All Forum Posts by: Rick Bassett

I have this prospective tenant that seems to be evasive on just about all of our policies. At first I didn't think much of it as just about everyone asks for a concession of some sort. Some people are just more direct than others.

Looking back over a timeline and the number of expanding issues is giving me pause including; not paying the upfront money when required, both parties not coming in to sign the lease when arranged and now getting a request that the number of occupants will be expanding from 4 adults, 2 animals and 1 part time kid to 6 adults, 3 animals and 1 part time kid.

The house is a small 4 bedroom cape so this new requirement isn't sitting right with me and now I'm kinda glad that they put off signing the lease as I am considering telling them thanks but no thanks.

I don't have a backup tenant lined up so it may take a month or so before I can get someone in there but I am concerned that it may be better to take the revenue hit now than deal with their issues later.

Any words of wisdom?

Mike & Sonja - A dual answer of sorts:

I have bundled several properties into an LLC and obtained a commercial note on them at 70% LTV (of purchase price, closing costs plus rehab costs). We are about to do a second round on a second LLC bundle.

I try to do the minimum amount of rehab possible but some of these 'gems' are pretty beat when we get them. They are usually circa 1950 being sold off by the estate of the original owners (easy to picture what they look like).

The upside of our renovations is that they usually help our houses to receive very favorable appraisals (usually 15 - 25% of our all-in costs. It also makes it pretty easy to attract multi-year leases.

Prefer not to sell any of them now, I'm a bit of a house hoarder.

Rick

Charles - I know that you are spot on with your advice.

My concern is that we are possibly in a unique buyers market which may not last much longer. I'm trying to build the portfolio while prices are somewhat depressed. I sat out most of the 2000's recognizing that RE was overpriced and also understanding that I couldn't generate positive cash flow. It is refreshing to find deals that work and cash flow.

Justin - I have crunched the numbers time and again on flipping in our market (Greater New Haven, CT) and just don't see much upside potential after our efforts and all costs plus taxes. Not to say that a rare deal may not exist but in general the big flipping money seems pretty elusive here.

We bought, rehabbed and rented 7 SFH's this year, which is by far our most productive year in RE. We have it down now to where we can do a pretty full rehab in 30 - 45 days.

I didn't expect that we would do so many this year as our problem has historically been finding deals that make financial sense but we are now getting a steady stream of property (and tenant) referrals from our growing network.

We typically buy our properties for cash in the $140 - $160k range and put in $20 - $50k so that we can: 1) Command a higher rent and 2) Have them mostly ready to sell if/when the market pops. We refinance the properties after they are renovated and rented. The refi's usually cover close to our purchase price (70% LTV) but not the renovations.

The big down side that we are running into is the cumulative renovation money that we are leaving behind in each of the properties. We have been funding the renovations from (dwindling) personal funds and cash flow. My hope is to get to a point where cash flow covers renovation costs and that we can stop hitting our personal funds.

Any words of wisdom would be appreciated.

Rick

I go with laminate from Lumber Liquidators in the $1 - $1.25 sq/ft that already has the padding attached or I will look for a discontinued deal at one of the Big Boxes. I don't use the cheapest stuff but a step or two up. I used to put carpet in my rentals but that only lasts 5 - 7 years on average: I estimate that I can get 10-12 years out of a laminate solution for about the same cost as the carpet. The bonus is that the laminate will not hide pet sins at move-out like the carpets will.

We've done about a dozen SFH's for rental and have standardized on just about everything, some examples: Formica counter tops (always the same color/style), the same RTA kitchen cabinets, inexpensive tile (from HD or Lowes) in kitchens, baths and sometimes hallways, NEVER carpet anywhere instead we go with hardwoods or laminate, use the same paint color on all walls and trim, the same replacement windows (when needed),builders/contractors lights (from HD or Lowes) ...the list goes on and on.

Bill & Charles thank you for the response.

I will look into the S-Corp taxation option and yes I do need to get a real-estate tax expert.

I'm still trying to determine if a SM-LLC or a MM-LLC is better for us.

So if I am understanding this correctly then the Property Mgmt LLC (which I hold a significant interest in) can collect Property Mgmt fees from all of the other SM-LLC's which I also hold a significant interest in.

Rick

I am setting up a LLC for property management. The LLC will manage my properties, which are single member LLC's as well as well as properties for other owners.

My plan is to have my property management LLC collect a reasonable and competitive management fee from all owners (including my LLC's) to manage their properties.

My accountant says that I can collect the fee from other owners but I am not allowed to collect fees from my own LLC's as that isn't an arms length transaction and it isn't allowed by the IRS.

It seems to me that any property owner could hire a property management company to manage their property and it shouldn't a matter if they hold an interest in that property management company as long as the services being received and pricing paid are comparable to what other clients (owners) of the property management company are receiving.

I really don't believe the advice my accountant is providing, which is why I am posting here for opinions.

Can anyone recommend a lender that will go past 4?