All Forum Posts by: Zach Westerfield

I rent to the "the first qualified tenant who applies". step one of my process is an initial screener of 6 questions (usually via email). When someone reaches out to inquire about a property, i send the same response everytime. 

Tenant: "is the property still available?"

Me: "Yes it is. if you are interested, please answer the following questions:
1. Why are you looking for a place now?
2. How many people will be living in the residence (children included)?
3. Does anyone smoke? (Our properties are smoke free)
4. Do you have pets or animals?
5. What is your currently monthly income before taxes?
6. Have you ever been evicted (unlawful detainer)?"

only about 25% of people answer these. If they have a disqualifying factor such as they dont have enough income (3x rent), i respond "sorry, but we require 3x rent". if they pass this, i move on to the next step with

"Thank you for your reply.

The next step of our process is to complete an application package, which you will receive shortly via Docusign.

Please completely fill out the application and return it to us. Once received, we will submit your name for a credit and background check. You will receive an email notification for payment for the service ($40, we do not receive the fee, that goes directly to the screening service). Please note we will not consider your application until the payment is received.

We will review applications in the order received and will select the first qualified candidate. Paying the application fee does not guarantee selection, however we do not submit for the background check until the application is deemed qualified, so as to minimize charges.

If you have any questions or concerns, don’t hesitate to contact us."

maybe 1 in 5 that get to this step finish the application. of those, most are usually qualified. If they are not, i respond with "sorry, but you did not qualify due to XXX". Its important to have you criteria established to be fair across the board. it also makes it easier, because the rules are the rules. either they meet the criteria or they dont. 

So far ive never had an issue with denying a tenant. In fact, 95% weed themselves out by not completing the steps. Those that do are usually good. If i have multiple apply at once, i note the time stamp of when their application is submitted, and that locks their position in line. if the person in front does not qualify or backs out, the next person in line is considered. 

@Caleb Vance I leave a packet for my appraisers, including an overview of the property (1 page), list of updates, and some comps in the area that i believe justify my ARV. I try to keep it short, clean and simple so they actually take the time to look through it. If you PM me i can send you an example of what i use

i always put them on mine, since they are in areas with high termite activity. i have paid between $450-600. 

@Karl Butenhoff thanks for the tip. Being from Georgia, I always forget about snow removal.

I was in a similar boat a few years ago. First, analyze your personal home as a rental. Would you buy it for $220,000 as a rental? using the 1% rule, would you be able to rent it for $2200/mo? if you know you can get solid rentals for at least the 1% rule (or whatever your metrics are), then you need to be able to match that with your current residence, otherwise your money could be put to better use. 

Another thing to consider is appreciation. Is your home in a quickly appreciating market? If you can rent an cover expenses, maybe you can get a little more appreciation in the next few years. the down side is you will most likely have to put some money into fixing it up after tenants when you do go to sell. 

Another important thing to consider is taxes. IF you do have appreciation, you dont have to pay capital gains tax on the property if you have lived in it 2 of the last 5 years. That means you have 3 years from the day you move out to decide what to do. 

Finally, did you use your VA loan for this property? if so, you may want to sell to clear up your VA benefit.

I was in a property i owed 215K on, and could sell for 295K. I bought for 229K, so i had appreciation and it would only rent for $2200 per month. When we moved, we wanted to buy a house around 300K, so i needed to free up my VA credit. Ultimately, i decided to sell, cash out the equity tax free, and buy the next house no money down. I used the cash to buy more investment properties, which yielded a better return than the original would have.

With the owners permission, can you "Jimmy" your way inside? i lost the keys to my workshop and was able to use old credit cards to get inside. Or maybe an unlocked window. other than than, you will have to get the owners permission and call a locksmith out. 

@Karl Butenhoff here is how i got to the expenses in my assumptions. Again, not to say this would be the same for you, just sharing the assumptions i made FYI

Taxes (given) = $1180

Insurance (given) = $312

Common area utilities (given)= $75, $200, $235

Contract services (common area cleaning, lawn care, etc) = $140/mo

Legal Fees (lease review, eviction filings) = $175/mo - this amortizes the cost of an eviction to a monthly expense

Property Management (9% of gross income) = $927/mo

Repairs/Maintenance (10% of gross income due to age of building) = $1030 - this also amortizes major CAPEX to a monthly expense

Admin/Marketing (1.5% of gross income) = $155/mo

Total monthly expenses = $4429

I made a few tweaks as i took a second look, and this  assumptions yielded 47% of current income. still right around that 50 mark.

Im curious if anyone, especially experienced operators, has feedback on these numbers. 

@Kendric Ng send me a PM and i will give you some

FYI, with interest only payments and same assumptions, im showing yearly cash flow as $24,251, or 12% COC return. Better from a cash flow standpoint, but with little appreciation, what is your long term exit strategy?

3.4% COC does not factor in if you come out of pocket for acquisition costs and reserves. with 6 months of reserves and acquisition costs of roughly $62,000, your COC is 1.56%.

if anyone sees it differently, please chime in.