All Forum Posts by: Joe P.

Hi @Latonya Hinton, you're eliciting some strong opinions because most of the landlords/investors here treat the property as a business. A business has expenses, and in our case, it can be debt payments, taxes, insurance, capital expenditures, maintenance, utilities, city costs, township costs, licenses, inspections, covering vacancies, paying managers, et al.

The only income we receive to cover our business expenses, 99% of the time, is your rent.

You can understand why the opinions are strong; no rent means we dip into our "business" to pay our bills, which are typically fixed costs. Even if you don't pay rent, we still owe our debt owner (a bank, for example), still owe our taxes, still owe our utilities, still have to pay our manager, et al.

Someone earlier brought up communication. It's interesting because I think its important; there surely are extenuating circumstances but for most of us, if you are unreliable in holding up your end of the bargain, it puts our business in jeopardy. You mentioned you stopped responding after his requirement to pay by the 15th..."I didn’t respond after that because I wasn’t going to have it by then" -- what did you think was going to happen? You cut off the only information your landlord had to think he may or may not would receive.

I'm not going to lecture you because others have done so, and I find it to be patronizing. Rather I thought it important to share with you the other side of the coin. Many landlords get into this business because over time, it can be a profitable venture for us...over time. We provide good housing to good people who pay their rent. Simple as that. With you not paying and stopping communication, that's clearly a reason for the landlord to take you to court. If I were your landlord, and you were a good tenant who normally paid on-time, if we worked out a payment plan for back rent and you kept up good communication, I might have avoided the court method. Some won't. But if you do your best to uphold your end of the agreements made, a court will likely be more sympathetic to your situation, anyway.

Just my $0.02 for the "other side" as it were...

You need 25% down if you go the conventional route. Banks want to see investors with skin in the game.

You could refinance out of your current FHA loan, but some banks may be weary of you doing that. You have to live in a FHA mortgaged home for a year, technically, as an owner-occupant. Unless you have a bank/mortgage person (and more importantly the underwriter) "playing ball" they might see what you're doing and deny you the FHA loan, since you have likely no intention of living in your MFH. Now if you have enough equity in the home for a cash out refinance, the proceeds could be used to secure another conventional loan.

Do you have enough equity in your FHA loan SFH? You might be eligible for a HELOC or other equity loan. Different way to achieve the above but still you'll need a conventional loan.

Other options include hard money loans and personal loans from friends. You may be able to secure a note from an investor with less money down and less favorable terms, but that could be refinanced if there is enough room between purchase/rehab costs and the ARV.

@Chris Szepessy sorry to say, I think that is bad advice.

You want to take an indirect problem to the landlord and tenant (crime, lower property values, nuisance) and turn it into a DIRECT problem to the landlord by buying the property and trying to evict people who don't care for the law? And put a face/name to the person directly interrupting their so-called "business"? Uh...wouldn't recommend that.

This is a police matter, analogous to other neighborhoods dealing with a similar issue, I'm sure. It's far safer to keep your distance and report what you can, when you can.

I think you'd be pressed to find one sane landlord who would consider buying that property directly. At best its a headache, at worst...well, it could get pretty ugly. 

@Account Closed is spot on. Either you work for them, or you're doing work for them and getting equity/profit.

If you truly are a partner, then receive an equity share and percentage of profit commensurate with your contribution to the partnership.

Another thing -- if you expect to walk in with a $0.00 repair budget, you're going to get screwed (and be very angry), especially with lower CAPEX/maintenance budgets.

What's going to kill this deal is nearly $1000 a month in taxes -- that's absurd, but not surprising in Jersey. My Gloucester City duplex is at $4200 a year.

This is a walk-away deal if I've ever seen it; even if you make $70 a month cash flow, why would you do it? If you're buying this for cash flow you can take your $70,000 and dump it into a high-yield interest savings account with no headaches; if you can make 2% ($1400 a year) you're doing better than this deal.

I think everyone above, while trying to be helpful, are not reading you the riot act. This is in no way a good deal for you. You will be dumping 70,000 into a property that will never net you anything.

@Rosaria Pipitone even people paid off the books can confirm their income. E.g. they have a place of employment, a boss, someone who can verify for them. I'd take confirmed income over it but you can also request things like recent bank statements to help make good/informed decisions.

I will say that the one tenant who did have "off-the-books" income ended up having to leave the lease due to them losing their job. It was a young couple, she was a receptionist at a doctor office and he was a professional woodworker building furniture for a shop -- his income was the key and it was "off-the-books" but they had money in the account and a boss who verified the income. Problem was after 14 months of living in my old house in Philly, he lost his job and either decided not to work or couldn't find work, even supplemental, and he was the primary breadwinner.

That can happen to someone with a verified job, too. So take this story with a grain of salt -- anyone can lose their job so it's more about finding a tenant who, if they do lose their job, will either have another one soon, can still pay the bills, and will either try very hard to get another job to "keep the lights on" or find supplemental income in the interim, e.g. driving for Uber, freelancing...something.

A few things, since I have a duplex barely a mile north in Gloucester City.

1. Prepare to pay flood insurance; your lender will require NCIP or NFIP flood insurance. I have a great mortgage guy I used that allowed underwrtiting for NCIP which is cheaper than NFIP.

2. I'd say plug these numbers into a spreadsheet and run numbers on your own. I think the potential expenses they put up are low. I'd recommend 10% CAPEX, 10% maintenance, 8% vacancy, $150 a month for management, and you are likely responsible for water/sewer, and any township costs, and that could be 1200-1500 a year. In other words, run your own numbers and see if this still looks good given the taxes, your estimate for debt service, etc.

3. 4 bedrooms is weird -- not a lot of people need 4, a lot of people need 3. You may only get 3-bedroom rent in this area.

4.  Make sure you're prepared for some repairs/maintenance going into this deal. I don't see any interior pictures and that is pretty telling. $10,000 set-aside should be enough, but you never know. You could be dealing with needing a new bathroom and kitchen and that could burn through 10k real fast.

There are a few folks who have good experience in Westville and the SJ area...@Mike Bonadies comes to mind as the primary. I think he PMs some properties in Westville and could provide more neighborhood/renting information to help fine tune your numbers to evaluate this deal.

Here's where I'm at -- I usually do Zillow for the propagation, Craigslist, and FB Marketplace.

In my limited experience, I tend to get a good mix of replies/showings from Zillow, only a few responses from Craigslist (but always turn into a showing), and a hundred billion "Is this still available?" notes on FB, but never anything more than that.

I also tell people my up front screening requirements (3x income, minimum credit score, absolutely I'll be checking your criminal and credit history) and that weeds out most tire kickers.

Do not be surprised if out of every 100 inquiries, you only show to 5% of them. That means you are properly screening out people who don't need to waste your time.

@Nathan Gesner really hit the nail on the head. I found out after a couple of years self-managing two different properties that I have very little patience for people's (perceived) problems, don't like having to leave my job to go to said property for minor issues, and having to sit there with some professional fixing a problem and on their schedule.

I learned a lot of about the things that could go wrong -- and how to prevent them -- and also a ton about myself. Put me in front of a broken enterprise application at 3 AM with a team of technical people, and I'll shine like a new penny. Put me in front of a tenant at 8:30 AM with a broken heater and a bunch of complaints, and I'm angry, withdrawn, and frankly don't feel like dealing with it.

I'm an investor in every sense of the word. I want to find the properties that can make me short term (cash flow) and long term (appreciation) gains. But I have very little desire to manage each individual property and tenant.

So I got a property manager, and I manage them. I do better with a business to business discussion (because that's what it is) and emotion stays out of it. We discuss numbers, issues, but she filters out the personal complaints. It's "hey Joe, the heater at Unit A seems to be on the fritz. I'm getting my heating guy out there today, his diagnostic charge is $150 which includes any spot repairs. I'll make sure he gets in the property and I'll lock it up when I'm done." as opposed to a frantic phone call from a tenant "Joe, the heater isn't working! This is unacceptable! My baby and I are freezing! I'm calling DOH because you are a crappy landlord!"

You might laugh at the above, but tenants are irrational sometimes. I don't do well with irrational people or situations -- I'd like to think I'm a logical person and I deal with logic.

So, long story short, figure out what you like and what you don't like, what you're good at and what you're not good at, and be honest with yourself. Don't be a handyman if you aren't a handyman. If you aren't good with accounting and income evaluation, don't pretend to be good at it. Find your weaknesses and start plugging those holes. Self manage to start -- and then see how much you like it, or don't, and decide from there. In the interim, start researching local PMs, go to meetups and ask people for PM recommendations and start talking to them. As you manage, you'll know what to ask and what's important, and who will be a good fit should you decide to change to a PM.

Man, I wish I could get an inheritance like that. :D

A couple of thoughts, a few out of the box.

1. Can you work remotely for this job, or any job in your field?
2. Are you willing to move to a cheaper area and live there?

It doesn't sound fun, but if I could convince early 20s Joe, I would have told him to take some cash, buy a place, and househack it. And do it in an area that could potentially see some growth.

If you company allows you to work remotely, I'd look to move to a much cheaper area and find a property that could deliver you some value -- low price point, high ARV, opportunity to improve, etc.

Then you could work from home, househack, and have someone covering your living expenses while you also drastically reduce your transportation costs.

Your 45k salary will cover the essentials and some good times for a young kid -- max your 401k and any other needs -- and the rest goes into your investments. You've got the cash laying around that as you get the hang of the business, you can start to expand. Make sure that inheritance is, at the very least, in a high-interest savings account or CD.