Opening the Kimono: My Out-of-State REI Experience

275 Replies

Back in November (2014) I closed on my first REI property. A 'turnkey' duplex in Chicago. I went with a well-known turnkey provider and posted initial updates in this thread:

http://www.biggerpockets.com/forums/92/topics/1260...

There was a lot of interest and I had several BP folks approach me with questions and my experience with them, so I am dedicating this thread to my journey.  Categorized under 'Success Stories' because I'm optimistic like that :)

The property I purchased is a completely rehabbed duplex built in the early 1900s.  The purchase price was $165,000.  Unit 1 is a 2/1 and Unit 2 is a 3/1.  Closing costs were roughly $5000.  25% down and the rest financed at 4.625% (30 yr fixed).

Unit 1 was occupied within a week of closing.  Unit 2 was tenanted within 4 weeks. 

Details:

Unit 1 - Section 8 - $161 (tenant portion) - $915 (85% subsidized)

Unit 2 - Section 8 - $1001 (100% subsidized)

------------------------------------------------------------

$2077 Gross Monthly Rent

Costs Breakdown:

  • Mortgage Payment: $872 /mo, which includes: Property Taxes: $168 /mo (est); Insurance: $67 /mo; Principal + Interest
  • Management Fee (8%): $166 /mo
  • Landscaping: $80 /mo
  • Utilities: ??? - not sure yet as I haven't received a statement yet

Hi @Brie Schmidt  ,

Hmm...if we go old school and base my experience with this turnkey provider, I'd say a "solid B".  The two main complaints I have is the length it took to close on the deal (which they are working on) and communication.  We signed a purchase contract back in late July 2014 with an anticipated close in 2 months.  

The property management team does seem responsive to my emails and calls, which is very positive, but there have a been a couple instances where my emails are unanswered.

So far I've received the rents from November (Unit 1 partial month) and December (Unit 1 full, Unit 2 partial month).  January rents from Section were received.

Unit 1, which has a $161 tenant portion rent, just got assessed a $25 late fee :(  ... still waiting to see the $161+$25 show up.  Reading previous posts on Section 8 tenants, these smaller 'tenant responsible' rents are some of the toughest to collect.

Glad to hear it is going good so far. It seems like these section 8ers portion might be optional sort of speak. I have seen many evictions based on that smaller portion and I am not sure it is worth enforcement considering the down side of the whole vacancy and unoccupied property in section 8 land. IDK enough about the section 8 process and regs but I would not be looking to evict over $50 if that is what it comes too. This is what I have seen in the past and it seems like LLs would be better off just discounting in most cases.

Losing out on $116 a month represents 10% of your rent for that unit. I am not sure a good strategy is to write this off every month. This puts a dent in your returns for sure.

If this is the expectation with section 8 tenants, then you need to lower projections upfront.

Would like to hear other's experiences with this type of tenant base and how to mitigate these types of risk.

Michael, thanks for sharing your experience.

Thanks for your insights fellas @Joe Chin   @Matt R.  .

I just checked my account and the tenant has paid their portion on January 3rd.  Rent is considered late after the 5th of each month.  My assumption is that the amount was not entered into the PM software in time and the late fee was assessed automatically.   I'll check on this with the PM folks shortly. 

From other Section 8 landlords, it seems like late payments are common, but still paid (both what's due and the fee).  Section 8 folks have limited income obviously, and the vast majority do not want to lose their subsidy.   Maybe they just need a few extra days to tap into their off-shore accounts ;)

@Michael L.  

 We have section 8 tenants too. In NYS we can threaten and possible cause them to lose their section 8 for failing to pay their rent on time. It is a risk you take though if they lose it and you get no income then. We have had previous tenants lose their section 8 after moving and failing to pay their last couple months portion of rent prior to moving out.  

Jerry Padilla, Lender in NY (#NMLS 1084877)
585-204-6923

Glad its going well. Keep us posted. 

A small gift for me today.  My insurance guys called me and asked about the occupancy status of the duplex.  Since both units are occupied, so my premium is dropping about $60/yr.

Received my second rent check this past week.  Nothing major to report.  Got a repair bill for one of the units ($38 in labor and $26 for parts) to fix a door and vent.

Hopefully this doesn't become a recurring thing, but we'll see.

Damn...one of my tenants is delinquent on their portion of the rent.

I just saw that they were served a collections letter by management.  I'd hate to see someone get evicted,  but I'm glad the PM is on top of it and going about this professionally.  If it were me, I'd be too much of a softy and give more slack to my tenants. :/

@Larry Fried  ,

They did thankfully.  I emailed the PM to get some clarification on what happened, but my guess is that the payment input was delayed because the late fee was reversed.  I'll post an updated once I hear back from the PM.  This is the second time this has happened.

Quick update:  Paying taxes to IL is a pain.  For non-residents and first time filers with the state, no e-file :(

Next year should be better as they will accept e-file.  Hate that state tax...

Anyone else out there doing their own taxes?

unless this investment was located in Japan I feel deceived by the title of the post

Originally posted by @Steve B. :

unless this investment was located in Japan I feel deceived by the title of the post

sorry you feel that way...lol

TOP DEFINITION

open the kimono

A 1990's phrase that means that everyone should share data. There should be no secrets between those in the meeting. As in a Japanese wife showing her husband her naked body by opening her silk robe or kimono.

If we’re going to make any progress with this new standard, we’re going to make sure everyone agrees to open the kimono and not withhold any information.

http://www.urbandictionary.com/define.php?term=ope...

@Michael L

How is it going? Did the PM company access a penalty when they were not supposed? Did the tenants pay on time?

It's been about 5 months now and I have no major qualms.

One of the tenants seems to be habitually late with their payment portion, which seems to happen with a few other investors I've spoke to.  The rent is eventually collected, which is all I care about.  At a certain point the PM is supposed to ask the tenant to have their Section portion increased if they cannot make the payments (for income issues).

Also the provider/PM has their new site up which looks nice:

http://www.eliteinvest.com/faq/property-management...

Their FAQ is pretty spot on from what I've heard/seen.

Michael any update?

  1. @Michael L. Thanks for sharing your experience. I'm considering investing out of state and reading your experience is helpful. Please continue to provide updates.

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