All Forum Posts by: Account Closed

Thank you thank you @Neal Collins!  I'm meeting with one of the tenants in an hour, so I don't have time to write a long response, but know that I've incorporated what you've said (and what @Mike Nuss said during our conversation today) into my approach and am updating my documents as I write this.  I'll let you know how it goes today (after the first to two conversations; the second one is tomorrow).  More later.

Thanks everyone for your thoughtful feedback.  

In Portland, landlords must give tenants 90 days' notice to ask them to leave or to increase rent more than 5% over 12 months--whether they've they've lived in the property one month or 10 years.  This law was enacted last November because of the mayor's "housing state of emergency."  Portland rents have increased 14% year over year (along with home prices in some neighborhoods) and many tenants are/were facing no-cause evictions from new owners planning to rehab and re-rent the units for 2 to 3 times their previous amounts.  

Vacancy rate is 3% and there is a lot of competition in the rental market.  Many lower-income folks have been pushed into neighborhoods farther away from the city center, where the rents are slightly lower.

This duplex is in a "close-in" part of the city in an up-and-coming-if-not-already-arrived neighborhood (Woodlawn for Portland peeps). Rent in this neighborhood is higher than average for the Portland/Vancouver/Beaverton/Gresham metro as a whole. The reason I chose to raise the rent to $1208 is because that's HUD's "fair market rent" for a 2br for the entire metro region. That's still at least $100 below market for this neighborhood, if the units are in decent shape.

Really, I don't expect these two families to stay at that rent amount, but because the rental market is so competitive here, I didn't want them to feel panicked that they would not have a place to live if they weren't able to find a cheaper rental in time.  This way, I'm not asking them to leave, but if they do choose to leave early, they will see free money in the form of an extra security deposit refund ($700 or $300 as outlined above).   

These folks are not unhip to the rental situation here and know they've been paying very low rent.  They knew that the previous owner was selling, and that would very likely result in a rent increase for them, at best.  @Gino Barbaro, to answer your question, if I lived in a home for 5 years without a rent increase, I'd consider myself very lucky.  And as soon as I heard that the landlord was selling, I'd pack my bags because the writing is on the wall.  Which brings me to ... 

... the conversation.  Rather than send in my partner under the guise of "just following orders," at the end of the day, I have to live with myself.  So for integrity's sake, I want to simply sit down with them and have a real conversation about their options, while offering as much support as I can from a business perspective.  I've put together a list of community resources to help them during the transition (rental assistance organizations, homeownership and down payment assistance programs, transitional housing, affordable apartment complexes, other cash assistance) so they'll know who to ask for help.  But when we sit down together and go over the new agreement and their options, I want it to be as painless for everyone as possible, if not exactly jovial.  I thought an "us vs the market" or "us vs the previous landlord who didn't maintain the property and then sold it out from under you" approach might be a good idea.  But I've never had this conversation before, so I was hoping you fine folks might have some other suggestions about what I might specifically say to make the meeting not terrible.  

Maybe it would help to get the perspective of some local experts?  @Neal Collins? @Mike Nuss? Just tried to tag Marcia Maynard but I guess we're not connected.  

I purchased a fixer duplex with tenants who pay $695/mo ea.  Market is $1300/mo. in that Portland neighborhood. Their rent hasn't been raised since they moved in in 2012, and the units are in varying states of disrepair.  

They're on month to month agreements.  

The rental agreement I drew up is also month to month, but it raises their rent to $1208 in 100 days.  I'm also offering them $700 if they choose to leave within 40 days, and $300 if they choose to leave within 70 days. Ideally, they would choose to leave sooner rather than later so I can fix the units and rent them at market.  But it's their choice.  

I have an appointment to sit down with the tenants (each separately) this weekend to go over the new 7 page lease and answer any questions they might have.  I realize there's no way to do this without being the bad guy, and I can't worry about them liking me.  AND, I'd like to do it as painlessly for everyone as possible.  

Have any of you had to have this discussion before, and if so, what worked/what didn't, and what did you learn from the process?  If you can recommend specific things I could say, or scripts even, to place the "blame" on the previous owner who decided to sell and/or the market, so it's not a "me vs tenant" interaction, I would really appreciate it.  

I bought the property with a partner, but I agreed to be the one to manage it.  We can play good cop bad cop if need be (I'm probably bad cop), but since I agreed to manage, I want to keep my agreement to him and leave him out of this if I can.  

Yeah @Joe Splitrockthe seller was an elderly lady who had owned the property for years.  Lots of deferred maintenance.  

@Melissa Gittensthe tenants have options, so if they choose to stay, they are choosing the higher rent in 100 days.  They are welcome to push back, but I'm not sure what that would accomplish.  The rent it would increase to, if they stay, is still below market.  

@Steve Moodygood eye.  I was messing around with my numbers and forgot to put them back to where they were before when I took the screenshot.  I'd been thinking about raising the roof and adding a third unit in there, so that's where the $1200 x 3 rents came from.  

Otherwise, that was just a snippet of the whole proforma.  It includes property management at 8% and maintenance etc. etc. but you don't see it in the snip I show here.  

As for CapEx, I included it on the front end. You'll see it at the top left at $70,000, which is added to the sales price ($222,414) to get the ARV. It's the ARV I based my calculations on because that's the value I plan to finance after 6 months.

The new link does not work on the app for Android. Not clickable.

Thanks for the warm fuzzies, everyone!  

@Kevin M.cash-out refi after 6 months. Numbers are based on the refi amount. My interim HELOC payment is interest only.

Thanks @Mike Nuss The duplex is in Woodlawn and was listed in MLS for exactly $250k. Brian (my partner/agent) has all the filters and alerts set up for me, so I get the emails when stuff comes on the market. We got our offer in on the day it was listed.

@Eric M.I don't have a total number of doors I'm looking for, but I'd be happy with $10k/month in passive income. That's property management and everything. I have no idea about any next rental because this one is going to take a lot of work. Actually, my next rental will probably be the basement conversion at my previous duplex, but that has been slow going. Need. Reliable. Contractors.

Thanks @Brent Coombs! COCR of course depends on cash invested--it's calculated for a refi at 25% down, but ideally I'd like to get around that 25% too. I probably should work on building my private investor network, which currently consists of my boyfriend and my brother . . .

I closed on my second rental property, another duplex, today.  It was a listed property, paid for in cash.  

This is also my first partnership, with my significant other and also RE agent. I paid 80% (from a LOC on my first duplex) and he paid 20% (from savings and stocks).

He doesn't have experience managing property but I do.  He didn't take a commission on the sale and I'm managing the property in exchange for his commission.  At least, for now.

It's a fixer.  Asking was $250k.  We submitted our cash offer for something like $222,218 (and no buyer agent commission) on the first day it was listed.  Seller countered for $243,750 (essentially the asking price because she's not paying a BAC).  We accepted because we hadn't been able to see the inside of the units and didn't know the condition, so it's kind of hard to negotiate until then.  

Once we walked through with our inspector, we realized it would need a lot more work than we originally thought.  We originally budgeted about $25k for rehab, but using J Scott's estimating rehab book, I came to a $65k rehab, and that's using investor-grade contractors and IKEA/Home Depot stuff.  

I itemized our initial expected costs and compared them, line by line, with what I expected the actual repairs to cost.  (I was conservative, from the seller's point of view, about the cost of repairs.  These estimates are not for a high-end remodel of any sort.).  Then I calculated the difference between initial expected costs and "actual repairs needed," which came to be $42,673.  We probably should have countered with our initial offer minus this difference, but I could tell my RE agent partner was really apprehensive about doing that (Portland is a hot market, and for a listed duplex in close-in NE Portland, $201k is pretty low . . . ) so I split the added repair costs in half on a line labeled, "buyer's share of unexpected costs."  This came out to a revised offer of $222,414, which was only $200 higher than our very first offer.  

While waiting for the seller to respond, I started to second-guess myself, thinking that I should have countered less. I told my partner, "I'm not inclined to pay any more for that property if the seller counters back."  In his more diplomatic way of communicating than mine, he let the listing agent know that this was our best offer when he presented the counter.

Then we waited.

Then the seller accepted the offer.

We have a lot of work to do, and I'm still crafting the new leases to be both equitable yet firm. The current tenants have been there since 2012 without a rent increase($695/month each for 2br/1ba units).  Meanwhile in Portland, rents have been going up 14% year over year in some neighborhoods. I have been studying new city ordinances to make sure that I follow the law; tenants now require 90 days' notice in the City of Portland to ask them to leave or to increase rent more than 5% over 12 months. Market rent for these units, after repairs, is probably around $1300 per unit.

I put together a long list of local resources for homeownership programs, rental assistance, transitional housing, and low-cost apartment complexes and plan to give them to the tenants tomorrow, along with a new lease to sign that raises rents to the HUD-listed fair market rent of $1208 by 6/1, along with a couple other options (so they have a sense of control in this process) that give them $700 if they want to move by 3/31 and $300 if they want to move by 4/30. This is by far the worst aspect of landlording. I hate pushing out families, but if it wasn't me, it would be someone else who probably wouldn't offer them free money or resources to do so. Sigh.

Here are some of my calculations from the proforma with rents at $1200 for each unit, accounting for repairs at $70k, and eventual refi debt service at 75% loan to after repair value and 4.5% IR.

Now comes the fun part!  My first partnership with my partner, and a whole lot of rehab goin' on!  

Advice/suggestions/kudos/constructive criticism/questions welcome.