All Forum Posts by: Tim Jones

@Bill S. - That's a great suggestion. I've recently been turned on the the App called "Venmo". It seems pretty slick, in that you can request payments from people. It has a tracking feature and it's free. Technically my lease requires them to use direct deposit, but that hasn't proven to be an easy thing for people to set up so I'm exploring other options.

Does anyone have experience with Venmo?

@Roy N. - Thanks for your comments. Good call on the den mother! Even while living there myself I found that having one female in the house really helps the balance. People tend to be more clean and respectful. 

@Nathan Patterson - I've found that it is much cleaner to include the utilities in the rent. That way they pay a flat fee every month and there is very little discussion about money. As far as the rental ad I say something like "Base rent is $600, plus a flat fee of $50/month in utilities. Total rent is $650/month". 

My average tenant length is about a year. One guy stayed for 5 years, most for a year, a couple for 6 months, and one other stayed for 1 month. I require a minimum of a 6 month lease, but sometimes life circumstance requires that someone moves out early and I work with them.

Small issues I try to tackle up front with the "expectations" discussion before they move in. Community items such as trash, dishes, and cleanup should be a group effort. I lead by example, and respectfully ask people to step up when they are slacking. I've also found that a group house cleaning event can get the whole place clean in 30 minutes, so that works well. I let people know that the house isn't available for large parties, but it's of course OK for people to have guests as long as they are respectful.

@Dawn Anastasi - Thank you for your comments and questions.

-Rent Collection: The designated property manager is responsible for collecting rent and delivering all of the checks to me. For the rooms I rent at my house it's pretty easy to gather up the rent since I live there with them. I've had some late payments, but I charge a $25 late fee per week, so I end up getting more money.

-Vacancies: I work hard to create an environment that people enjoy living in so I have very little vacancies. Although when one person moves out, at least it's just one room, rather than the whole property. I have found that I can fill the rooms fast, but Denver has a strong rental market so perhaps that is not the case everywhere.

-Showings: I inform the other tenants that I'll be showing a room and I've never found it to be very disruptive. If anything it seems like the tenants are more interested to see who the new people might be.

-Drama: I do my best during the screening/interview process to find people that are level headed and respectful. Drama happens of course, but it's been pretty rare over 6 years. Some issues I just let people work out, and sometimes I've had to step in and moderate. This is just part of the game, but I haven't found it to be a common issue. Most of my tenants have become friends and tend to hang out with each other. 

-Ordinances: I haven't ran into this issue. But it's something i'm investigating.

Hey Jeremiah - Thank you for your comment. I have considered the AirBnb, however it doesn't really fit my desire to have long-term tenants. I agree that I could potentially increase my income, but with the added work of daily/weekly coordination and turnover. Right now it takes work to find someone, and then no work for the 6 months or year that they stay. I also feel like it would be disruptive to other tenants that feel like this is "home" and a stranger is coming over to stay the night. Also, I would have to furnish the room, whereas currently I rent them starting out empty. I suppose I could also decide to rent it long term furnished if I moved away from the Airbnb. Regardless, that is a good option to keep in the back pocket if I can't find renters for some reason. 

My screening process has the typical income, background, face to face components, but I also think experience helps. After going through 15+ tenants and screening hundred of candidates I have a pretty good feel for someone after a phone call and in-person meeting. It's also important to ask specific and direct questions to bring out real dialogue, so even though we might only talk for 30 minutes, I dig into all the important aspects of living together. Do you have any specific questions regarding screening?

(I just posted this as my first blog, but it's my first success story also)

Strategy

Rent by the Room (RBTR) allows me to maximize the rental income from a home, while still having long-term tenants on leases. Instead of renting out the whole house, I rent out each room individually. Vacancies are minimized because I just have to find one person to rent one room at a time, rather than a family or group to rent the whole house. Also, the price per room can be varied which allows me to dial into the market rate each time a new rooms comes available to rent.

RBTR – House #1

I purchased my first home in Denver in 2010 with the intention of renting out the rooms to offset my expenses. At that time, I needed to find something that wouldn't require much work because I had very little cash. I found the home on the open market and it had been newly remodeled so no rehab was required. It was a 3/2 with an unfinished basement and I purchased it using a first time home buyer program through CHFA, which required only $1000 down. My first renter was my cousin and within a couple weeks I had filled the last open room. The rental income covered my mortgage and part of the utilities which was great!

My next step was to save up enough cash to build-out the basement into an apartment and add another renter. After a couple of years I was ready and received 3 quotes from contractors, which I determined to be too high and decided to do the work myself. After a year of construction the project was complete and I found another renter to occupy the basement. At this point, the rental income was covering all of my expenses and providing some positive CF each month. At this point I was living for free!

RBTR – House #2

At this point I had owned the house for roughly 5 years. I moved companies and was now commuting from south Denver to Boulder every day, which was taking a toll. I wanted to purchase another home and move closer to work so I figured I could repeat the model of the first home. The RE market in Denver had grown significantly and I couldn't find another 3/2 home that I could apply the same model to. I decided to find a larger home so that I could rent out more rooms from the start, so I found a 4/2 which would allow me to cover the mortgage from day 1 using 3 renters instead of 2.

Side Note: This is also about the point in time where I joined Bigger Pockets! I began working with Matt McKay, who is a local RE agent and BP member, to talk RE strategies and facilitate the purchase. My two brothers are also RE investors and serve as great resources for advice and strategizing.

With my salary, qualifying for a second property took some work, but since I had several years of rental income on the books, the first house was now seen as “self-sufficient” from the lender’s perspective, which allowed me to qualify for another owner occupied loan. I made several offers and finally went under contract. Some rehab was required so I re-finished the wood floors and completely gutted and remodeled the two upstairs full bathrooms to make them attractive to prospective tenants. Immediately after closing on the property I began the demo work on the bathrooms that night, with the idea that I could complete the project and have the rooms rented before my first mortgage payment was due. Amazingly enough I had one tenant move in BEFORE the bathroom renovations were complete and the other two moved in within days of project completion.

Converting House #1 to a Stand-Alone Rental

Now it was time to move into house #2. I needed a process to keep the RBTR strategy alive. I offered one of the current tenants whom I trusted the job of property manager. In exchange for a break on the rent, master bedroom, and a garage spot their duty was to manage the property. They are responsible for collecting the rent, finding new renters whenever required, common area cleanliness, and reporting on any required maintenance. After I moved out of the house the extra room was rented within two weeks and the additional CF creates a sustainable income generating property. Success!

General Comments about using RBTR

The RBTR strategy can be great, but it certainly has its’ challenges. It’s not for everyone, but in my case I was young, did not have a lot of cash, and was planning to live with other people anyways so it has been a great way to get into the real estate investing world.

Here are few comments about using this strategy (in no particular order):

• Develop a good tenant screening process
• Discuss rules and expectations before the tenant moves in. It much easier to enforce something that has been previously agreed to.
• Be fair on rent and how to treat your tenants. Quality tenants find quality deals.
• Collect a deposit before the tenant moves in. A deposit does not count as last month’s rent.
• Meet face-to-face and/or skype before the tenant moves in. Texts don’t count as a screening.
• Do not settle for an awkward situation just to get the room filled – it only gets worse
• Try to find tenants with opposite schedules so not everyone is home at the same time
• Try to find tenants with similarities. Sometimes your tenants become great friends!
• My rates for RBTR range from $625 - $750 per month
• If someone needs to move out due to life circumstances, be fair and work with them.
• You can rent your extra garage spaces
• I’ve found all of my tenant on craigslist
• Have a good lease agreement
• Use a background check tool
• Learn to let the little things go

Thanks for the updates, Tyler. I'm curious to see where this goes!

@Rod ColemanYou could invest $30, become a BP Pro, and post an add on the BP marketplace. Then search for the people in your area, connect with them, show them the deal, and see if something comes of it. Also, if you find a BP member that you feel comfortable with, you could send them all the information on the deal, and have a phone conversation discussing numbers and strategy. I've found a couple people in my area that have gone out of their way to give me their time and advice. 

@Derrick Harper Oops...here's the link

http://www.biggerpockets.com/forums/311/topics/183...

@Derrick HarperCheck out this thread. Might show you some of the risk. 

Thanks for the advice everyone. In this case a BP member responded to an add I put on the market place. We partnered quickly to make an offer and disclosed to the seller our plan of assigning the contract to someone that was already lined up. They chose to go with another offer (not sure of the specifics). It seems like the wholesaling strategy works best when you can work directly with the owner on a property that isn't yet on the market. Like another member posted, I shouldn't really go under contract as a buyer if *I* can't actually close the deal.