All Forum Posts by: Troy Zsofka

@David A Muise -

Just to clarify on @Shawn Ackerman's point:
I think there is some confusion regarding the duration of the NH State of Emergency and eviction moratorium.

I believe that the 2020-08 in the document is not a reference to August, but is the the Exec Order number. The attachment lays out that the Exec Orders are to remain in effect for an additional 21 days. It is my understanding that the NH Governor only has the authority to issue declarations of this sort in 21 day increments (although I am not an attorney so I could be mistaken). Now, does that mean that you'll be able to serve notices to vacate 21 days from April 24th (when this extension was executed)? Not necessarily, because there is nothing preventing another 21 day extension. However, to the best of my knowledge, it has not been, and can not be per the constitutional authority of the Governor, extended to August until the expiration of the latest extension preceding August by 21 days. Furthermore, who knows what's going to happen when all the evictions start pouring in from the backlog that has been building. It's likely going to be a slow process simply due to stressed resources.

In regards to your situation with this particular tenant:

Why do you care that they are hoarders? Does it affect you personally, financially, or legally? Is it a lease violation? If they are paying their rent, aren't they free to keep their residence as they see fit; so long as it does not cause damage to the unit or infringe upon other tenants' rightful enjoyment of their individual units? I had an acquaintance approach me some years ago for advice because he was having difficulty retaining tenants (he was a new landlord with 1 unit). I reviewed his lease and noticed that it had provisions prohibiting consumption of alcohol on the premises, as well as guests past 8pm, and he was routinely showing up to check on his tenants' compliance. I told him that once he got more units under his belt, the problem would be solved because he'd have better things to do than mind his tenants' business. Being a landlord does not give anyone the right or authority to dictate how others should live. I'm not suggesting that you are in any way similar to him, but one perspective that goes a long way in this business is to live and let live, and not concern yourself with things that do not affect you or pose a risk to your interests. Again, I am not an attorney, but I have difficulty believing, even in this absurdly litigious society, that you can be held liable for dangers caused to a person, by that person, in regards to fire hazards or whatnot stemming from their housekeeping or actions. On that note, if you don't require renter's insurance naming you and your company as additional insureds on the liability portion, start.

That said, as far as the smoking in the unit, that is entirely unacceptable. It is a clear lease violation (assuming there is a legal provision in the lease), and allowed to continue will set a precedent and only embolden a tenant who is dismissive of the rules. When I was new to the game, I considered smoking to be none of my business if the tenant was taking care of the property and paying rent. I was then reminded on a few occasions how much it cost to clean, prime, and repaint every surface in the place, and now my lease is clear that smoking is not permitted inside and there is a $200 fee per occurrence of evidence that smoking has occurred. I have not had a problem since.

Lastly, once the moratorium is lifted, if you choose to relieve yourself of this tenant by issuing a 30-day notice to vacate, that decision may result in more problems, and you may find yourself left with all of their unwanted belongings once all is said and done. Don't assume that just because you want someone out, even though it may be your property and your right, that they will magically have someplace to go, and will comply without resistance. It may be better simply to raise rent to a level that you find acceptable to mitigate what you perceive to be their drawbacks as tenants; although in a multifamily, you may have to watch out for the appearance that you are treating them differently than their neighbors. Furthermore, if they are TAW, nothing is stopping you from issuing new lease terms to go in effect in 30 days (consult your attorney blah blah blah), imposing penalties for continued smoking inside the property, prohibited leaving belongings in common areas (if they are doing so), etc. It is important to enforce the rules if you want them to remain enforceable; so you should absolutely address the smoking to retain your credibility, if nothing else. If they've been smoking inside for a while, the damage is done already, and it needs to be cleaned, primed, and repainted; not to mention if any of it is carpeted. Knowing the expense that you are up against anyway, the wiser business decision may be to allow them to stay so you continue to receive income from the unit and then deal with it later, unless part of your near-term plan was to force equity through renovation and raising rents. Never forget the concept of TVM...

Happy investing,

Troy

Hi @Anthony Simboli

Are you looking for a lease option on an SFR that you can live in and then purchase down the line, or a fixer-upper to purchase now and then live in while you improve it and then sell?

I have properties that are good for lease options, but everything I have at the moment is leased up. Never know when that will change though. I can also do seller finance if the deal fits, but that's not an option on owner-occ (at least not for me).

As far as where the market is heading, I think that's still rather up in the air. I know there are a lot of buyers out there who think they're going to get a steep discount, but at least in the near term, it's still a seller's market from what I'm seeing. I listed a house early April and after the open house I had an offer that was $41K (just under 20%) below list net of concessions with a 100% financing contingency. The buyers apparently felt that the sky is falling and they could get that type of offer accepted on a house that was just listed. Anyway, it went under contract a week later at full list net of concessions. If you're looking for something that needs work and won't pass inspections, and especially if you have cash, you may find something at a decent discount, by my advice would be that if you want to offer significantly below list, target properties that have racked up some days on market. Few and far between are sellers who are going to list a property for X and then accept 0.8X four days later. Prior to listing, maybe, but once they're in the full services of an agent, I don't see it.

As far as rates. Yep, no question they're eventually going to go up; they don't have anywhere else to go. However, my money's on rate increases still being over the horizon since the Fed needs to keep them low to combat the impending threat of recession. I think the mentality is "medium-term inflation be damned, everything in the arsenal needs to be used to keep things above water near-term".

Perhaps there will be a moment in time where great deals can be had before rates start heading back up. If that happens, and you can act within that window to lock in a low fixed rate on a discounted property, it may be one heck of an opportunity (I'm thinking that's a few months out depending whether we have a second wave of COVID, and it might very well be location-specific, proportionate to the degree of economic carnage caused by COVID). However, I'm guessing banks will decrease leverage limits (already have in CRE, as have HML lenders). Also, it still remains that cash is king, and sellers are much more likely to accept a low-ball offer if there's no financing contingency hurdle. I had to chuckle at that offer I mentioned above; almost 20% discount, 100% financing. Truth is, I would have accepted a cash offer discount of 5%, maybe even 10% with the right ancillary terms, just to protect myself from the current market uncertainty (and many sellers will accept significantly steeper discounts than that for cash offers), but someone forgot to tell these particular buyers that 100% financing doesn't afford them any bargaining power. The reason I share this is that although some people are assuming that prices are going down, and extrapolate from that sentiment that we're in some sort of buyers market where they can dictate their terms to newly desperate sellers, I haven't really seen that yet in the markets where I own property. Of course, I'm not an agent so I don't track the data anywhere near as closely as they do. I expect it to likely occur in some asset classes in CRE, and I won't be surprised if resi sees at least some sort of a dip, but the breadth and depth of any real estate downturn is still, to a great extent, anyone's guess.

Happy investing,

Troy

Hi @Lauren Feltz - 

I think @Chris Mason covered the lending perspective on this.

As far as your other question, you should definitely seek the advice of an accountant, which I am not, but I will share my thoughts with you:

None of the work you mention sounds like repairs; it all sounds like improvements. Therefore, it can not be "written off"; rather, it will affect the adjusted basis that you carry in the property, which will come into play when you sell. Section 121 may rule the day anyway and render it moot, but I have no idea how that works for a multi-unit primary residence, and your exclusion under 121 may be limited. 

Now, since you will continue to rent 3/4 of it, you will get to take depreciation on those improvements. Again, I'm not experienced with how that might vary as a full rental vs 1/4 owner occupied, but I kind of doubt it matters what the status was at the time the improvements were actually made.

Again, those are just some thoughts, and I am not licensed or qualified to provide tax advice. Furthermore, the multifamily as a primary residence aspect is outside of my personal expertise and my thoughts contained as many questions as answers.

Perhaps @Kory Reynolds (darn link won't work) could provide more clarity and specificity for you.

On another notes, you mentioned converting from private to public sewer. You're going to wait until your leach field fails, right? The couple hundred bucks to pump the tank every couple/few years is almost certainly way less than the sewer bill is going to be, so you may as well run it until it's done, right?

Best,

Troy

@Laura Cardenas

There is another thread that has a ton of opinions on this, but thanks for starting one that is more NH specific.

I think communication is key, and working with tenants is a must. I issued an email to all of our tenants last night, titled "Response to COVID-19". The feedback I have received from our tenants so far has been very positive. The point of my statement was to 1) Provide guidance and reassurance. 2) Set expectations and align interests.

For what it's worth, here it is:

Hello everyone,
As you know, we are in the midst of some trying times.The COVID-19 pandemic, while not yet widespread in New Hampshire, is a potential threat to our society and has resulted in our local and state governments taking some preventive measures that will change our daily lives, at least in the short term. For some of us, this may mean temporary loss of employment, or a reduction in income.
We stand with you during these times, and it is imperative to work together to get through them smoothly, taking each other's needs into consideration and embracing a team effort to overcome the potential effects of this experience.
We are committed to coming out of this with each of our tenants and their families in the same position as we are now. However, as many of you know, the majority of all rent we receive is already spent on operating expenses such as taxes, insurance, water & sewer, accounting, compliance & record-keeping, etc, and this does not include any mortgage payments that must be made on the properties in addition to all of these operating expenses. Without rent, we can not make the payments that we need to on our end to ensure that we are able to continue to provide a home for our tenants to live in. So it is super important to work as a team in order to get through this together. Here are a few things that you as tenants can do to help ensure that this end is achieved:
1) If you are experiencing financial distress due to this emergency, reach out to us immediately. It should come as no surprise to anyone when I say that open and proactive communication is of the utmost importance. Our level of understanding and willingness to work with tenants is greatly diminished when the tenant does not show us the basic level of respect and consideration of proactively keeping us in the loop as to their situation. The simple courtesy of reaching out goes a long way.
2) There exist many municipal, regional, and state rental assistance programs. If you are experiencing financial distress due to this emergency, proactively apply for that assistance. If you need some direction regarding which programs might be available to you, reach out to me immediately. Our ability to work with a tenant is greatly increased when that tenant shows that they care about our situation and seeks to fulfill their financial obligations by utilizing programs intended for that purpose, rather than choosing to put us in a situation where we lack the funds necessary to pay the bills associated with the rental property.
3) The NH state government has issued an order to provide "immediate access to unemployment benefits to individuals who are unable to work or who have reduced hours due to the COVID-19 pandemic". Similar to the previous point about rental assistance, tenants should proactively utilize these programs rather than hope for us to be able to shoulder the financial burden of their employment situation. Programs and funds are being made available to people in need who have been affected by this pandemic. Tenants who need them should use them; that's what they're there for.
4) Stay safe and contribute to the efforts to flatten the curve. Proactively following the simple guidelines of washing hands, coughing into the elbow, not touching the face, avoiding close contact with others, and staying home when exhibiting the symptoms associated with the coronavirus can have a significant impact on what the future holds for all of us. Even those of us who are relatively young and healthy, and therefore presumably unlikely to be severely affected by this virus, still have a societal duty to avoid spreading it to those who are more susceptible. Remember to respect and protect each other so that we can minimize the loss of loved ones and return to our normal lives as soon as possible.
You will notice that I have repeatedly used the word "proactive". This is because times like these require action on each of our parts in regards to every way in which this virus is positioned to potentially affect our lives. COVID-19 is essentially a challenge to our society as a whole, and we must rise to that challenge in unified action and effort. Failing to be proactive, and just sitting back to see what happens, will undoubtedly result in a worse outcome for each of us, both in terms of health, as well as financial security.
We are all in this together, and we will get through this, together. So let's work together to beat this, mitigate its effects on us, our loved ones, and each other, and get back to living our lives fully, as soon as possible.
Best wishes, 

Troy
_______________________________________________________________

Today, I sent out another email to all of our tenants as follows:

Hey everyone,
I have come across a blog regarding financial resources for individuals and families affected by the coronovirus. This guy apparently continually updates it, so it could be an invaluable resource to anyone who experiences financial burden due to job loss, reduction in hours/income, etc. I would save the url so you can access it if you need it in the future. https://www.iheartbudgets.net/covid19-financial-resources/

In addition, some local resources of which I am aware include:
-Municipal assistance programs (check with your town/city)
-Southwestern Community Services http://www.scshelps.org/default.htm
-Salvation Army https://www.needhelppayingbills.com/html/get_help_paying_rent.html
-I would imagine that the state will also be setting something up if they haven't already.
-As far as unemployment benefits available immediately upon full or partial loss of work https://www.nhes.nh.gov/services/claimants/index.htm

I'm guessing that some of the available resources will get used up pretty quickly if the rate of business closings and job loss approaches the levels that some have predicted, so if you're in a bind, it makes sense to seek these resources sooner than later.
As has always been our policy, we will make reasonable efforts to work with tenants who are financially affected by the pandemic with the intent of getting through this together, but publicly funded and private charitable organizations should be utilized first.

Best wishes from my family to all of yours.

Troy
_________________________________

It is my hope that these messages set the stage for tenants to do what is in their power to meet their rental obligations, as well as to remind them that I care about them and will work with them to get through this so long as they show that the consideration is reciprocal and that they care about about our interests as well. Was it the right message to deliver? I don't know, but so far the replies have been of appreciation and a commitment to be proactive in communication and seeking of assistance.

What's going to happen is anyone's guess, but like with all things, those of us who genuinely care about all parties involved will come out of it in a better position than those who simply "look out for number 1"...

Happy investing, and best wishes coming out of this thing with both your health, and your finances, fully intact.

Troy

Here in NH the governor just issued an emergency order suspending all evictions. The opinion that I read states that it goes as far as imposing a $1,000 fine on any landlord who even serves a demand for rent or eviction notice.

Fortunately for investors who are leveraged, the same order also applies to foreclosure proceedings.

The order is set to be in effect until the State of Emergency is lifted, but there is no date at which that is scheduled to occur.

Unfortunately, no such order relieving property owners of paying real estate taxes was included, to my surprise (sarcasm abound).

I agree with everyone who said that communication is key, and working with tenants is a must. I issued an email to all of our tenants today, titled "Response to COVID-19". The feedback I have received from our tenants so far has been very positive. The point of my statement was to 1) Provide guidance and reassurance. 2) Set expectations and align interests.

For what it's worth, here it is:

Hello everyone,
As you know, we are in the midst of some trying times.The COVID-19 pandemic, while not yet widespread in New Hampshire, is a potential threat to our society and has resulted in our local and state governments taking some preventive measures that will change our daily lives, at least in the short term. For some of us, this may mean temporary loss of employment, or a reduction in income.
We stand with you during these times, and it is imperative to work together to get through them smoothly, taking each other's needs into consideration and embracing a team effort to overcome the potential effects of this experience.
We are committed to coming out of this with each of our tenants and their families in the same position as we are now. However, as many of you know, the majority of all rent we receive is already spent on operating expenses such as taxes, insurance, water & sewer, accounting, compliance & record-keeping, etc, and this does not include any mortgage payments that must be made on the properties in addition to all of these operating expenses. Without rent, we can not make the payments that we need to on our end to ensure that we are able to continue to provide a home for our tenants to live in. So it is super important to work as a team in order to get through this together. Here are a few things that you as tenants can do to help ensure that this end is achieved:
1) If you are experiencing financial distress due to this emergency, reach out to us immediately. It should come as no surprise to anyone when I say that open and proactive communication is of the utmost importance. Our level of understanding and willingness to work with tenants is greatly diminished when the tenant does not show us the basic level of respect and consideration of proactively keeping us in the loop as to their situation. The simple courtesy of reaching out goes a long way.
2) There exist many municipal, regional, and state rental assistance programs. If you are experiencing financial distress due to this emergency, proactively apply for that assistance. If you need some direction regarding which programs might be available to you, reach out to me immediately. Our ability to work with a tenant is greatly increased when that tenant shows that they care about our situation and seeks to fulfill their financial obligations by utilizing programs intended for that purpose, rather than choosing to put us in a situation where we lack the funds necessary to pay the bills associated with the rental property.
3) The NH state government has issued an order to provide "immediate access to unemployment benefits to individuals who are unable to work or who have reduced hours due to the COVID-19 pandemic". Similar to the previous point about rental assistance, tenants should proactively utilize these programs rather than hope for us to be able to shoulder the financial burden of their employment situation. Programs and funds are being made available to people in need who have been affected by this pandemic. Tenants who need them should use them; that's what they're there for.
4) Stay safe and contribute to the efforts to flatten the curve. Proactively following the simple guidelines of washing hands, coughing into the elbow, not touching the face, avoiding close contact with others, and staying home when exhibiting the symptoms associated with the coronavirus can have a significant impact on what the future holds for all of us. Even those of us who are relatively young and healthy, and therefore presumably unlikely to be severely affected by this virus, still have a societal duty to avoid spreading it to those who are more susceptible. Remember to respect and protect each other so that we can minimize the loss of loved ones and return to our normal lives as soon as possible.
You will notice that I have repeatedly used the word "proactive". This is because times like these require action on each of our parts in regards to every way in which this virus is positioned to potentially affect our lives. COVID-19 is essentially a challenge to our society as a whole, and we must rise to that challenge in unified action and effort. Failing to be proactive, and just sitting back to see what happens, will undoubtedly result in a worse outcome for each of us, both in terms of health, as well as financial security.
We are all in this together, and we will get through this, together. So let's work together to beat this, mitigate its effects on us, our loved ones, and each other, and get back to living our lives fully, as soon as possible.
Best wishes, Troy

It is my hope that this sets the stage for tenants to do what is in their power to meet their rental obligations, as well as to remind them that I care about them and will work with them to get through this so long as they show that the consideration is reciprocal and that they care about about our interests as well. Was it the right message to deliver? I don't know, but so far the replies have been of appreciation and a commitment to be proactive in communication and seeking of assistance.

What's going to happen is anyone's guess, but like with all things, those of us who genuinely care about all parties involved will come out of it in a better position than those who simply "look out for number 1"...

Happy investing, and best wishes coming out of this thing with both your health, and your finances, fully intact.

Troy

I'm sure a lot of this is already in the thread, but there are some meetups that you should look into.

@Matt Lefebvre is the Pres of NHREIA.

@Gal Peretz runs a meetup as well.

I can't seem to get the @ function to work for him, but Michael Ketchen does one in Manchester.

They're all great for information and meeting other investors. I'd probably go more often but they usually end up being on nights that I'm playing ice hockey. However, the ones I have attended have been well worth the time and travel.

Happy investing,

Troy

@Nick Gray

You may want to check out the ductless mini split systems (Mitsubishi is one brand). I don't know what the cost would be, or how many you would need in each apartment, so it may be untenable purely from a cost perspective. However, if you run the numbers, make sure to include any rent increase that you could expect to get from offering air conditioned units. That might be worth something in the market. I believe these systems would accomplish the following:

1) Allow you to put the cost of heat (and A/C) on the tenants.

2) Offer the tenants a less expensive solution than electric heat.

3) Offer the tenants relatively efficient A/C as compared to the cost to run window units.

4) Cost you a heck of a lot more than electric heat in regards to your initial capital outlay, but I don't believe the maintenance cost is much.

This is just an idea that I know has been gaining popularity. I have zero experience with them. Also, my portfolio consists of mostly single family and a couple duplexes; so I have no idea how much more rent could be demanded by offering A/C in a small multifamily property, but I would imagine that if the building and units are nice overall, it could be a selling point for higher-end tenants. If you just dropped $250K I'm guessing you upgraded the units significantly, so these might be in line with the overall picture.

In my experience with tenants and people in general, electric heat has a stigma that it earned in the 90's when oil prices were super cheap. Even though the cost delta between electric and oil is far less today, perception trumps reality for 95% of people; so just the words "electric heat" may affect the marketability of your units. Will you have to drop rents? Maybe not, but you may find yourself with lower tenant quality because the better tenants are renting elsewhere. Now, if the market norm is electric heat, it's a different story altogether, but I doubt that's the case here. I have 2 rentals in Derry; a single family on oil FHA, and a half-duplex on a heat pump. I'm fairly certain that electric baseboard in either would not be good.

Another option would be to replace the steam boiler with a FHW boiler. I believe that's achievable in some situations. However, my thoughts are that if you're going to spend a bunch of money on this, choose an option that results in individually controlled and metered units. If not for current NOI, then for the future possibility of condexing the property and selling the units individually (if Derry would allow it).

Oh, one last thing. Cast radiators can be worth some serious money. I have heard stories of someone offering to a property owner to "take them off your hands" and then selling them for relatively big bucks. Make sure to look into that before someone does you a favor. I believe the value goes up based on how ornate they are, but any are worth at least something per section, or at the very least their weight at a scrap yard. Normally when I renovate I give away the metal for free, but cast radiators are pretty heavy and may be worth the time and effort to scrap them yourself.

Happy investing,

Troy

@Nicholas J Robichaud - 

Verbiage from my lease:

TERM: The lease term will begin on Date and will terminate on Date, at which time, unless notified to the contrary by either party 30 days in advance, it will continue as a month-to-month lease.

I believe this covers it, but I'm not an attorney so consult with one to be certain.

Happy investing,

Troy

@Jamie Turbyne - 

I have been selling off my single family rental portfolio and reinvesting in private equity real estate syndicates and funds over the past couple years.

I have attained a fairly good understanding of how LP/GP structures work in regards to various waterfall structures (prefs, hurdles, fees, catchup, clawback, splits, etc), and have vetted many different sponsors, property types, etc. There are several ways in which these are set up, and each has its own benefits and drawbacks.

If you are considering selling stocks and reinvesting in CRE, QOZ's would be something to strongly consider. I have focused a good deal on these; as each property disposition results in gain and non-gain proceeds to reinvest.

It may make sense to pick each others' brains a bit in regards to investment opportunities we have found, and if you are accredited I can make some introductions as well.

Just to be clear, I am not an investment advisor, and my opinion is not to be construed as tax, legal, or financial advice, but merely the opinion of an individual investor. 

-CYA for our litigious society. I saw some snivelly attorney on a forum threatening people for sharing their opinions... 

Happy investing,

Troy

@Audrius Pauliukonis - 

All of the advice you have received has been solid. Allow me to expound on a few as a current owner of a duplex in Franklin:

-Management: It's fine if you want to self-manage. It will give you experience and allow you to realize a better cash flow. However, that choice should be made for those reasons, not to make a bad deal pass muster. In other words, you should self manage so that you make more money, not so that the seller of the property gets to because you used self-managing as a way to justify overpaying.

-Rent/Occupancy: Left vacant for showings? Then why is it listed for rent? Do a Craigslist rent CMA. I think even $1,200 is possibly pushing it. Maybe not with utilities included, but it's been listed for 5 weeks. That's well beyond the time it takes to indicate that the rent is too high or the property needs improvement (of course it's a sliding scale and the 2 are interdependent).

-Location: Great to hear someone say that Franklin is showing signs of progress. We have the duplex there and another in neighboring Northfield. I wouldn't consider myself a market "expert" in Franklin. However, anecdotally, when renovating our duplex there, one of our employees who grew up in neighboring Andover made a comment that we bought in a good neighborhood, and to make sure not to touch anything on the Bow St. side of Central; which is definitely where your prospective property is located. Is Park St. east enough of Bow to be okay, or do the drug issues reach there too? That I do not know.

Anyway, I wouldn't touch that property unless I walked the neighborhood at 1am and no one offered to sell me H or meth, the seller provided me with a stack of good rental apps generated from the current lease listing (or good tenants already in place), and the price was lower. Well, I guess I wouldn't anyway because I don't do included utilities on duplexes.

If you're interested in a Franklin duplex, I can offer ours at a much better price than Park St. It appraised this fall for $191,000 but we'd take a good bit under that. It's at Orchard/Elm and in much better condition than your prospect. Both units are 2br/1bth, side-by-side, separate driveways. Tenants pay heat & electric and take care of snow and lawn. Both tenants work full-time and have never missed rent. Tenant 1 is at $900 since April 2017. Tenant 2 at $1,000 since May 2018. Both are probably due for a rent bump this spring depending what the comps say, but I believe in keeping rents $50 under market to attract and retain high-quality, long-term tenants; so I wouldn't bump them up more than $75-100 max. W/S was $1,289.43 last year. Insurance $764.00. RE Taxes are currently $4,489.51, and apparently due for an abatement; especially after seeing the tax card on your Park St. prospect assessed at 48% what ours is ($96,300/$199,800). No doubt our property is worth more, but if that's not ammo for an abatement, I don't know what is. As far as other expenses, those are up to you for pro forma assumptions for R&M and CapEx, but I'm not sure why you have garbage in there; Franklin has *free* curbside service, at least at this location ("free" as in already paid for through our RE taxes).

We also have the one in Northfield that we'd be willing to sell. It's a 3/2 house with a 2/1 above the garage, so a bit different than the typical duplex, but the same in regards to tenant utility and maintenance responsibility. However, it's worth a good deal more, and would probably be more ideal for a house-hacker who wants the in-law apt to subsidize their housing expense.

Feel free to reach out if you'd like to talk further about these, or just in general about investing in NH. Happy to help where I can.

Happy investing,

Troy