All Forum Posts by: Carl Millsap

@Debasish Bhattacharjee consult your lawyer and local laws before implementing any of the suggestions below. 

1. Anything you expect should be in your lease. i.e. tenants can't attach anything to the building w/o written permission is a violation of the lease. 

2. Is renter's insurance a requirement of the lease? When you require renter's insurance, also require that you are listed as an additional insured on the policy. The insurance company will list you (your company) on the policy.  When the policy gets renewed or cancelled you'll automatically get a notification. 

If it's in the lease and they don't maintain it, it's a violation of the lease. The consequences should be spelled out.

3. If there is damage to the property caused by the tenant give them written notice to fix it, if they don't fix it deduct the repair cost from their deposit.

4. If the property isn't being maintained to your satisfaction when their lease is up provide them sufficient notice that you will not renew their lease. 

Consider, everyone's standard of maintenance isn't the same. You may want the garden maintained to a level as if you are living in the property. For the tenant maintaining the garden is simply ensuring weeds aren't growing in it and the grass is cut. 

Your lease should communicate your expectation. If it's not in writing it doesn't count.

Don't forget....talk to your lawyer, have them review your lease to ensure it complies with local and State laws.

@Leon Shirk we use Facebook Marketplace, and Apartments.com to find tenants.

We use https://www.rentapplication.ne... for our application and background check. Apartments.com also has an application and background check.

I imagine whatever brokerage you hold your license at has some recommendations. 

Good luck.

@Roger Haney is this a single family you'll be living in? 

1. Interest rate looks low for an investment property unless its owner occupied. 

2. Have you confirmed management fee at 4%? Do they charge a lease up fee etc? If so account for that in your numbers.

3. If this is a single family that you will be renting out then I'd increase the vacancy set aside. 

4. Renovate, tenant proof as much as you can before you rent it. This will lower your ongoing maintenance cost. 

@Tony Marcelle it depends on your situation.

1. Will paying off the debt change your debt to income ratio so you can purchase more properties?

2. Are you financially in a position that if an emergency came up you have money to handle it?

3. Do you have 6 -12 months of living expenses set aside? 

4. Can you cover the expenses of the investment (rental property) if the income from that investment isn't coming in because tenants aren't paying?

It's great that you're looking to use the stimulus to pay off debt and / or invest but I recommend you have a solid foundation first, build from there.  

@Stephanie Pineiro its great that your tenants want to take ownership and improve the place.

Pay for the carpet removal, flooring and installation by a professional if you're in favor of changing the flooring. This way you ensure it's done correct and looks good.

If our tenants want to paint a wall, we will allow it, but we put it in writing that they are responsible for returning the unit back to it original state prior to departure otherwise we will deduct their deposit.

Review your numbers. How long does it take to recoup your investment? How does it impact your cashflow?

Remember this is a business, you provide a service / product. Keep the roles / lines clear because if there is an issue later you don't want it clouded by your tenant paying for part of the floor or installing it.

A good relationship with tenants is great, but too many times a small disagreement can ruin all the goodwill you try to build. 

We've experienced it too many times, so please learn from our mistake. 

@Jordan Akins what is your goal? criteria?

1. If you want more SFR then owner financed deals would allow you to acquire more.

2. Multifamily will allow you to scale faster. 

When you buy multifamily your credit score is a small factor, and debt to income isn't considered.

The net operating income of the property determines the value. If the underwriting justifies the purchase price most banks will finance it because of the asset. You may have to sign a personal guarantee, but in some cases the loan could be non-recourse. 

@Meredith Mihm numbers look good. 

I'd increase vacancy to 10-15% to ensure numbers pencil out. With this current situation the chances for economic vacancy (someone living in the place but not paying) has increased.  Better to plan for worst case scenario.

Have you looked at the leases? How long has each tenant been in the property? How many, if any are behind on rent?

If possible, I'd bill the utilities back to each tenant or increase the rent to $600 per month since all utilities appear to be included. 

@April Adams not sure where the tenant referral company comes into the process but we use the following two companies for our screening:

1.https://www.rentapplication.ne...

2. apartments.com

@Erica Cauley our deposit is the same as rent. We collect first month and security deposit.

1. It will cover some expenses if the tenant damages the property or has an outstanding balance.

2. It separates the tenant pool. Some people don't want to pay a deposit, or want a low upfront (move-in) cost. It's important that you set your criteria, and enforce it. 

Occasionally we will set-up a payment plan for the deposit if a prospective tenant application is strong otherwise. The payment plan is in writing and part of the lease. If they don't follow it we will terminate the lease for non-payment. Again, can't stress enough how important it is to follow through with what you agree on.

3. Don't worry about what the market is doing. Set your deposit to cover some of your expenses if the tenant doesn't perform per the lease. 

Our rents are typically higher than what the neighboring properties are charging. Our units also don't look like those units, so we don't set our rent or deposit based on the market.

@Erica L. there are a couple things we've done, and I recommend when you assume tenants.

1. As soon as you close deliver a notification w/ a tenant information form. 

    a. Ask if they have any outstanding maintenance items.

    b. Let the know how and where they can pay rent.

2. For the month to month tenant, if you want them to sign your lease give them 30-45 days to review and sign it along with the option to move if they don't want to sign a lease w/ you.

3. For the tenant w/ an ongoing lease in my experience you have to honor it until it expires. But as the end of that lease draws near, repeat step 2 with this tenant.

4. If you know rents are low, but the investment is worth it I wouldn't walk away from the deal because of the tenants....unless you don't have the cash on hand to cover expenses in case the tenants don't pay. 

The possibility of a tenant not paying is always a risk, and since you're inheriting these tenants you can't control / reduce that risk. Develop your screening criteria, and enforce it.

As Tom S. said check your local and State laws to ensure you are compliant.