All Forum Posts by: Chris B.

Its the snowball effect for me.  Whenever I moved in the past, I bought a new home and rented out the old one.  It was a decade long process for me.  Now after that time, I've acquired a decent amount of equity across multiple properties and utilized cash out refinances and have the ability to purchase a property with cash should I want to.  HELOCs are a similar option for some.

I think one important aspect is being missed here. A large tree is certainly capable of destroying a house if it falls on the home. Generally if a healthy and well maintained tree falls over, it’s not considered the fault of the property owner and any loss is the responsibility of the person who suffered the loss and their insurance. However if the tree is not properly maintained or is unhealthy, and it falls over and destroys a house, the land owner of where the tree was is completely responsible for paying for all damages. Your neighbor may be annoying and bothersome. You can deal with that. However, the neighbor is probably also taking pictures and documenting every transaction and conversation building up a case indicating problems with the tree should it ever fall over and cause damage. Don’t let your neighbor or neighbor’s agent onto your property. I suggest you have a certified professional provide something in writing that the trees are safe, healthy, and well maintained for your proof should something happen. And if it’s not safe, do what it takes to make it so. And having an arborist take a look and tell you it’s safe isn’t sufficient. Get it in writing as an official assessment. Treat this appropriately now so that should there be a problem, you are legally ready.

If part of the tree overhangs someone else's property, and the part falls and damages a truck there are two options.  If it was a healthy tree, you should have engaged the owner before the issue and expressed the concern and documented it.  If the tree was unhealthy or poorly maintained, you may still have a case after the fact to seek compensation assuming not too much time has passed.

It’s good that you’re asking questions and trying to understand this. It sounds like you are asking if you should purchase a home if your W2 is not sufficient alone to cover the mortgage. The answer is more complex than a yes or no based off your W2. The majority of American families don’t have more than a W2 for income. So for them it is a major factor and the simple answer is no, they should not make the purchase. W2 income only becomes somewhat less important as other steady income comes into play that can be considered. If this is your first property and you want to rent half of it out, that’s great. However a bank will see this as your first house and you have no experience renting and have no history of rental income so there is nothing to consider other than the W2 income. Income isn’t the only major factor. Your debt to income ratio, credit score, cash assets available and more are also considered. If you had 3 properties (and lived in 1 of them) and wanted to purchase a 4the property, then yes, along with all of the other factors, a bank would consider rental income. They would be interested in your current rental income and apply 75% of it to your counted income. In the end, your overall income, credit score, backup assets, down payment, debt to income level and much more are all still considered before you can get a loan. After 4 properties, adding additional rental properties gets even more challenging as the emergency reserves requirement increases. There are other types of loans that are based on the equity of the property and you need to put down maybe 30% so the lender isn't at risk as much and these may have higher interest rates but less restrictions.

Back to your question… I don’t think in general it is a good idea for someone with no experience to obtain a mortgage that is more than their W2. Can they pull it off? Sure it’s possible to pull it off and succeed nicely. I’m speculating it’s not likely though. If you don’t have decent emergency funds, what will you do when you are laid off from your W2 or have a major medical problem that is both expensive and takes you out of work. The bank does consider and factor in these possibilities. You should also.

In the end, you have to take some risk to make money.  Just be smart about your choices.

I think some people here may have misunderstood some of the OP's information... or maybe I am :) It sounds like a repair guy came out and replaced 2 pounds of refrigerant. It could have been R22, but I suspect it was R410 as the AC is only 5 years old and R410 isn't nearly as expensive as R22. Installing a R22 system just 5 years ago would be malpractice in my opinion with it being banned. This top off of the refrigerant probably cost $250 or so. Then the OP stated it would cost $1500 for a repair. I suspect it was implied this would be the cost if a major component needed to be replaced. If it’s a simple hose leak at a solder joint, that would be repetitively easy for a tech to identify and fix. $1500 to replace an evaporator isn't bad given the industry. I had a Lennox evaporator coil fail in under 3 years on a new unit. Very disappointing. Lennox supplied the parts at no charge but I had to pay for labor and refrigerant. It was about $1500 many years ago.

Assuming you know no history on the unit as you just acquired the property, I would wait and see how long it takes for the leak to cause another issue. Maybe it’s a very slow leak and you won't need to touch it for another 3 years. Even if you do need to touch it, its maybe $250 a pop for a refill. If you do need to refill it within a year or to, have the technician also diagnose the leak. If it’s a simple fix, they can resolve your issue right then and there. If it’s an evaporator or condenser, it will be a more expensive fix, but still a fix none the less. I'd rather pay $2k to properly fix a 5 year old AC than pay double or triple that for a new system. Just make sure you have time before the warranty expires. If it expires soon, get the leak traced before it’s too late.

Also, most people don't seem to know this, but when an AC dies of old age, the AC needs to be replaced. Not the entire unit. Here in AZ, the AC and heater are usually in one package. I had an AC die and got 4 estimates. They ranged from $7200 to $9500. Then I got a 5th estimate from a local guy. He took a look and saw the blower fan was fine and the heater was also fine. Only the AC part was bad. He charged me $4200 to completely replace the AC. So, my lesson was don't fall for a slick sales guy selling you a whole package. Only get the AC replaced if that is all that is bad.

If you are getting a traditional primary home mortgage for this, I suspect the bank will make sure you can afford the property before they offer you a loan. The debt to income ratio is too high in your example and the bank won't like that.  Also, it is not in your best interest to take a loan you can't afford to repay.  If this is your only home, and you don't have experience as a landlord and know the business, that is extra reason not to do this.  With that said, if you can pull this off, you certainly will be leveraging your assets well.  There's just excessive risk here.

My required security deposit is slightly more than 1 month’s rent. I require that at signing or there will be no signing. I require the 1st month’s rent before I hand over the keys. If I don’t receive the 1st month’s rent on time, the applicant forfeits the security deposit and I start over. In my early days, I’ve accepted a very small security deposit and the applicant found something else she liked better and never notified me or followed through with my property leaving me in with no renter and none on deck when the day came. Learning lesson. In your case, if the applicant has 4.2X rent in income, it’s unlikely there is a decent excuse to not have the deposit on hand. At the rental rates for your property, I’d be extra careful. It sounds like a tenant’s money management issue. I understand 690 credit may qualify, but it is far from being considered good credit.  Here in AZ, a landlord doesn't have to return the deposit until 14 days after the move out.  Are you willing to have someone move in with zero deposit?  Not a good choice.

The terms of your agreement state how it can be canceled.  You will need to refer to that.  You may have backed yourself into an uncomfortable position.  Look for a CA Realtor contract and use that one.  They are fairly bulletproof.

I would definitely want to read the rental contract and look at the payment history and deposit before I agreed on a purchase price. As stated, there is a very good chance the situation is sub-par. I would still move forward with the deal, but account for in my offer any likely lost income due to sub-market rents, likelihood of Covid non-payment, etc...

I haven’t read Brandon’s article, but I suspect it is solid. I’ve developed my process over 12 years of being a small time landlord. We all need to be concerned with a fair process that still achieves our goals of finding a good tenant. It’s a legal requirement as well as a moral goal. It doesn’t have to be a balancing act if you define it clearly.

I have created a flowchart in Visio that is easy to follow and I view it to be completely neutral. It helps me through each step in the process and defines exactly what my decision options are based on my criteria. Here are some ideas to consider but keep in mind that a process that works for me may not be ideal for someone else and these items are not directly from my flowchart, but ideas to consider.

Process flow:

1. Prospective tenant inquires about the property and asks questions. Usually via email, a call, or some online service such as Zillow.
2. Answer any questions the tenant has about the property and their situation. Be direct and if they have a situation that doesn’t qualify, let them know up front.
3. If still interested, propose one or more viewing time options. I no longer make appointments to show my property due to a high percentage of no shows. I now make viewing windows lasting 2 or 3 hours in which anyone interested may show up to take a look. Adapt to accommodate number and likelihood of people showing up. If I have 5 families interested, I’ll create a 3 hour window. If I only have 1 or two interested, I’ll create a smaller window. I always create showings in the evening after work or weekends. I have found it unnecessary to take time off from my normal job to show a rental mid-day.
4. Greet the prospective tenant when they arrive. Get to know them. Ask questions that are directly related to screening criteria and if it appears there may be a data point that doesn’t meet my requirements, then clarify it right now. I always offer applications to all viewers if they are interested at viewing or offer to email them a PDF of it. I also take notes on what I see and hear. Examples of recent observations: I have a no smoking policy and the viewer greets me smelling like they just smoked a case of cigarettes or I notice a family talking by the car after a viewing and I see them pull out cigarettes and start smoking. As you can guess, I frown on smoking on my renal property. Other observations include a family with kids and the parents let the kids run around the house slamming doors, yelling, hands on the walls everywhere, and so on. This indicates to me that these children are not under a level of control I deem acceptable. I have no problems with kids in themselves and most of the families I have rented to do have kids. Also, if you notice things in conversation that bothers you, take note as this might not be a good match.
5. Get applications back. Many will never fill out the applications but hopefully some will. I review them as they come in. If they don’t meet my qualifications, I let them know. If they meet my minimum requirements, but are not a great fit, I may sit on the application a few days and then make a decision. If they fit perfectly, move forward as fast as possible but don’t skip steps.
6. Criteria: Determine a minimum credit score. Say 620. Determine minimum income. Say 3 X rent. Determine other financial requirements such as defining what you consider to be a sufficient income history, work history, and acceptable income sources. Determine the minimum bank reserves acceptable (must be consistent over the past 2 months). Determine your pet policy. Maybe one pet under 20 pounds. Add what other criteria you like. Definitely look for evictions, judgements, and other criminal and civil issues. Learn what is considered illegal discrimination and make sure to steer clear of that
7. Once I find an applicant I would like to move forward with, I use my background check service to send them an email link where all adults 18 and over must fill out an online form and pay the $40 service fee. I last used a TransUnion service and I was happy with the results.
8. Verify the information on the report. If there are substantial discrepancies that will disqualify the tenant, I usually let the tenant know that their background check revealed issues. I don’t specify what the issues found were and any applicant in this situation will either know you found their secret or they will be truly surprised. In one case, a background check I received was apparently inaccurate. I asked the applicant additional questions and also called the landlord about an eviction that showed up and discovered my applicant had the same name, but was not the same person. This applicant went on to be a great tenant. I have also had applicants try to play down the findings. In one such case I allowed him to move in and he ended up being a nightmare for me.
9. Throughout the process be clear on all fees, deposits, and rent. I collect all fees and deposits at time of contract signing and first month’s rent is due before I hand over the keys.

Any of these types of restrictions on landlords are ultimately only going to make it more difficult for tenants to find affordable housing. Unfortunately politicians look for votes regardless of what is best for society and morally correct. If I as a landlord face the possibility of this nonsense and maybe half a year’s rent loss and a huge headache, I'm going to stiffen my rental requirements. Maybe I'll lower my rent rate a little and require credit scores of 700+. Meanwhile landlords who do rent to those with lower credit will be forced to raise rent to account for increased risk in a manner similar to what an insurance company would do. If for some reason I find the industry not profitable enough for the effort, I’ll move my investments elsewhere.  

Ultimately it is politicians and the court system at the direction of the unthinking public that will cause their own headaches; and blame them on greedy landlords.

Most online services that act as middlemen on transactions that connect havers with wanters have flaws that generally favor the buyer unfortunately. The service is aware of the issue, but feels it is not abused enough for them to be concerned and as long as they keep their buyers happy, the service will grow. eBay has many such problems as well. Buyers can simply falsely claim anything received is damaged and can get free returns and a 100% refund even if they damage the item themselves or of there is nothing wrong with it. Now I have to take multiple pictures of everything I sell with the shipping label and pictures of the product getting boxed for each thing I sell. Their policies have made using their service as a seller less attractive. As a seller I need to decide with any such service if there is still enough value in it to continue using it and likely the answer is still yes.

In the next similar situation you are mentioning, I would recommend sticking by the original agreement as much as feasible. In your example, collect the 50% owed. Let the customer know that if they book with you again as promised, you will then refund the 50% you collected minus your fees with a personal check at the end of their next stay. This loophole likely has become widely known and your next customer may very well be looking to abuse the system again. Who knows for sure? I think this kind of an offer will let you know as anyone truly interested in the deal has only the prospect of getting a good refund while the scammer will not like it.

Best wishes with this!