All Forum Posts by: John Clark

As others have said, read the by-laws  carefully as to what is allowed and not allowed for rentals, and also makes sure that the by-laws are actually enforced. Most banks don't like giving loans on condominiums with lots of rental units, because the landlord owners refuse to properly set aside reserves for repairs (cuts into their profits). This weakens the financial health of the association. It also cuts down on the number of potential buyers when you go to sell, as the buyers won't get financing due to "too many rentals."

You also have the fact that tenants aren't as considerate of properties as live-in owners are, so there are social conflicts as well.

Consider investing in a REIT, or buying into a pure rental property. Mixing rental with live-in owner units always end in tears.

1. Taxes "per seller" are probably current taxes. Those will increase when the sale price is received by the county assessor. Find out what the taxes are on a $775k building. Recompute.

2. How old is the building and what is its condition? You state "maintenance" and "cap ex" as percentages of rent. Why not state them as percentages of the price of bananas? Your maintenance needs and capital expenditure needs depend solely on the physical condition of the property, not your ability to collect rent. Figure out what you will have to pay for capital expenditures and maintenance over the life of your ownership and work the numbers accordingly.

3. If property management is typically 6 to 10 percent, why are you looking at 5 percent as working number? The number to use is 10 percent.

4. Unless the market is super hot, vacancy as 3 percent of rents seems very low.

5. What is the return on investment for alternate investments? How does this investment -- properly accounted for -- compare?

"I checked them out and they can pay. It wasn't a red flag or else I wouldn't have approved them."
-----------------------------------------
You need to take control of this tenant immediately. The tenant is trying to get you used to the idea that the tenant controls the source of your funds. No. The tenant himself IS the source of your funds. The tenant pays you in the first instance, on the first of the month. If the tenant can get reimbursed by the prior landlord, your response is "So what and who cares."

Plain, pure, and simple: Never make the tenant's problems your problems. Let the tenant know in no uncertain terms that you are not waiting for funds from the prior landlord (as others have pointed out, it may not be kosher for you to accept funds from the other landlord, and you don't need hassles with the government). Where the tenant gets his money or reimbursement is up to the tenant. You don't care and you aren't waiting for anyone.

If the tenant balks, pull the plug and don't look back.

I would stay in school. Keep your options open. Also, the degree will help you recognize structural problems in the houses you might want to invest in.

Let's break this down: You have a property that is cash flowing (probably not as much as you think, but still positive), a good tenant, and a desirable area, so it will always rent quickly. You have roof and air conditioning issues, which  you are reserving 12 percent of your rent for, and are 5 years down the road before something "must" be done, and which are tax deductions in any event. They also probably don't have to be done in the same year. You have $30,000 in appreciation, much of which will be sucked off by commissions, transaction taxes, title insurance, lost rental income (buyers usually don't like inherited tenants), and the fact that any buyer is going to say "I have to replace the roof and AC in five years or less, so I'll discount my offer."

Keep the property, start getting roof and AC quotes to give you an idea of what to expect, and in three years, start making needed repairs.

Might be high, but what are the conditions the guy's working with? For example, I have a brick building that has 1/2 inch furring strips screwed into the brick, thick wire mesh attached to the furring strips, and at least half an inch of plaster (not drywall) sprayed onto the wire mesh.

So you can't use the walls for running anything, and my electrical conduit actually runs on the floor joists, with the subfloor fitted around the conduit. The conduit runs at angles, so there's never a stick of hardwood,  or carpet, or tile, where the conduit runs directly underneath it for any appreciable length. It does mean, however, that adding circuits is a nightmare.

There's also the fact that replacing the breaker box and the meter are specialized tasks. I know experienced electricians who can do everything electric, but they won't touch changing boxes or meters on general principals -- too much can go too wrong too fast.

Get some more bids -- as others have said, this guy may not want your work -- but factor in what construction conditions the guy is going to contend with.

"I assume the debt should always be covered by tenants. . . "

------------------------------------------------

As others have said, it all depends on your risk level comfort. Given the pro-tenant eviction moratoria we've had for the past 18 months, I question your assumption. Those with leverage and without section 8 tenants or conscientious tenants are losing their shirts. Those without debt have been in much better shape.

I just wonder how many mom and pop landlords are going to quit the business after being abused for so long.

Give the video to the police. It's got to be a violation of City ordinances to vandalize property like that. Then give him notice. You don't need that kind of tenant.

Keep in mind that you are caught between the devil and the deep blue sea. Specifically, if you are buying a hot market, then the high down payment requirement is what you need to do the deal and have the seller take you seriously. So the cost of doing business is that you have to take the cash flow hit now and pray for appreciation down the road. So factor in the opportunity cost of having your bid stand out in the crowd.


So part of that equation is: Do you really want to invest in tenant-friendly states like California? People talk about great California appreciation, but you have to look beyond generalities and headline numbers and look at the appreciation numbers for the class of property that you can afford in that particular market (for example your cash might buy you a 6-flat in X town in Texas but only a 3 flat in Los Angeles, California -- look at the rental markets (and appreciation) for each class in each area). A lot of California appreciation is in single-family homes in areas that don't allow renters. Tease that out to see the real appreciation for your investment opportunities.


Eviction moratoria KILL cash flow and small investors. California likes eviction moritoria not only on philosophical grounds, but just for sh**s and giggles. Medical reasons do not enter into its equations. You need to factor that into your return on investment (cash on cash, appreciation, whatever) in deciding where to invest.

In the final analysis, you are asking the age-old question of which does one want, appreciation or cash flow. Figure out your risk appetite and then look in the mirror for the answer.

Marco Morales is exactly right: Look at comparable apartments and see what they (the market) are doing for finishes in exchange for how much in rent. Go SLIGHTLY better than that, but not much. That will tell you your budget.

Make sure you have an extensive WRITTEN screening standards check list for tenants. That way you'll get tenants who can make your numbers work.

In-unit laundry is a HUGE plus.