All Forum Posts by: Robert Steele

Thanks for the input guys.

Oswin I will be getting a title policy so any liens will show up when they do the title search.

So the numbers look good (I assume you guys think $100K is not u nreleastic to finish out a 2000+ sq.ft. house) but what I am still concerned about is outside the realm of numbers. What that is I am not exactly sure. It just seems like a lot to bite off. I guess I am looking for someone experienced at doing this like J Scott to tell me to not be a scaredy cat and take the bull by the horns ;)

I didn't mean you personally Bryan. I ment that is what we have to protect ourselves against. As you point out inflation will in effect pay down your mortgage for you as you pay it back over time with depreciated dollars.

Yes. The HML will provide the rehab budget. I just have to put down 15% of the entire project cost at closing. Total investment is around $34K or so from memory.

"Take it down" means take it off the market by getting it under contract? Learning new lingo everyday.

We don't need no stink'n hyperinflation!

Simple 4% inflation compounded over 10 years will cut your wealth in half. :)

Have a nice day.

A place just came on the market 2 days ago. It is owned by FannieMae and has been vacant for a year. The previous owner started a rehab job. It looks like they got as far as completely gutting it. There are interior wall studs. The outside siding is slightly cracked, splitting and rotten in some place. The brick work is good. No foundation issues. Roof may be suspect. So on to the numbers.

This house is in a highly desirable neighborhood north of Dallas. The bank is asking $110K. My realtor comps ARV at $305K. I have plenty of capital but will probably use my hard money lender who I have worked with in the past. I am sure he will back me on this project. But I don't have time. I need to get an offer in and then talk to my experts.

So here's the problem; I have only done a half dozen rehabs over the past decade. Probably a dozen if you count cosmetic only rehabs. I have even done two mold rehabs. I plan to use a GC to do the whole job on this one instead of piecemeal. But the gutted house is scaring me. Should I take that as a good sign? Do I need to step out of my comfort zone? I am figuring about $100K to rehab the place and bring it up to the executive home standard of the neighborhood (granite, hardwoods, non-builder grade stuff).

So given my experience and the numbers on this deal would you take it or walk away?

I know what you mean Bill but don't feel bad about others buying $40K houses and renting them for $1K. They are probably in undesirable areas, will never appreciate in value, always need repairs, take forever to rent and involve pulling teeth to collect the rent.

I have bought the majority of my deals from the MLS. Like Mark said; if you know your stuff and can move quickly good deals can be had. Other times it is a matter of patience. I finally got a property a few months ago after putting in three offers and being out bid each time. The buyers financing would fall through, it would come back on the market, I put in an offer, they accept another offer, buyers financing falls through ... It was quite humerous.

Agreed. The last HUD I picked up said the same thing on their inspection report. My inspector could not find anything wrong because there was nothing wrong with the plumbing. The house has been rented out now for 3 years with no issues.

Sure they will negotiate. Everything is negotiable.

But they are unlikely to give you a concession just because you found something wrong with the property. Sometimes they do if its a small amount.

Unfortunately on bigger issues it is hard to use any inspection report as leverage. The bank doesn't know what is wrong with the property and they don't want to know. If you try to send them your inspection report they won't even look at it. I think this is because they don't need to disclose what they don't know and they don't want to be liable. Also, they most always clearly state property is sold as is.

You have no obligation. There was no lease signed. Verbal contracts are only worth the paper they are written on.

If you are at all like most landlords, you dislike rent raises for fear of vacancies.

To have the desired effect, raising rents requires a policy as carefully outlined as your rent collection policy, one calculated to minimize tenant dissatisfaction and resentment. Rent raises under this policy should occasion neither a mass revolt nor a mass exodus of your tenants because they should come to understand that your rent raises are fair and, therefore, acceptable.

This policy should involve six elements - careful preparation, proper timing, extended lead time, reasonable increments, amicable notices, and personal contact.

Careful preparation for rent raises consists of much more than merely preparing the notices to change terms of tenancy. Prepare by keeping up with your bookkeeping every month so you know how much your expenses are and how high you need to raise the rents in order to operate profitably.

The best time to deliver the rent increase notice is right after tenants have paid their rent, when the have put rent out of their minds for another month and it's no longer a matter of immediate concern.

Normally any changes in terms of tenancy, including rent increases, require a lead time equal to the rental period. This isn't enough lead time for rent increase notices. I recommend doubling the lead time for rent increase notices. Here's why.

Upon receiving a thirty-day notice that their rent is going up, some tenants have a knee-jerk reaction and immediately give notice that they're going to move. They know that they're supposed to give you 30 days notice, and they feel that they have to register a quick protest to your notice. Your notice is a threat to them, and they feel certain that they can find a better place to live for less. Even when the discover that they can't, they may feel to proud to cancel their intention to move.

Your tenants will appreciate a 60 day notice. They will feel far less threatened when you give them time to consider their alternatives.

You should know what rents are reasonable for your rentals and you will also then know how much the raise should be. because your final figure will usually be the result of numerous compromises you may want to select and increment which is psychologically more acceptable to your tenants. The more acceptable numbers are those which are not multiples of 5. $12, for example, is better than $10, and $18 is better than $15. Such figures lead tenants to believe that their increases have been carefully calculated to match actual increases in operation expenses rather than to include still more arbitrary profit for the owner, round up, of course, to the nearest $5.

You are taking a calculated risk of creating vacancies with any rent increase you give, but that risk increases somewhat if the rent increase exceeds the consumer price index. If you have timidly lagged behind the marketplace and you now have to raise your rents much higher, you may want to do so even knowing full well that some tenants are going to vacate. Wish them well, and then don't get yourself into the same bind again. Raise your rents on an annual basis from then on.

You should announce your raises officially in writing using honest, sympathetic notices. The notice should soften the blow with some reasons for the raise and an expression of your personal concern about the possible hardships the increase might cause.

Use of a cold impersonal legal notice like the Notice of Change in Terms of Tenancy if you wantm but add to it your own personal message. Mention the tenant by first name in a handwritten aside and apologize for the increase, saying that you are trying to maintain the tenant's dwelling as best you can, but it is impossible to do so unless you raise rents.

Or you might want to prepare your own complete notice using personal wording like this - As you know, we are living in inflationary times, and even though I do my best to keep costs down, there's no way I can reduce the expenses of this building back to what they were a year ago. I have absorbed these increases as long as I could, but now I am forced to increase you rent by $___, or ___% from $____ per month to $____ per month, effective ____, 20__.

You may deliver a rent increase in person or by mail, but personal delivery is preferable because it provides an opportunity to discuss the reasons the the increase with your tenants on a personal level.

http://www.amazon.com/Landlording-Handymanual-Scrupulous-Landladies-Themselves/dp/0932956300