All Forum Posts by: Zach Scherschel

Purely from my personal experience, not an attorney, so I would certainly check with one. 

The easiest and least complicated way to do this is establishing an LLC as a partnership, with 50/50 equity split and an Operating Agreement in place. If he already has an LLC that holds other RE or entities, you won't be able to partner in that unless you purchase 50% equity in that which will certainly be more fees to attorneys and CPA to vet the purchase value, etc.

You could do a new partnership LLC through an online law service like LegalZoom or RocketLawyer for relatively cheap, ~$500 vs an attorney at a few hundred dollars/hr.

Not super familiar with the legality of executing a JV through something like this, so if others know more there, great!

Quote from @Dany Kao:

@Zach Scherschel thanks Zach for the tip. I couldn’t find a section called “infilled demand” . There is a section called tenant lead is that what you are referring to?

 Sorry, I could definitely be off on verbiage but yes, that sounds right. I did it initially months ago but moved it over to my PM, so I haven't followed as closely lately but we haven't had a vacancy since we started using the process. 

Hey @Dany Kao, one thing I found in my first listing is that we didn't have a ton of direct messages and contact initally but if you look at your listing, there is a section on FF for "unfilled demand". Basically, these are people that are looking for housing but put their application out there almost like you listed your unit, we started reaching out to all of them with the unit available and started getting 10-20 applicants and inquiries almost immediately. 

I recommend using that feature and drive some of your own business in that way. 

Quote from @Peter Hendriks:

I have a Good tenant in Brevard County Florida. This person pays on time and takes good care of the property. The rents in the area have been going up lately. It's possible to get $1400/month for the unit. The tenant currently pays $1000/month. I would like to keep the tenant in the unit and have informed her that the rent would be increasing at the end of the lease to $1250/month. the tenant has stated that she could stay at that rate but could not afford any further increases and requested a two-year lease at $1250/month. What are your thoughts on using the two-year lease? 

 I always keep stable tenants that take good care of the property at a lower rate increase. Think about it from the perspective of a turnover, minimally you're still completing hundreds of $ worth of work + whatever vacancy factor for finding a new tenant + marketing + background check/lease signing. You'll eat close to $1,000 in cost on a good turn and more on a standard turn. 

A $250 increase or 25% in a year on a $1,000 lease is already winning and the fact that a long-term good tenant is willing to stay for 2 year at that steep of an increase is a win. I'd sign the two-year lease in a heartbeat. Just my opinion but feels like a no brainer win to me. 

If you've got more iron clad math on a turnover and vacancy being much cheaper, you can consider the other option but good long-term tenants aren't easy to find :). 

@Michelle Cohen, first off congrats on the first property and sorry to hear about the struggles on the PM front so far. Good news, this isn't unique to you and your husband and NO not all PMs are the same. I recently went through this with an 8 unit I own, so here are my notes:

1. Sounds like you've done A LOT of legwork to stay in contact but have you established clear parameters with the PM. When I was initially struggling, I got a call with my PM (sounds like this might be a challenge in itself) and set up a cadence for when I'd expect responses i.e 5-7 business days, by "X date", etc. Then if they don't return by then, you have every right to pester/escalate. 

2. Build tracking for % of gross income that these "nit picky" maintenance expenses are taking up and also break it down by unit. I had this same problem, called my PM out for it, and ultimately didn't see improvement, which I'll get to. It's tedious to hand hold and micro-manage but having all of your data locked in, makes your point irrefutable.

3. Start interviewing some other PMs. Now that you've learned what bad looks like, go in with a list of questions for what you don't like, expectations other PMs have, communication they uphold and how they provide quality/cost-effective service. 

4. Sounds like you might be at this point, but eventually I found a new PM, walked the property with them. I had interviewed 5 other companies and brought two onsite for a walk and to really "interview" them live at the property. 

5. Fire and rehire. Make sure you double-check your contract with current PM, usually its a 30 - 60 day period for notice to them and then have everything aligned to start with a new company and have a smooth handover. 

If they're saying they're showing and its all positives but without return on even an application, let alone a new lease, then they're probably lying. It can be painful but you can definitely find a better PM, they exist! Also, ask this BP community for a solid recommendation in your area, I bet some folks in here have them for you!

I agree that purchasing a business with negative cash flow is certainly an acceptable risk and that's ultimately what business is, its risk/reward. 

Now, operating the business to profitability is a very different thing. Once a property or any business is purchased, the goal should always be to bring it to profitability. That's where in RE like other business types, operations upon acquisition become critical. I'll never look at a piece of property where there isn't an outlook to cash flow and profitability within a defined timeframe and I'll always have a plan in place to get it there. 

Just like an operation making widgets, you should have a plan to cut costs, improve revenue streams (productivity) and control for defects (quality) in your RE. Also, creativity goes a long way, by looking at lease terms and when they're coming due, looking at the area for turning a long-term lease into a mid-term rental and doubling your gross. 

Cash flow isn't the only indicator to success with a property for sure, but have a plan to get there, IMO :). 

Quote from @Justin Dziedzic:

Quote from @Charles Carillo:

@Justin Dziedzic

I would respond to requests as being emergencies or non-emergencies. If water is leaking anywhere; that is an emergency, and we will be out there immediately. A fence with a couple of holes in it is not an emergency, and we will attend to that next time the handyman is at the property. It is about setting expectations. Once you get a list of a few hours of work, bring over your handyman. These repairs sound pretty easy but, if they start requesting that items in good working condition need to be replaced, then you need to put your foot down.

My thoughts exactly. I'm thinking I'll do just that. Give me a list and when the handyman can make it, he'll be out. 

 Agreed with all of this, another best practice for the future is make sure you have the tenant do a move-in walkthrough checklist. You should be able to find one either on BP or with a quick Google search. Make the tenant walk every room upon move-in and note any defects, again you can be explicit in stating these will be categorized as "emergency" vs "non-emergency" and then choose what to fix. It will give you an initial punch list for anything you may have missed at a turnover and also let you choose which items are still very much livable wear and tear vs items that need to be fixed eventually. 

Often a needy tenant is also worried about being charged for something when they move out that they didn't create, if they complete a move-in checklist within the first week and an item is noted, that you choose not to fix during their tenancy, then you don't charge them for it in their security deposit at end of lease. 

Quote from @E. C. "Stony" Stonebraker:

@Moncy Samuel, I recommend you check out the numerous videos by Toby Mathis or Chris Coons of Anderson Business Advisors.  They have legal and accounting help for RE investors.  Search for them on YT and they have more short videos than you can watch in a year.  Then consult an attorney.  Don't invest before you get legal help to understand the consequences.  Good luck.

Agreed with all of this and one additional note, talk to your lender before you consider moving into an LLC with a conventional loan. Very good chance your lender will force a refi into a commercial loan, equally you're insurance will change. Depending what # property this is for you, I'd consider just leaving in conventional and getting an umbrella policy over the top if you're worried about liability. 

Minimally open a separate checking, easier to track for yourself but also needed for tax purposes/CPA at the end of the year. If you have an Escrow account set up for your property not as necessary, but if you don't, I'd also set up a Savings account to move your taxes/insurance money over to on a monthly basis. 

My 2 cents and how I have my properties set up. Makes things easier on all monetary fronts. 

Quote from @Adam Gusky:

Hello BP community,

I am 26 years old and recently moved to Denver. I am looking to purchase my first rental property. I am in Denver and would ideally purchase a property within driving distance so I can easily fix it up and manage it. 

I have around 60k saved (with an additional 100k in roth and 401k that I’d preferably like to leave alone). Is it feasible to purchase a property in the Denver metro area? I’d prefer something that cash flows, even if I have to do a bit of work on the property.

Any advice is greatly appreciated!

 Adam, nice work on saving and having a nice retirement savings built up for 26!

As someone that started exclusively investing outside of where I lived and out of state entirely, while it may seem ideal to invest locally and do the work, it can be done with a good team elsewhere. With $60k, I know Denver is a competitive and tight market (as are most places) and ultimately I think a question to answer is what you're looking for from the property? Monthly cash flow? Consistent appreciation (also spiky/risky in this environment)? 

With some of those thoughts/questions in mind, you could certainly look for a property to house hack and live in a portion while renting out others, whether that be rooms or a duplex you live in half while renting the other. 

If $60k doesn't meet the needs for Denver, then I'd consider looking at other markets you're potentially familiar with or work on BP to find a great agent and team (PM, contractors, etc.) from outside your area or even state. 

A lot to unpack here and to think about when diving in, happy to chat more or help if I can.