All Forum Posts by: Alvin Sylvain

Originally posted by @William W.:

I hire it out. A lot of tenants don’t necessarily want their landlord showing up every time the grass needs mowing. I mean put yourself in their shoes, would you want that?

 This brings to mind a completely off-topic strategy, that is, when you show up to mow the lawn, the tenant doesn't necessarily need to know you actually are the owner. Tell them you work for The Man, not that you are The Man.

A great advantage is that they may tell you important stuff they'd be too embarrassed to tell the landlord. And when they ask for something special, if the answer is "No", you can say, "Let me Ask the Boss, and I'll get back to you." Next week-end, "Sorry, the Boss said 'No', but I feel you, know what I mean?" You don't have to always be the "Bad Guy."

Of course this could backfire big-time if they ever learn the truth!

I would recommend getting accustomed to a good Deal Calculator. BP has one you can use, which I do not know whether it has restrictions. I've gotten to like the one at DealCheck.io, which (of course) also has an App. I think you get to save like 7 or 10 deals for free, but if you're only doing this part-time, you can always erase older deals.

Using a deal calculator is an education in itself. Before using DealCheck, I'd never thought to include Capital Expense in my calculations. You don't have to, but it's prudent to include a percentage of rental income as an "expense" that you save up for when, for example, the roof needs replacing. It's also prudent to include vacancy rate as an "expense", because if a tenant leaves, it'll likely be at least a month before you can rent that unit again.

There's also a section for flippers, altho I haven't used it since I'm not yet interested in that strategy. I'm sure it's also educational!

One point I want to make: you say your numbers don't agree with the agent or lender. Which numbers?

If you're coming up with different payments based on loan amount, interest rate, and term, somebody is screwed up, maybe you, maybe them (not likely them). Your numbers shouldn't differ from anybody else's numbers by more than a few pennies. (Don't forget, interest rates are annual, payments are monthly, so divide the rate by 12 and multiply the number of years by 12.)

If you're talking about Capitalization Rate, I have yet to calculate a CapRate that matches anybody else's. This is because different people take different expenses into account. I once matched a seller's CapRate (actually just came close) only after NOT including the ANY CapEx, Vacancy, Maintenance, Repairs or even Property Taxes. OK, I can see skipping CapEx and Vacancy -- but property taxes? What, property taxes suddenly aren't an expense?

If you're talking Cash Flow, same thing. Everybody has to agree on what's an "expense" vs. what's a "pre-expense" (CapEx, for example, is money you pay now against an uncertain future, and not everybody does that). How much maintenance exactly are we talking about? Maybe they're not including the gardener coz they expect you'll mow the lawn yourself (fat chance!)

Then there's what's called the "ProForma" numbers, or what they ought to be on paper, vs. the "Actual" numbers. It may be a great deal "ProForma", but then you check the "Actuals" to find out that 1 tenant hasn't paid rent in 4 months, and another tenant is constantly calling for one or another repair, and those expenses are adding up fast.

Also consider they might use last year's interest rates. Well, it won't do you any good if the deal only looks good at 3.5% interest, when the best your credit qualifies you for is 5.5%.

You can see how a seller might be motivated to "fudge the numbers" just a little bit to help make a sale. ALWAYS do your own calculations YOUR way. If you can't come up with anything similar to the agent or the seller, ask questions. If their answers don't make sense, maybe you need to look elsewhere.

Have you considered taking out a HELOC on the property for, say, $50K? I don't know what the rates are, but at 5% for 15 years, that's around $400 monthly, leaving $300 from rent to cover vacancy rate, capEx, insurance, taxes, maintenance, etc., and probably still cash flow. Then you've got 50% down for a similar property so you can do it all over again.

And you still have the $20K capital to figure out what to do with.

It may seem that you're lowering the cash flow -- instead of $700 from 1 property, you have $300 from 2, and that doesn't include the non-debt-service expenses -- but now you have 2 units that will likely appreciate, and 2 units where rent can be raised to follow the market, and your income only drops by half when a tenant decides to move out. A big problem with having only 1 unit is, when the tenant moves out, and that will happen eventually, suddenly you're stuck with 100% vacancy. That may not seem so big a deal, owning the place free and clear, but it's inevitable that you'll get used to having that income and come to rely on it.

Other alternatives, of course, include selling for $100K. At a 25% down, that means you can invest in a $400K multi-unit, and maybe make even more cash-flow. Or not, depending. And again, you still have the $20K as an emergency buffer. I understand HVAC units simply love self-destructing on new investors.

Work the numbers. There is no way to say "This is a Great Strategy" or "That is a Good Strategy" without crunching the numbers.

@Patrick Jenkins Renting means you don't need as large a down payment, and often your credit doesn't need to be as good. We've had about 3 tenants in our SFR over a period of about 12 to 15 years, rent from $1000 (crazy low for the market, but we were starting out and didn't know any better) to $1600 (still low for the market). In each case, the tenant saved up their money, cleaned up their credit, and eventualy bought their own house. One was making tons of money in their own business, but their credit was ... less than stellar. Once they cleaned up their credit, they were gone.

Originally posted by @John Thedford:

Get a good liability policy. That is your best protection. 

 I think you can also require the tenants to carry their own renters insurance. Some things that happen are unavoidable, or your fault, and your insurance should cover it. Some things are the tenant's fault, and it should be covered by their own insurance.

Of course, that won't protect you from tenant lawsuits, but it may remove certain motivations. For example, if they leave the bathtub running and the water ruins their record collection, their insurance ought to cover that. Without that insurance, they may decide to go after "Mr. Deep Pockets Landlord" and hope to get a settlement in lieu of going to court.

Speaking of foreclosures, check out HudHomeStore.com, the official website for HUD foreclosures.

The thing I like about HUD foreclosures is, they're safe. Bank foreclosures sometimes leave the eviction process to the highest bidder, and personally, I seriously do not want to have a conversation with the person who just lost their home. HUD foreclosures have already done that nasty business for you. Not to mention, this sometimes precludes your getting a good look at the place before deciding to bid. Get with an authorized agent, and you can inspect the HUD foreclosure to your heart's content.

The thing I DIS-like about HUD foreclosures is, there appears to be tons of competition. When my wife and I were trying to buy one, some 30 years ago, it seemed every bid we made was out-bid, usually for more than asking. We did a quick check just last year, and that seems to still be true.

But otherwise, it's a great place get a cheap house, and if you plan on moving in, you can get some killer rates! The FHA will subsidize your loan, you can get in for 3% down, and you can take out an additional 203K loan to rehab the place. Although, sometimes you might luck out and find a place that doesn't really need much work.

So if you move in, you can do the "BRRRR" or "House Hack" strategies. If you have the 20 or 25% down and just buy it strictly as an investment, you can fix it up and either flip it or rent it out. (Not sure, but I think you'd still qualify for the 203K rehab loan.) Either way, it's a good start for when you're "financially embarrassed"!

@Albert Brown Bottom line: keep a tight rein on spending. Kids want a vacation at the water park -- in Orlando? Tell them to run in the sprinklers in the back yard, like your old man used to do. Wife wants a new Louis Vitton purse? Tell her you'll draw a "LV" on a grocery bag for her. You see a beautiful new Porsche on the showroom floor? Put some STP in the gas tank of the old Buick, you'll go fast enough.

@Laura Williams What does your tax accountant tell you under the new tax laws? I remember back in day, particularly in California, when investors would regularly buy money-losing properties specifically for the appreciation and tax write-off against a high income. I do not know whether that's still feasable under current tax law.

@Alex R. Antique white everywhere. Matte finish. Gloss in the kitchen/bathrooms. It's the color typically sold by the big box hardware stores in 5 gallon drums. Rental units are NOT where you let out your Inner Rembrandt. Neutral neutral neutral. Let your long-term lease holders get creative if you don't mind three coats to cover it when they eventually leave. But cover it with some variation of antique white. Off-white with a small touch of yellow. White-white is too bright, the rooms will look like ice cubes. Most other colors will clash with something and displease somebody. Antique white has a warm, welcoming look, that nobody really loves or even notices, but nobody dislikes it or finds it distasteful. Nobody will whine that it clashes with their furniture.

@Josh Thomas This might actually be "normal" in a college town and the applicants are all students. Otherwise, I can't offer any advice.