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TOS: Being a landlord
Posted on 6/12/15 at 12:27 pm
Posted on 6/12/15 at 12:27 pm
The wife and I are considering buying a house that has 5 units. 3 one bedrooms and 2 other two bedroom units. I've seen the "rent roll" and 3 to 4 of them are usually full at all times. The avg annual rent collected over the last three years is roughly twice what my pay!ents would be. Obviously there are pop up costs when shite breaks.
Dawgrant landlords: what am I missing?
Dawgrant landlords: what am I missing?
7
Posted on 6/12/15 at 12:31 pm to retooc
quote:
what am I missing?
the shithead renters you have to deal with
Posted on 6/12/15 at 12:31 pm to retooc
If you make 100% more in rental income than mortgage expense you have to do it. It's a pain in the arse though. Can't tell you the # of times I've been on vacation, or trying to enjoy holiday family time, but end up negotiating AC repairs and replacement long-distance. It's a cosmic rule that $1000+ expenses only happen when you don't have time or $$ to deal with it.
Posted on 6/12/15 at 1:00 pm to retooc
My father used to own several rental properties in Athens, and unless you own around 30 properties and do it for a living, it's not worth it. My parents have received cease and desist letters from the DEA twice due to the kids they rented to (who all provided references and had their parents co-sign) thought they were little trap kings and were selling drugs (mainly pot, apparently) out of the house, so they were raided by the authorities. Generally speaking, the guys who would rent the house would not call at all over the course of a school year to report anything broken, but then they would roughly $5,000 in damages to be repaired. The girls would leave it in pretty decent shape but my father would get no less than 3 calls a week about "Omigod, like, something is broken!". So, it's a pain in the arse both ways.
Posted on 6/12/15 at 1:04 pm to retooc
quote:
The avg annual rent collected over the last three years is roughly twice what my pay!ents would be.
Are you looking at 30 yr or 15? I'd suggest 15 if you can swing it, and still make extra payments to the principal as often as I could. You won't really be making much until you aren't paying that note each month. I mean you'll still make some if it's double your note, but the unexpected expenses are what gets ya. I'd look at it more long term income vs now. Definitely $$$$ to be made long term though.
Posted on 6/12/15 at 1:08 pm to retooc
You have to wonder what type of people would be moving into a house that's split up into five different units. Can't imagine there's much sound-proofing between the walls or that the units provide much living space....
What happens when the family of mexican landscapers living in the two bedroom get pissed at the Indian in the one-bedroom for playing his sitar all night? Or if the art school student tenant gets murdered by one of them. Also, think of all the pubes these people are shedding all over the place all the time.
You're gonna constantly be dealing with tennant feuds......and sweeping up shitloads of pubes when they move out, retooc.
What happens when the family of mexican landscapers living in the two bedroom get pissed at the Indian in the one-bedroom for playing his sitar all night? Or if the art school student tenant gets murdered by one of them. Also, think of all the pubes these people are shedding all over the place all the time.
You're gonna constantly be dealing with tennant feuds......and sweeping up shitloads of pubes when they move out, retooc.
Posted on 6/12/15 at 1:14 pm to WorkinDawg
I've got a 1,300sqft house that rents for $925-975, but the mortgage is less than $250 a month. Got a heckuva deal on a short sale. 
It can be great, just be sure to thoroughly vet your tenants. Personally, I would disallow indoor animals.
It can be great, just be sure to thoroughly vet your tenants. Personally, I would disallow indoor animals.
Posted on 6/12/15 at 2:04 pm to Spunky
It's def a long term play. The house is in an area that could easily go commercial. Even if it remains residential the numbers seem to work so far. Who knows what my inspection will uncover though.
Posted on 6/12/15 at 2:08 pm to Jefferson Dawg
quote:
You have to wonder what type of people would be moving into a house that's split up into five different units.
The place stays rented but to who or what type of people I have no idea. I'm not sure I can legally ask. I know when buying a home there are some strict rules regarding discussing race. This may be different though since they are renters.
Posted on 6/12/15 at 2:24 pm to retooc
Get a property management company. You'll be much happier in the long run.
Posted on 6/12/15 at 2:25 pm to retooc
quote:
The place stays rented but to who or what type of people I have no idea. I'm not sure I can legally ask. I know when buying a home there are some strict rules regarding discussing race. This may be different though since they are renters.
If i buy a rental property Imma damn sure find out who's in it, what their rent is & what their payment history if I gotta take them with the property... If the Gov. says I'm not allowed to know this info till I close, I'm out...
This post was edited on 6/12/15 at 2:27 pm
Posted on 6/12/15 at 2:56 pm to Jefferson Dawg
People don't often enough think about the pubes when they jump into business ventures.
Posted on 6/12/15 at 3:30 pm to retooc
quote:
I'm not sure I can legally ask.
Check the rules on this. I have been told by a property management company that the Fair Housing Act doesn't apply to me because I only own one home and if I am renting it out on my own, I am expempt from so-called "discrimination".
CLICKY
quote:
What Housing Is Covered?
The Fair Housing Act covers most housing. In some circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family housing sold or rented without the use of a broker, and housing operated by organizations and private clubs that limit occupancy to members.
Posted on 6/12/15 at 3:54 pm to S1C EM
His has 5 units. So he not exempt.
5 units also exceeds Fannie/Freddie limits so he'll need some other finance type.
Couple of red flags on this one, i will elaborate later.
In the meantime, see what kind of cigarette butts are on the curb.
5 units also exceeds Fannie/Freddie limits so he'll need some other finance type.
Couple of red flags on this one, i will elaborate later.
In the meantime, see what kind of cigarette butts are on the curb.
Posted on 6/12/15 at 4:30 pm to deeprig9
We have a couple of condos we rent and it's turned out good. But our goal was to find something different to move some cash into. We're not trying to earn a living off of them but there's a pretty decent cash flow coming out of them now. A couple of things:
Get a real attorney to draft your documents. Also, we set up an LLC to run everything through. There's a difference between how the law really works and all the bullshite out on the Internet with people's opinions or what they heard from somebody else.
Don't stretch too far. If you don't have the bank to carry all expenses for a few months this is too big of a step out of the gate...but I'm conservative by nature.
Also, go ahead and get a good handyman ready unless you want to spend a bunch of time working on shite yourself.
Don't bank on capital appreciation...you make your money on the front end purchase price and your monthly margin...if values go up markedly then that's a bonus...but a lot can go wrong in 10-30 yrs.
That's all for now.
Get a real attorney to draft your documents. Also, we set up an LLC to run everything through. There's a difference between how the law really works and all the bullshite out on the Internet with people's opinions or what they heard from somebody else.
Don't stretch too far. If you don't have the bank to carry all expenses for a few months this is too big of a step out of the gate...but I'm conservative by nature.
Also, go ahead and get a good handyman ready unless you want to spend a bunch of time working on shite yourself.
Don't bank on capital appreciation...you make your money on the front end purchase price and your monthly margin...if values go up markedly then that's a bonus...but a lot can go wrong in 10-30 yrs.
That's all for now.
Posted on 6/12/15 at 4:36 pm to retooc
Also...I don't know who in the hell told you that you can't ask about tenants but I'm pretty sure that's horseshite. We bought a unit with a tenant in place and were told we could review their application and credit....and built our approval of them and the lease language into our offer. Now there weren't any race questions...but the shite that matters was in there.
This would be like buying a business and not being allowed to look at the books. As I said...get a real estate attorney. If you don't want to spend a few hundred bucks getting proper advice then you shouldn't be buying a rental to begin with IMO.
This would be like buying a business and not being allowed to look at the books. As I said...get a real estate attorney. If you don't want to spend a few hundred bucks getting proper advice then you shouldn't be buying a rental to begin with IMO.
This post was edited on 6/12/15 at 4:39 pm
Posted on 6/12/15 at 4:40 pm to SquatchDawg
quote:
Don't bank on capital appreciation...you make your money on the front end purchase price and your monthly margin...if values go up markedly then that's a bonus...but a lot can go wrong in 10-30 yrs.
Sound advice
Posted on 6/12/15 at 5:01 pm to retooc
Establish an LLC to protect your personal assets. Set aside 20% of monthly income for future major repairs. Find a plumber, handyman, and electrician you trust and pay them for a couple of minor jobs to establish a relationship. When you are out of town give the tenants names and phone numbers to call if something breaks. Before you buy talk to a good real estate attorney to help with the paperwork.
All in all. you will probably find this small a rental investment more trouble than it is worth. I had 6 quadriplex units in Norcross (near Jimmy Carter Blvd) for 10 years. When I saw the economy teetering in 2006 I sold them off just before half the construction industry (most renters) tanked.
All in all. you will probably find this small a rental investment more trouble than it is worth. I had 6 quadriplex units in Norcross (near Jimmy Carter Blvd) for 10 years. When I saw the economy teetering in 2006 I sold them off just before half the construction industry (most renters) tanked.
Posted on 6/12/15 at 7:34 pm to deeprig9
quote:
His has 5 units. So he not exempt.
5 units also exceeds Fannie/Freddie limits so he'll need some other finance type.
Couple of red flags on this one, i will elaborate later.
Yeah, I completely forgot to give thought to the 5 unit thing, though the information is still good to have if he's in the market to do this with any single-family properties.
As it is, I agree....LOTS of red flags flying on this one. Personally, I wouldn't want any part of it, but that's me.
Posted on 6/12/15 at 8:33 pm to retooc
#1- Get a 1007 Rent Schedule. This is done by a 3rd party so you arne't going off the good word of someone trying to sell you something. If the 1007 seems lower than what the seller has as his rent roll, go with the lower one. You'll need the 1007 for financing anyway. If you want to sound smart, ask for the "ten oh seven" not the "one zero zero seven" form. The appraiser will do this.
#2- You won't be able to get a traditional mortgage on this one. Too many units. You'll need to put alot more money down than you think, and may be required to offer other assets besides the subject property as collateral. The rate won't be as low, it will probably be adjustable. It may even have a balloon. The finance rep will tell you no problem, we refi before the balloon and you'll have more equity and we'll slide you into something sweet... it is a lie.
#3- The mortgage interest won't necessarily be a write off on your personal taxes like a normal mortgage would. It's still an expense that you can write off in your LLC, but LLC's have higher tax rates than personal taxes, generally speaking, so whatever benefit you might have thought you'd get from the mortgage interest deduction may not actually exist for you.
#4- As already suggested, set up a fund, start with $5000 up front, in a bank account, and that is your maintenance fund. Take 10% of your gross rent and put it in that fund, on top of the $5000 you start with. Don't get excited when that fund starts to approach $10k, I assure it's about to get cleaned out on something.
#5- A person offering to sell a property that is renting 2x what the mortgage would be on the selling price is hiding something. As a prospective buyer, you have to find out what it is. Just making up some ratio-accurate numbers, why would a guy making $2000/m in rent, right now, sell the property for $100,000? He's making $24,000 a year. He knows he's about to get eminent-domained or he knows he's coming up on another $100k he'll have to put in the place, because the roof/septic/pipes/hvac/water heater/appliances/security/fire alarm/fire suppression are all end-of-life.
Edit to Add- He could have some little $10k thing that needs to be done, but will require a permit to do. When you have to get a permit, and the inspector comes through, you will be required to bring everything up to code, even it it is 50 years old. There is no "grandfather" clause on most of that shite. That could be another reason they seller is practically walking away from it. He knows a $10k fix on something is going to cost him $100k in other upgrades to get his renewed certificate of occupancy.
There may also be liens on the property. Sellers don't have to disclose liens they don't know about, if you know what I mean.
First thing I would do is find a good friend who does real estate / title law and get an abstraction done. Second thing I would do is find a good friend who does appraisals in the area and get a 1007 done.
I wouldn't even schedule a full appraisal or property inspection until I walked the property myself. Take note of how old/shitty the appliances are. Find the breaker panels, open them, are the individual breakers labeled? How old do the hvac units look? Go on a hot day in the afternoon and see if they sound like bb's rattling around inside. Is the landscaping going to be a bitch? Is the place surrounded by kudzu? You may not give a shite about the landscaping, but the city/county does...
Thats all I got at the moment.
#2- You won't be able to get a traditional mortgage on this one. Too many units. You'll need to put alot more money down than you think, and may be required to offer other assets besides the subject property as collateral. The rate won't be as low, it will probably be adjustable. It may even have a balloon. The finance rep will tell you no problem, we refi before the balloon and you'll have more equity and we'll slide you into something sweet... it is a lie.
#3- The mortgage interest won't necessarily be a write off on your personal taxes like a normal mortgage would. It's still an expense that you can write off in your LLC, but LLC's have higher tax rates than personal taxes, generally speaking, so whatever benefit you might have thought you'd get from the mortgage interest deduction may not actually exist for you.
#4- As already suggested, set up a fund, start with $5000 up front, in a bank account, and that is your maintenance fund. Take 10% of your gross rent and put it in that fund, on top of the $5000 you start with. Don't get excited when that fund starts to approach $10k, I assure it's about to get cleaned out on something.
#5- A person offering to sell a property that is renting 2x what the mortgage would be on the selling price is hiding something. As a prospective buyer, you have to find out what it is. Just making up some ratio-accurate numbers, why would a guy making $2000/m in rent, right now, sell the property for $100,000? He's making $24,000 a year. He knows he's about to get eminent-domained or he knows he's coming up on another $100k he'll have to put in the place, because the roof/septic/pipes/hvac/water heater/appliances/security/fire alarm/fire suppression are all end-of-life.
Edit to Add- He could have some little $10k thing that needs to be done, but will require a permit to do. When you have to get a permit, and the inspector comes through, you will be required to bring everything up to code, even it it is 50 years old. There is no "grandfather" clause on most of that shite. That could be another reason they seller is practically walking away from it. He knows a $10k fix on something is going to cost him $100k in other upgrades to get his renewed certificate of occupancy.
There may also be liens on the property. Sellers don't have to disclose liens they don't know about, if you know what I mean.
First thing I would do is find a good friend who does real estate / title law and get an abstraction done. Second thing I would do is find a good friend who does appraisals in the area and get a 1007 done.
I wouldn't even schedule a full appraisal or property inspection until I walked the property myself. Take note of how old/shitty the appliances are. Find the breaker panels, open them, are the individual breakers labeled? How old do the hvac units look? Go on a hot day in the afternoon and see if they sound like bb's rattling around inside. Is the landscaping going to be a bitch? Is the place surrounded by kudzu? You may not give a shite about the landscaping, but the city/county does...
Thats all I got at the moment.
This post was edited on 6/12/15 at 8:40 pm
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