All Forum Posts by: Douglass Benson

You need a judgment to get possession of your property.  Send in the paperwork to the court.  Garnishment is icing on the cake.  Get the cake first.

Have all tenants on a lease.  Send out 7 day notices on EVERYONE when they are late.  Send out termination of tenancy notices on EVERYONE who violates the lease.  

Or let this run for a couple of months and sell me your properties for pennies on the dollar.  This is your business and your assets.  Unless you are running a shelter, you should follow your rules and the law.

We added two new buildings to our portfolio in the last year.  Poor property management is what allowed us to buy them cheaply.  The tenants paid themselves and family first and paid the landlords last.  

Since we were the new sheriff in town, it was easy to change the culture.  We charged late fees, increased rents if tenants were late two months in a row, evicted tenants for non-payment and started to install a higher level of tenant whenever we had a vacancy.  

I still have some late payments, but they now always come with a late fee and we are running out of bad payment practices.

This is about lease management and rent increases but it is a little long so please read at your own discretion.

You cannot easily legally engage a tenant if they are not on a lease.  It is always best to have people sign a lease that describes the most recent terms of their tenancy.  I personally don't like month to month, so when we purchase a building we send a new lease and a termination of tenancy notice in the same package.  If they don't sign the new lease, we execute the termination.  

That being said, the last building we purchased (17 unit) had no one with an identifiable lease in place.  We offered EVERYONE a month to month lease so we could figure the lay of the land. We gave each tenant the option to leave with no questions asked as well. Either they sign on month to month with the same exact rents they were reported as paying on the day of sale or they leave.  We eventually lost four tenants as a result.  Three were on our target list to evict due to their behavior and one was paying no rent whatsoever (previous owner's daughter) so they were going to have to leave anyway.

Increasing rents is a non-emotional issue. If someone is paying $230 a month less than market rates for a two bedroom 800 square foot apartment that includes heat, water, sewer, trash in the rent - that situation needs to end and it is an easy conversation to end it. I cannot end it if a year lease is in place, but it will end if tenant is month to month.

Once the tenant base was established we then put in place a year long lease for them to agree to and we aggressively raised the rents.  We lost two tenants as a result, one was paying $130 a month under market for a two bedroom, the other was paying $150 a month under market.  We have back filled with new tenants paying at market.  

The tenants that paid $230 under market for the last five years got to enjoy the greatest bargain of their life before I showed up.  Now , everyone who stayed is paying less than market rates but significantly more then before I owned the building.  When we purchased the building, there were 17 tenants and no tenant was paying MORE than $50 below market.  In six months since the purchase, there are five tenants paying $40 LESS than market and 13 paying market rents. 

The reason we purchased the building to begin with is because it was struggling and poor lease management is always a symptom of that struggle.  It is to everyone's benefit to understand the terms of their stay.  If they choose not to remain in the building due to economic or management reasons, they are always free to go. 

This is one of many ways that we tune the engine.

It IS adult Monopoly!  We too flipped our houses into apartment units.  We did it over time, but never the less, the down payment for our 20 unit building came from flipping two houses.  It is a tried and true formula!  Much success to you and welcome to the world of Multi-family!

For me it is always cashflow.  Of course I am a mid-Michigan investor and that is pretty much what the market will grant.  That being said, we purchased all our buildings over the last 13 years or so and this last year?  Voila!  Appreciation!  

But honestly, we will use the equity gained as leverage for another purchase.  And the only reason we would buy anything else is so we can increase our cashflow.  That is what shows up in the bank account.

True.  The closest thing to  "luck" we had was finding out that the bankruptcy 12 unit was still on the market a week after we were refused a showing.  But even then, the entire world could have purchased that building but didn't.  To make sure we got it, we offered $2k over the asking price.  I have been chided about that by many people  - who do not own the building.  It is my most profitable property and the assessed value has increased over 100% in four years.  

We own and manage all our properties.  No investors or partners until our last building.  We did partner with a couple of investors on our last building for the down payment.  This is yet another way to purchase with no money.     

@Gina Williams - we are fully invested in Lansing (65 apartment units) and Holt (16 units).  We have also successfully flipped around 20 houses in Lansing.  

I have no student housing and am not looking for any.  It is only about preference, but I would maintain that the college and the city of East Lansing want to drive students back into the college dorms.  The citizens don't want student rentals in their neighborhoods and the college is losing revenue if their dorms are empty. Until that happens, East Lansing will remain a tough place to start a multi-family business. 

Economically, Lansing is in the same place as any Michigan city that was tied into the auto business.  Since the downturn, we are starting to see some diversity in employers and that helps.  State Government is here, Michigan State University is here, hospitals are here, and the future looks good.  Property prices are still relatively low as are rents.   

I hope any of this helps.  PM me if you wish. 

Doug.

 @Amy Arata - Let's say your unit rents for $600 a month, ($7,200 for 12 months) to help me with my illustration.  If you put in your mind the mental image of you lending them the money ($7,200) instead of renting an apartment, you might be more comfortable about having the the money conversation.  This is a standard part of dong rental business.

Another thought about asking probing questions regarding their character of their behavior.  Once again, put your mind in the place where you are interviewing someone to look after your children or a possible renter who will live with you in your house.  That might make you more comfortable about the questions you want answered.  

In the end, good people will pass these questions with flying colors because they are good people.  Eventually you will find your rhythm.  Best of luck to you.

Doug.

I reread what I wrote and I guess I have to agree with you.  We are already running, but we are wanting to add hundreds of units so sometimes it feels like 81 isn't much.  I will choose better words next time!