All Forum Posts by: Dennis McNeely

I just turn the bad account(s) over to a collections attorney. He charges 1/3 of the amount he collects, plus any fees he incurs for court costs, serving the tenant, etc. He has 20 years to follow up and collect from them, and somehow that helps with the grieving process when I think about money lost on their tenancy :)
Bottom line to date: yes, I've been able to collect - but it takes time, and lots of it.

FWIW, zoning in many cities prohibits more than one unrelated adult in a single rental. If that's the case, they're waaay over the limit!

I would have gotten estoppel certificates prior to closing. Essentially they're a letter the seller puts together for each tenant stating the basics - whether they have a lease (and its termination date) or if they are month to month, what they pay each month and whether they're current on those payments, whether they have a security deposit (and if so, how much), whether they have a pet (and its breed, name, & age), whether they pay extra for that pet or have a pet deposit you'll have to refund, etc. The seller should get each tenant to sign their certificate. If there's a discrepancy between what the tenant says and what the seller certifies, it should be ironed out before closing.

You could be in an uncomfortable spot if they're expecting a sizeable refund for their security deposit or a pet deposit, and the seller didn't give you that money at closing.

If there are leases, the seller should have given you those as well when the property was transferred. You should also have been given copies of any rules that apply to their tenancy - even if they are month to month.

For future reference, bonus points if you got a move in inventory checklist for each tenant before closing so you're able to document damages they're responsible for when they move out.

However, it sounds like that ship has sailed. Sooo...

In Michigan, if they're late paying rent and unresponsive to your request for payment, I'd send them a 7 day notice to quit so they know you're the real deal. Moving forward, it's OK to be personable, but businesslike. Whether you have leases or month to month tenancy, the rules should be written out and acknowledged by each tenant. Beware of partial / late payments, of pets or smoking / vaping in units that don't allow them, etc. Enforce any late payment penalty.

The alternative is a slippery slope.

'Nuff said.

Bryce Muller posted a link to a site he made that addresses some of those issues at https://www.biggerpockets.com/forums/921/topics/1174578-migr...

Thoughts?

An excellent share Bryce - thanks much!

I'm afraid you'd have a tough time selling the damages to a judge if the tenant was to question a deduction to their security deposit. Any judge I'm aware of would consider the damage "normal wear and tear" - and may even question if you have proof that the tenant caused the damage.

Sadly it happens all the time. We'd just installed new carpet and found out a week or two later the tenant had spilled fingernail polish on it and left it to harden.

Welcome to the world of landlordary (??) <sigh>

If you own a piece of property in a municipality that has an established zoning ordinance, your uses of that property are limited to the uses envisioned at the time the ordinance was created. In other words, if your property is zoned for single family residential at a maximum of 2 units per acre, you probably won't be able to put a mid rise apartment building on it. The ordinance is generally designed to keep similar uses adjacent to one another, so low density single family residential is near higher density single family residential, which may be near land zoned for multi-family. Similarly, retail might be near the residential area (but on high traffic roads), and light / heavy industry is far from the residential - but close to freeways and rail infrastructure. The list of restrictions for each includes front, side, and rear yard setbacks, limits on the percentage of the lot that can be covered by the building, required parking, etc.
If you want to put a duplex in a single family area, you may be able to do so - but first you'll need to get the property rezoned to permit that use. There are other nuances to zoning law (special uses, non-conforming uses, etc.), but this is the gist of it.

I use the $/unit as an initial filter when looking at properties. If I know rents in the area will only support $85,000 per unit, I look no further. On the other hand, if a Class B multi-family property is in a Class B neighborhood and will support a purchase price of $125,000 per unit, I move on to the next hurdle. It's just a quick and dirty way to filter the search results that litter my desk!

Hmmm...

To calculate the interest earned by an investment of $25 per month at 5% interest per year where you make a year's worth of payments, you take the first payment and add one month's interest to it ($25 x 5% x 1/12). Next month, add that amount to the second month's payment ($25 x 5% x 1/12 + $50 x 5% x 1/12), and so on. In the end, you'll have some amount of money - your principal payments plus the interest they earned over the course of a year - a total of $306.97. 

The NPV is just the opposite. Let's say you're promised a single lump sum equal to that amount ($306.97) in one year's time in an IOU at 5% interest. Now you want to know what that IOU is worth today. A financial calculator would indicate it's worth $292.03. Stated differently, the IOU for $292.03 today is equivalent to the string of 12 monthly payments of $25 if both earn 5% interest for a year. That's its Net Present Value.

The IRR is just a way to run the IOU calculation backward. If you receive 12 monthly payments of $25 and in the end you have $306.97 in your pocket, what interest rate did you earn? That same financial calculator will indicate you killed it, earning 5% on that string of 12 payments.

Different investors swear by different criteria, whether it's IRR (and the closely related NPV), cash on cash, the debt coverage service ratio (DSCR), the CAP rate for a property, or some other metric. Find one you like and run with it, but become familiar with the lingo so you're able to converse with someone else that uses a different favorite flavor of investment criteria when they're evaluating deals.

Hopefully I didn't just muddy the waters - or make your head explode!

I'm not an attorney, so take this for what it's worth. Randy Hughes at https://www.landtrustsmadesimple.com/ (no affiliation) has information about the forming your own land trust. If you form a partnership LLC and put that in a land trust (and keep ownership interest of the land trust anonymous, together with its trustee), you've gone a long way to protecting the assets in the LLC. Obviously I've rounded the edges of the process and simplified it a fair amount, but you get the gist. Randy sells software and books to DIY. I've attended his seminars and was impressed enough to invest in learning how to make it all work.
Good luck with it!