remotely to avoid a pm charge.  I'd budget a minimum 200k on a 2 bed place that's fairly turnkey.  To confirm the area I would personally go the the property at least once probably during inspection and visit it in the day and night.  

If you have reasonable expectations you can do well in Baltimore and eliminate risk with a solid plan.

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