Starting Out as a Landlord of a 4-plex

[Jacob I Strauss]

Hey BP so I'm excited because it's looking like I'm going to be the proud owner of a 4-plex breaking my analysis paralysis buuuuuuut I could use some direction.

1. currently the water is paid by the land lord half the electric and gas also paid by the land lord as well as trash and sewer. Long story short the rents are heavily depressed and to be honest I am not sure how the current investor makes a profit so first order of business is to sub meter the property though I was curious to know whats the best way to go about this? Do I need a meter for the toilet and the sink if one unit is attached to the home? should I prioritize one utility over the other? Should I hire someone to install these or is this something I can DIY? Also any recommendations for meters would also be appreciated planning for wireless ones so I don't have to physically check the meter and it'll just send it to my email.

2. What systems worked best for you in terms of book keeping and automated pay collection? In my mind I know I need to track the bills for each tenant and I also need to collect rent as well as file any complaints or work orders for each unit any help here would be greatly appreciated.

3. Because these rents are so depressed I am pretty sure I will have to go the eviction route and I have accounted for this I mean here in Vista, CA a 1 BD 1BA is 1,500, they are going for 1,100 the main home 3 BD 2 BA should be around 3200-3500 currently 1,800 and hes paying most of the utilities. That aside I know whats required by law but what strategies work best for a peaceful move out?

4. What are musts in the screening process so I imagine Credit score has to be good the higher the better, income needs to be 50%-75% above rent, must provide a deposit "considering doing a non-refundable deposit instead of holding onto a deposit" Job/ income verification is it a steady job etc etc... what tools or services do you use to verify these aswell?

As always thank you BP community!!!

[Kevin Sobilo]

@Jacob I Strauss, with regard to your utilities I would first check your state's laws about submetering. I don't believe all areas allow you to submeter and to bill back a tenant.

1. Personally, I would try to avoid submetering. It adds a whole layer of complexity in calculating a bill to then bill back to the tenant and to collect. I would be more likely to factor the utilities right into the rent and keep their rent a flat monthly amount. However, I would have a sliding rent scale based on the number of occupants. So, your 3 bedroom rental might be $3k for 1 person and $100 per month for each additional person to account for the additional utility costs.

2. I use quickbooks and have a bookkeeper. There are products specifically for rentals, but I feel like using this approach will work best for me in the long run as I grow because its generic and I can get any bookkeeper to work for me.

I use apartments.com (formerly cozy.co) for rent collection via ACH transfer. It works fine, but their customer support has been less than stellar. I believe you can have tenants submit their maintenance requests through there as well, but I am not using that function yet.

In addition I set up a "profit first" cash management system with my bank accounts to help me manage day to day activity and to be able to pay myself without worrying I don't have everything budgeted for.

https://www.amazon.com/Profit-...

3. I can't help you much with your eviction process. However, I would consider the cost of the vacancy/turnover. The lost rent, the time and cost to prepare the unit for the next tenant isn't insignificant. It might make sense to get the rents closer to market rate and try to keep some of the existing tenants. Collecting $2800 instead of $3200 might actually make you MORE money.

Also, with market rent, keep in mind that market rent (in my opinion) isn't the most a similar rental is going for. I estimate 5% vacancy. So, for me market rent means I need to keep a tenant on average AT LEAST 2 years. If I price the rental high and tenants leave every 12 months, I'm really not at market rent and am making LESS money by charging too much.

4. Again, check the laws of your state about deposits and see what is common. There are some places where nonrefundable fees are the norm (don't call them deposits because they aren't returnable).

With regard to income, the rule of thumb is GROSS income (not net income) of 3x the rent. That is very similar to how a lender would underwrite someone for a mortgage. So, it really makes sense. Gross income is simpler to compare as well especially with self employed people.

Credit score is subjective. A good score is great and makes it easy, but in my area I have a lot of people who are under-banked and who use credit sparingly. So, their score often isn't a good reflection of them. So, I try to look further, ask questions, and keep that in mind.