All Forum Posts by: Scott Sewell

O.K. Joshua,

That's kinda what I thought. BTW, I'm also a carpenter turned landlord and I would have killed for a resource like BP when we started out. We've learned as much here in 14 months as we did in 6 years on our own.

Your personal cap rate has little application to the value of your property on the open market, whether for sale or for a refi. It's important that you know and track it as an indicator of your investment(s) quality and value to you personally, but doesn't translate to another investor.

What does is the Market Cap Rate.

My understanding of MCR is as follows: This number is (usually) an appraiser's best guess of what another investor would be willing to receive as his net ROI for a purchase in a certain area, under certain conditions. The newer/better maintained the property, the better the neighborhood, the lower the supposed risk, therefor the lower the MCR. And given a certain income stream, the more valuable the property. (again, this is my understanding)

$10,000(income) /.05 (mcr - new prop. in good area) = $200,000 in value $10,000(income) /.10 (mcr - old prop. in not so good area)=$100,000 in value

So, back to you're original post, I think you need to determine the MCR for this property first, so you have some idea of the value. And paying yourself (fair market) rent for a period of time (I believe) could establish this for another investor, or the bank.

Hey Joshua,

Don't have time to answer all your questions right now but I will soon. First, I'd like some more clarification. In your last post I'm wondering how you arrive at the "value" in each scenario. Can you expand on that? Is that where you're using the 10 cap you mentioned earlier? More later.

I'm assuming from your last post that the actual penetrations from your first post are probably plumbing vents, which don't require any kind of cap. These are just a place for the (sewer/water) drains to draw air. Think of a soda can upside down, open the top (now on the bottom) and the liquid kind of chugs and gurgles it's way out. Now, poke a hole in the bottom (now the top) of the can and the liquid flows out smooth and fast. Because these vents are part of a wet system, no protection from water is needed. However, the (outside) perimeter of these vents do need to be sealed well as a bad seal here allows water/moisture to infiltrate into the building envelope (insulation/framing/finishes).

As to the ventilation fans/ducts going nowhere, that's a concern. this means hot moist air in the house is NOT getting out - a contributor or genesis of mold and other problems.

Hope this helps!

Also @Joshua M.

@Joshua M.

@Joshua M.@Joshua M.

@Joshua M.

@Brandon Turner,

LOL! only if you can't fit those $100 jeans anymore! otherwise, not fat, tall? (and of copious knowledge) Are there any legal implications to this strategy Brandon? ie: is it OK? If so, what would be a proper way to do this?

As much for my edification as for @Joshua M.

Hi Jimmy,

There's a lot of questions to be asked here, and much more info needed. 30K in income sounds good - except when there's 31K in expenses!

Is this figure gross revenue? Net operating income? or net income?

"in good shape" is a little subjective, do you have a construction, inspection, or maintenance background? If not, you may want more opinions.

"not set up for rentals yet" is the least concerning to me. Many, many have learned by doing. But, making sure (as much as possible) you have a good deal BEFORE you pull the trigger is much more important.

If you could provide more info without giving anything away I'm sure you'll get lots of help here. Good Luck!

Hi Joshua,

We just re-fied a commercial (5+) multi we own, but its an investment not owner occupied (OO?). I would assume the bank/lender would want to see realized income, not potential. After all that's how investors buy property, right? But maybe we can get some of the big boys (@Brandon Turner) to chime in here.

With that said, is the property owned in your name? Or is it in an entity? The reason I ask is it occurs to me that a possible strategy to get over the hump could be to pay yourself (ie: the entity) rent at fair market value. Don't know about the legal/tax aspects of this but maybe others with more knowledge will help. And welcome to BP!

Martin, we do in fact a a very good verbal relationship with this (and all our other) tenant(s). (at least we think so) We call him our "anchor tenant", ie: he was there when we bought the property 6 years ago. He always pays AHEAD of time, is very low maintenance and as such, is worth the "discount" Justin mentioned. The flip side of that is, if he moved we could renovate his unit and easily get 40% more income for it, plus the added (forced) value because this is a commercial property (5+ units). So from a business standpoint, this was a no brainer.

We try to always follow Justin's advise as well:

"I always bring it up slow and steady. Give the tenants time to plan for it."

We hadn't raised his rent in two years and it was low to begin with.

The take away of this particular situation was that, although he didn't like his cost of living increase, he realized he was getting a better deal than he thought, and that we weren't QUITE AS MUCH the "greedy landlord".

Hi Martin,

I don't know what the "best" way is but, we prefer to do it formally (in writing) with a note in a sealed envelope attached to the door. The last time we did this, the tenant gave his notice, looked around at other units for a while and decided to stay. The reality is, to some extent or other, you'll always be the "greedy landlord". Might as well get used to it.

Hi Miranda,

We always do a "Life Safety" inspection every 3-4 months. The disclosed purpose is to check smoke alarms, CO detectors, fire extinguishers, etc. You might add furnace filters, or a quick boiler or AC check, etc. And we do all of these, replacing batteries and making notes of maintenance issues. But our primary reason (other than these items) for these inspections is to have a look around and get an idea of how each tenant is treating the property. We always give 24 hrs. notice (required by law here), but once we do we let them know we're inspecting whether they are there or not.

Hope this helps.