All Forum Posts by: David Moore

@Jackie Sladky

I really hope your investment does well.  Having purchased a four plex myself recently, I will say there are some challenges.  If you closed, I'd love to hear more details about how you turned  the tenants.  I do find investors are a little too quick to offer cash or other stuff to get a tenant out.  If they are month to month, the AG site in Minnesota essentially says you need to give them a 30 day notice to vacate.  You can tell them you are updating the unit, and they can apply again after the update.   Most won't, but if you give them a reasonable explanation, they may go along, and you don't have to offer then incentives.  

Thanks everyone for the insight.  All comments were great.  @Don Konipol, I think you really hit it on the head.  I think note investing is quite labor intensive.  It is not for everyone.  Oh, BTW, risk is definitely mitigated with knowledge.

@Tim Mellor

There are a couple of numbers you left out.  What are the property taxes on the property, and what is your insurance cost.  What are the market rents for similar sized units, and are there garages?  I think it is best to assume the worst case scenario.  Let's say current rent is $1800.00 per unit.  Gross revenue, then is $3600.00.  Take away $700.00 in utilitiies, and your actual cost of the mortgage, which is $1951 (385K, 30 year am, 4.5% interest rage (I assume you use existing equity to come up with that 25% down).  Now you are at $949.00 monthly cash flow before property taxes and insurance.  Let's say those two equal $400.00 a month.  Your cash flow is now at $549.00 monthly, and that is before capex, vacancy, and repairs/maintenance.  If you use the same calculator as BP, Vacancy and Repairs are at least 5% each.  The two combined makes $360.00 per month.  Now your cash flow is down to $189.00.  

Now, there is a way to sweeten this deal.  Negotiate with the seller to carry a 2nd mortage on the 25%, at 0%, or .25%, some very small number, with a 10 year baloon, or 5 year baloon.  Now your cash flow improves to $480.00.  You can do worse than $480.00

I personally would pass on the deal.  If I expend $385K in cash, I would want over $1,000.00 minimum in cash flow.

@Sean Connolly

I advise highly against offering them any money at all.   The best solution is to go to your good tenant, and tell them you need one of the one bedroom units.  You then offer them first the opportunity to rent the 3 bedroom apartment.   Tell them you've renovated it, and don't need the space.  I have found tenants are actually pretty reasonable if you just build rapport with them.    One of them might have a good friend who will want the place with them, or they may have been making due.  Regardless, you've found a nice way to say you need one of the units.  

Another avenue of this is to ease the burden on the tenant, and suggest several great one bedroom apartments in the area.   

But keep your money.  And learn to talk to tenants.

@Nathan Gesner

I disagree with your assertion that people are blowing this out of proportion. I've read the act, and the accusation itself is not where the lethality is in this. It is step #3 which is the 3rd rail...really stupid idea by HUD. Step #2 and #3 really put the landlord in a bind. How many landlords have cash flow to afford an attorney to fight the HUD behemoth? A casual response to this could land you in the cross hairs of 'fair' housing advocates, and suck the life out of your business. This ruling will favor large companies who have legal teams who can stand up to HUD. It will unfairly put average investors in legal cross hairs.

If HUD or any of their subordinate authorities, come to you and have anything on you, even if the complaint is frivolous, you will have to show your practices are non-discriminatory, due to disparate impact, something you have zero control over. This is why we have elected representatives, who are supposed to make law, and not a monarch.

Most likely, this ruling will be challenged in courts by one of large hedge funds or large real estate management companies, who have deeper pockets than us.  But what it will do in the three year interim is hurt tenants and distort the market.  Because a sure fire way  to counter the added cost of compliance is to raise your rent.  So it hurts the people it intends to help.  Typical government policy.

I'm wondering what the general consensus on buying notes is out there. I went to a note subgroup of my local REIA last night, and it seemed like most of the people attending, myself included, had no idea how to acquire a note, and the risks involved. As we got further into the meeting, one guy spoke up and repeated himself about 5 times about his acquisition strategy, his exit strategy, how he would make his money even if the place burned down, his limited purchasing power, and on and on. The group, as it went on, really seemed to be a marketing presentation more than a group. The leader appeared to be looking for investors he could partner with to buy Notes.

At one point in the discussion, he said, don't even think about buying notes in Minnesota (where we are from).  It struck me in this meeting that note buying is capital and research intensive, fraught with risk.  I'd much rather flip a home locally or buy a rental.  I just don't get it at all.  If investing in notes requires me to trust a counterparty looking for fat fees in places I don't live, and it requires a TON of effort on my part....why not just invest in my home market.  Can anyone enlighten me on why investing in notes is cost effective (my time being a key cost element)?

@LuAnn Vigen

I think most people here are not familiar with the area.  Since you are in the chain of lakes area, and since the hot summer season is so brief, and since the population of the lakes area is way higher in the summer than during the rest of the year, you have unique problems for a unique area.  There is nothing at all preventing the tenant from buying their own window AC units.  They would get to keep them and take them with whenever they move.

Comps in your area cannot be easy to find, but I found some in an uncoventional way.  Using Airbnb, I looked up what others are getting just for private rooms, and I have to tell you, your home, if it is in great condition, may be a gold mine if you were to furnish it, put in the central air, and lease it out through AirBnb.  The question I have, and you need to know are:

1)  Do you have deeded lake access and a boat launch?

2)  Is your home in excellent condition or in need of a good deal of repairs?

3) How close to resorts, casinos, and other tourist attractions are you?

As with all things in real estate, it depends.

@Jeremy Fields

Agree with Marcia on all counts.  However, you left out specifics.  It really depends.  If, for instance, the current tenant is in a lease/loss situation, where the rent you are getting is way below market rent, then that is a factor.  Another idea I have, in conjunction with @Marcia Maynard, is to approach the tenant and just treat him like a normal person.  Where I think a little differently is, tell him your situation, and work out a deal where he makes his unit presentable for high quality digital photos for marketing, and for showings.  You have his damage deposit.  You will be a reference he will need for future rentals.  You also would be willing to give him a bonus ($50.00?) if you get a new tenant with a signed lease for next year, due to his efforts to help you.  If he keeps his end of the deal, you give him the equivalent of a referral bonus.  The guy might end up being someone who tells others about what a great landlord you are.  Just a thought.  

@Brian Gorman

You could shop around to see if there is a lender who would give a better deal than Home Ready. You might even find one who doesn't require PMI. You have saved 10K in 8 months...well done! I have a lender resource I can PM you if interested. Doesn't hurt to ask.

And another well done on the plan to house hack.  I take it you've read up on it and know how to do it.  It is a great idea.

@Gino Barbaro

I'm amazed at your mention of the 23 year old.  None of us have an excuse not to try new things.  I would really like to try a flip, or a subject to, but my nature is study first. The idea of acquiring a property 'subject to' sounds complicated, as I don't have a RE license, or the proper forms.  But I also am equity tapped out right now.  So I have little choice.  I have to try new things.