COVID Considerations for New Buy and Hold: occupied or not?

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Oh my goodness - just re-read my post....(be careful with voice-to-text, lol). I meant "UNOCCUPIED," not "on occupied." What are your thoughts? What seems like a safer bet (occupied with good pay history or unoccupied to select high quality tenants) during pandemic? Also - forgot to mention the first market I even STARTED considering - the Cleveland, OH metro, and I've been in contact with Federico Gutierrez there. Okay - let me know what you think BP.

Matt Ziegler

Rental Property Investor · Colorado Springs, CO · Member since 2020 · 433 posts · 284 votes

6y

I have purchased a few duplexes with tenant in place, with mixed results. Based on that experience, I prefer to take the property vacant and then screen and place new folks. This way you can get market rents and be more confident that the tenants meet your established qualifications.

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Thank you @Matt Ziegler door your input and sharing your experience!

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

thanks for your response @Alex Uman! It’s great to hear that Philly is doing well. My family and I lived there for several years before moving to the West Coast, and I loved everything about it. Yep, everything. That’s one of the reasons I’m interested in that market. Most of what I see, however, looks to be for the serious flipper. Not that I am looking for some thing straight up turn key, i’m just not sure I’m ready to manage so much work from across the country.

Joe Freeman

Real Estate Consultant · Philadelphia, PA · Member since 2020 · 12 posts · 10 votes

6y

@Carolina Selva What I can share with you is the Philadelphia market is hot with investors right now. Occupied properties with tenants that have been long term and current on rents has been desirable, however as Matt Ziegler mentions these have typically seen slightly below market rents. I’ve seen landlords also screen for what type of occupation prospective tenants have to assess risk. These two options allow you to go in either direction.

Federico Gutierrez

Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes

6y

Chicago is too tenant friendly. You only asking for headaches and loss of profit.

Ujwal Velagapudi

Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes

6y

I have always been one to take the tenants on, but this is a different situation. Regardless, I would request all the documentation of the tenants during due diligence, ensure payment history, vet them as you would and then you can consider removing any prior to closing that you would not qualify based on their application. In this time you may also be able to get confirmation of employment again, as many have lost jobs, but not sure how that'd work exactly since they're already current tenants. If they are tenants you would've generally qualified, then might as well keep them and save the $$ and hassle of re-leasing. Also get an estoppel certificate from the tenants.

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Originally posted by @Joe Freeman:

@Carolina Selva What I can share with you is the Philadelphia market is hot with investors right now. Occupied properties with tenants that have been long term and current on rents has been desirable, however as Matt Ziegler mentions these have typically seen slightly below market rents. I’ve seen landlords also screen for what type of occupation prospective tenants have to assess risk. These two options allow you to go in either direction.

Thank you Joe for your input!! Yes, screen by occupation - right? That's a great idea. :o) In Philly I'm just having a hard time finding anything that doesn't need a whole lot of rehabbing and is already (or close to) cash-flowing. Granted, I'm just looking at the MLS, but I just love that darn city. When we lived there, the city had the gift property program, where rehabbers could pick up vacant properties for next to nothing. I'm sure this isn't happening anymore....too bad I wasn't an investor yet back then!

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Originally posted by @Federico Gutierrez:

Chicago is too tenant friendly. You only asking for headaches and loss of profit.

Yes, I am definitely hearing this. Also, the situation with the neighborhoods being so block-by-block. Seems like a super strong team would need to be in place. It interests me (quite frankly) because I'll be there in a few weeks to drop my son off at college. It seems like a super risky market for someone without a whole lot of experience. Is it weird that I want to invest somewhere I'd like to visit? That's part of the reason for my interest in Chicago, Philly and the capital region (Albany, Troy) but can sense some of the BP'ers will be rolling their eyes and shaking fingers at me in warning to not make emotional decisions. I'll take it! The Ohio markets do seem to be cash-flowing and accessible given my budget....and you've been so helpful Federico!

John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

6y

@Carolina Selva I am not sure what a realtor from a different state knows about the third largest MSA in the country... Chicago is huge, and Cook County has 5.1 million residents. There are plenty of areas that are not block by block. Not all of us are investing in tough neighborhoods! I have zero tenants behind today and have no evictions going on. I haven't evicted a tenant in several years, and the only evictions I have faced were inherited tenants. With the way some of these people talk about evictions you would think that they were common... they are not!

Joe Freeman

Real Estate Consultant · Philadelphia, PA · Member since 2020 · 12 posts · 10 votes

6y

@Carolina Selva there is plenty of inventory out there with cosmetic rehab and cash flowing. Over 90% of what I work with is off market so would be different than what you see on the MLS. Keep an eye out and if you need help let me know.

Francis Nguyen

Real Estate Consultant · Philadelphia, PA · Member since 2020 · 41 posts · 23 votes

6y

Hey @Carolina Selva it really comes down to preference. Either way like @Ujwal Velagapudi mentioned, it is extremely important to do your due diligence when screening tenants whether you are taking them on are trying to find new ones. I don't see how it would be a bad idea to take on tenants that were already in place, during uncertain times like we are currently experiencing. That way you are cash-flowing immediately and don't have to worry about vacancy rate. Of course, you would have to qualify them and check payment and employment history but you would be doing the same thing with a new tenant regardless. If it ain't broke, don't fix it!

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Originally posted by @John Warren:

@Carolina Selva I am not sure what a realtor from a different state knows about the third largest MSA in the country... Chicago is huge, and Cook County has 5.1 million residents. There are plenty of areas that are not block by block. Not all of us are investing in tough neighborhoods! I have zero tenants behind today and have no evictions going on. I haven't evicted a tenant in several years, and the only evictions I have faced were inherited tenants. With the way some of these people talk about evictions you would think that they were common... they are not!

Thank you so much for chiming in!! Obviously there are pros and cons. I lived in the Chicagoland area during middle school years and have fond memories. I'll be out there in a few weeks dropping my kid off at college. I had the idea of picking up a small SFR or condo that my son could live in and rent the other room/s to fellow college students. Since I'll be there anyway, perhaps I'll meet with some folks. Probably should start a new post for that, no? :o)

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Originally posted by @Ujwal Velagapudi:

I have always been one to take the tenants on, but this is a different situation. Regardless, I would request all the documentation of the tenants during due diligence, ensure payment history, vet them as you would and then you can consider removing any prior to closing that you would not qualify based on their application. In this time you may also be able to get confirmation of employment again, as many have lost jobs, but not sure how that'd work exactly since they're already current tenants. If they are tenants you would've generally qualified, then might as well keep them and save the $$ and hassle of re-leasing. Also get an estoppel certificate from the tenants.

Great points, thank you so much!

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Originally posted by @Joe Freeman:

@Carolina Selva there is plenty of inventory out there with cosmetic rehab and cash flowing. Over 90% of what I work with is off market so would be different than what you see on the MLS. Keep an eye out and if you need help let me know.

Good to know!! I'll message you Joe. :o)

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Originally posted by @Francis Nguyen:

Hey @Carolina Selva it really comes down to preference. Either way like @Ujwal Velagapudi mentioned, it is extremely important to do your due diligence when screening tenants whether you are taking them on are trying to find new ones. I don't see how it would be a bad idea to take on tenants that were already in place, during uncertain times like we are currently experiencing. That way you are cash-flowing immediately and don't have to worry about vacancy rate. Of course, you would have to qualify them and check payment and employment history but you would be doing the same thing with a new tenant regardless. If it ain't broke, don't fix it!

"If it ain't broke, don't fix it!" Love it, and the theme seems to be "it depends, but due diligence is king." Thanks Francis!

Joseph Konney

Real Estate Agent · Forest Park, IL · Member since 2014 · 255 posts · 141 votes

6y

If you're buying with depressed rents and looking to do some cosmetic updates and get market rate rents, there is a good chance that current and paying tenants will balk at the new rental price. For that reason, I'd go for an empty place or be prepared to hand out 30 day notices unless less you plan to update upon regular vacancies.

I've been through a number of evictions and regularly end up needing one after a new acquisition. It's part of the business. There is still a lot of artificial government support in terms of keeping businesses afloat and boosting unemployment pay. It's hard to say how stable the rental market will be after those programs fade.

Here in Chicago/Cook county, we can't yet evict for failure to pay rent. Hopefully by the end of next month we can.

You might not have as many tenant issues where there are strong demographics, but you will tend to have better cap rates on the weaker demographic areas. It's a risk/reward to consider. I strongly recommend MFR in any case. Typically, the bigger the better.

OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

Originally posted by @Joseph Konney:

If you're buying with depressed rents and looking to do some cosmetic updates and get market rate rents, there is a good chance that current and paying tenants will balk at the new rental price. For that reason, I'd go for an empty place or be prepared to hand out 30 day notices unless less you plan to update upon regular vacancies.

I've been through a number of evictions and regularly end up needing one after a new acquisition. It's part of the business. There is still a lot of artificial government support in terms of keeping businesses afloat and boosting unemployment pay. It's hard to say how stable the rental market will be after those programs fade.

Here in Chicago/Cook county, we can't yet evict for failure to pay rent. Hopefully by the end of next month we can.

You might not have as many tenant issues where there are strong demographics, but you will tend to have better cap rates on the weaker demographic areas. It's a risk/reward to consider. I strongly recommend MFR in any case. Typically, the bigger the better.

Thank you for your input Joseph!!

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Remington LymanBusiness Member

Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes

6y

Originally posted by @Carolina Selva:

Originally posted by @Federico Gutierrez:

Chicago is too tenant friendly. You only asking for headaches and loss of profit.

Yes, I am definitely hearing this. Also, the situation with the neighborhoods being so block-by-block. Seems like a super strong team would need to be in place. It interests me (quite frankly) because I'll be there in a few weeks to drop my son off at college. It seems like a super risky market for someone without a whole lot of experience. Is it weird that I want to invest somewhere I'd like to visit? That's part of the reason for my interest in Chicago, Philly and the capital region (Albany, Troy) but can sense some of the BP'ers will be rolling their eyes and shaking fingers at me in warning to not make emotional decisions. I'll take it! The Ohio markets do seem to be cash-flowing and accessible given my budget....and you've been so helpful Federico!

Cleveland has the highest cash flow (worst population growth), Cincinnati is in the middle, Columbus has the highest appreciation (best population growth)

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OP

Portland, OR · Member since 2017 · 41 posts · 23 votes

6y

@Remington Lyman thank you for those golden nuggets!!!