All Forum Posts by: Michael Totman

I've dealt with a number of section 8 tenants not too far from you in MA.  Other than having a completely different outlook on money, personal finances, and who is responsible for funding their lifestyle they are no different than anyone else. Screen them well.  You should be able to talk with past landlords as a reference.  I require they come up with a security deposit and if they can do that then I assume they have at least some sense of responsibility.  I don't target them exclusively, but I don't screen them out automatically either (it would be illegal anyway) if they apply for a unit.  If you are targeting them then choose your rehab materials and projects carefully; choose materials that are tough to damage and that you won't mind replacing every time it turns over.  

To directly answer your questions:

Section 8 tenants are incredibly easy to find, just put out a free ad in the area. Screening them, however, is a different story. 

You can try to add a clause that it must be rented at closing, but I'm not sure how that will go over with any seller.  Good luck.

Make sure you inspect the repairs and any permits before you close. 

I don't believe you should back out if the numbers work.  You must have realized when you decided to buy that eventually some tenants would move out, yet the deal still made sense.  You just need to do some additional work now instead of later. 

Ryan, I'm not sure how the others feel but personally I would take any action in which I was reasonably sure I could earn 60-70% ROI on anything. Perhaps you meant to say you only expect to recoup 60-70% of the cost of the improvements? In order for ROI to exist then by definition you've already recouped 100% of your cost; anything less is a loss, not a return. If you're adding legal living space by finishing a basement or adding bedrooms then get a few bids and chances are you'll see enough improvement to be able to pull some cash out, assuming you had enough equity to begin with. Without knowing how much debt you used to buy the house I'd just remind you that LTV ratios that banks will consider are usually different on purchases than they are on cash out refi's. If you want to share some numbers I'm sure everyone would help you analyze the situation.

Ed, have you ever rented an apartment for yourself? As for how to be a good landlord, I like to remember good and bad landlords I had when I was younger and learn from those experiences.  The books mentioned in posts above me are good, and here are some tips I have for your lease.  These should be legal in all states, but check the laws in your particular state.  You can probably find a standard lease applicable to your state from some of the larger RE groups or rental advocates:

1. Include pictures of the color code tags for all the paint you use in the apartment that belongs to that lease.  Paste these right into the document before you print.  You'll know what to buy for touchups and the tenants will know what to paint anything back to. 

2. Include a list of common damage items and what you will charge if they occur while that tenant rents the apartment. I have fixed fees for removing smoke detectors, breaking doors/windows/screens, large holes in walls, and trash/junk left behind. 

3. Make your tenant initial their understanding that they have read some of the important individual clauses within your lease.  I make them initial the clauses that deal with utilities, loud parties, basement storage, trash removal, damage, and the clause that tells them they are required to continue paying the lease even if they move out before the lease term ends.  These are some common ones that you'll always hear them say "I didn't realize that I was responsible for...."

I love the idea of including tenants in the smaller design choices! No better way to get them invested in the home to care for it as you would your own!

Welcome Jesse! It's great to see more investors from MA! 

The answer to this question, how much down on each, is: whatever it takes.  I envy your position.  The total purchase price of your combined properties would be less than what I'd need to put down on a regular loan for a rental here and it comes with rents above $700 too?  Keep in mind your expenses, are both of these houses profitable even at that price? If so it's really simple math, your profits are a function of your collected rent and expenses including your debt.  Run the amortization schedules for both properties at various down payments and then throw in the additional cash flow you'd have available to pay down the notes. With such small numbers it won't be much of a difference. Personally I'd prefer to own the one outright if I could, then in less than 3 years you'll own both outright with, hopefully, still over 55k in equity plus $1,500/month gross cash flow.  You'll have tripled your investment in less time than it took to finish high school.  Not bad.  

You came here to ask questions and gain confidence, so at least you're somewhat smart enough to know you don't know everything.  When I was 21 I knew everything, so we are different that way.  This place sounds like it will be a lot of work so if you can find someone or some institution with the money willing to fund it I'd say go for it.  You've got nothing to lose and if you win you'll be set to move forward.  Now if you provide some more details I'm sure we'd all love to help. 

I assume you've run the numbers such that both will cash flow something after all expenses are considered, or do you mean to say that what they bring in is the net cash flow? Assuming that, decide how much of a headache do you want.  If it's as bad a spot as you describe then understand that bad neighborhood will attract a different tenant than the good. That different tenant may turnover more frequently, cause more damage, bring more nuisance calls, etc. to the point that the difference in return may disappear.   If these numbers are just your gross rents then we can't know without additional info. Don't forget to include the headache factor into your analysis!

While it is your choice to repair or replace items (within lease and law limits), you need to think of the landlord/tenant relationship here.  Sure, you could be a hardo and say you don't believe them because they are serial complainers then forget about it for today, but what will that get you in the long run?  Depending on how tenant friendly Minnesota is (I'm from Mass, a VERY tenant friendly state), your tenant could make your life miserable if they so choose.  I would ask them for a list of everything they would like addressed and then sit down with them to discuss what you can do for them and what they agreed to in the lease when they signed.  Hire a professional to repair whatever is needed or replace what genuinely needs to be replaced. After that, tell the tenant that if they really don't like the place you'll let them out of the lease without additional penalty; it just may not be worth dealing with them.  The fact that they threatened to withhold rent shows me they have no intention of paying rent whether you fix what they complain about or not.  They'll have new complaints every month. 

I typically look for three months but as others have said be flexible if the rest of their application looks good and they slightly miss your income floor.  If they were at 2.5x rent I'd look at their specific job and pay rate. A minimum wage worker jumping from job to job may not be the best qualified, but a salaried person at the same job for a couple years while unfortunately in an industry that isn't high pay may be plenty qualified based on their proven history of being responsible. 

Be careful with your screening. It's much more affordable for the owner to have an empty apartment for a few months than to have a an apartment filled by a tenant who decides they don't like the paint scheme so they stop paying rent.  Not only do you have the same missed rent costs but the added cost of water/sewer they're using but you're paying for, eviction costs, damage to the unit by people who don't like you for expecting them to live up to their responsibilities in the lease, and of course the added stress!