All Forum Posts by: John Sanderson

As for the storage, maybe put some shelving in and give each tenant an equal amount of shelf space. If their stuff doesn't fit on the shelves, it's not allowed to be stored. Otherwise I'd just send them a letter saying no one is allowed to store personal belongings in the room.

As for the laundry, I'd suggest letting them know that it's a problem and needs to stop. If it continues, you could assign specific days of the week for each unit to use the laundry. You could leave a bin for clothes left over, if a tenant goes to use the laundry on their day and there are still clothes, tell them to toss them in the bin. If it were me, I'd ask the tenants which day would work best for them and try to work with them that way. If everyone wants Monday, just pick one at random and distribute the rest of them through the week.

@Nate Atwood

The deal as you've laid it out so far doesn't make much sense, as you'd be losing money every month. If the owner would amortize it over 30 years with a balloon at 5 or 10 years, I'd say it'd be a pretty good deal, especially if you can raise rents. If you got the rents to what you think they should be, that's an extra $500/mo, most of which would go straight to your pocket. Even only raising rents to half of what you projected would put you at about $100/door. Not sure about your market, but I'm pretty happy if I cash flow $100/door.

But again, the deal as you've laid it out right now is no good and I'd strongly urge you to try to get a 30 year loan.

@Nate Atwood

Are you paying $300 per month for water? And is that 10 year loan amortized over 10 years or 30 years with a balloon? 

I'm coming up with a monthly payment of around $1363 for just PITI, and based on your current rents, that only leaves $312/mo for all other expenses, and based on your numbers you're going to be losing money. You really can't base your calculations on projected rents, only what you're currently getting.

If it's amortized over 30 years, you're probably looking at cash flow of $100-200/mo, after expenses and saving for CapEx and vacancy. I agree with @Martin Andersson to an extent about valuing your time, however, when it comes down to it, you don't actually pay yourself anything for your time, so from a purely analytical standpoint you're not losing any money for your time spent working.

Mortgage interest mean PITI? Definitely. Some are higher and some are lower, but they come in around there. If you're looking at your area specifically, it may differ, but I think most would agree that a decent percentage of what you keep from the revenue of your property should be somewhere in the 8-12% range. Some markets may be lower, some may be higher. And to be completely honest, even if you have no cash-flow on the property, you have appreciation to look forward to.

I've talked to an REI locally who has about $6m in real estate assets, and for him, as long as, at a minimum it breaks even, he's alright with that. It's when you're losing money that it's an issue.

Well, if you're talking about a property you own outright, I'd say somewhere around 50% would be reasonable, I don't own any like that. If you're talking about a property with a mortgage or some other type of financing, for me, and for many others it seems, somewhere in the 10% range seems to be the standard +/- 2%. Right now, I have 3 properties, and the cash-flows average a little over 10% of gross income for all 3.

Well, if you own the property, that's a number you should know. Is this hypothetical or based on properties you actually own? If they're asking for every property in a certain area, you certainly can't answer that, since you probably don't know the details off the top of your head. If you're going off your properties, just tell them the number you try to hit, and what you're currently hitting with your rentals. There's no reason to be dishonest, so if you're asking if you should try to talk your properties up a bit by leaving out saving for CapEx or something like that, I'd say don't do that. That's my opinion anyway.

@Scott Weaner

Sorry if I'm reading incorrectly, but your tenant is in NJ, correct?

I can't say much for NJ, since I've only dealt in PA, but your lawyer can probably give you more information.

However, in PA(my knowledge is of Harrisburg specifically), if a person files for bankruptcy, any eviction proceedings are stalled until the bankruptcy is resolved. I imagine it's very similar in NJ, but it is absolutely a method someone can use to stall eviction and stay for free longer.

To elaborate on Harrisburg, I've been working with a PM company that filed for eviction of a tenant(not mine) for non-payment of rent, the tenant immediately filed for bankruptcy without paying the fee, thus stalling the eviction proceedings. After a certain period, the bankruptcy claim becomes null without a filing fee, and eviction proceedings can proceed once again. However, there is no limit to the number of times you can file for bankruptcy in Harrisburg, so once the first expires, the tenant can re-up and file again without payment. They had to go through 3 cycles of this before they finally removed the tenant.

I'm not bringing that up to scare you, just to make you aware that this may be the case in NJ as well. Again, consult with your attorney, ask if the tenant can file without payment and if there is a limit to how many times they can.

To me, it seems like a pyrrhic victory for the tenant to be able to stay longer, but everyone is different. This may be a unit you need to watch closely, in case they decide to bail in the middle of the night without a word, which is fairly plausible.

I see your lease is the only one that will ever hold up in court or protect the owner in any way. Interesting.

If you have to deep clean carpets, you can deduct for renting equipment. I would wait for a response from someone more familiar with your state laws, or consult with your attorney, but I would imagine the equipment rental would be fair game to deduct from the deposit. As far as your time, that I'm not sure on, and I hesitate to speculate as I'm unfamiliar with your state laws.

Well, it seems like you're heading in the right direction. If it's your first rental, unless you find a truly hidden gem(which is possible, but unlikely), you will probably be managing the property yourself, so I wouldn't even look at PM companies.

Second, how much do you know about repairs and expenses related to a property? Are you living somewhere where you're required to do maintenance yourself? This can be a big determining factor in whether a property will make money for you or lose money. If you can only fill some holes in walls or change the filter in a furnace, you're going to be paying extra for someone to come in and get it done right(which can be a reasonable expense if you get the right person or company and the price you paid for the unit was low enough).

Third, since you'll most likely be managing it yourself, you can either screen your tenants yourself, or outsource that. I'm not sure of any in your area, but there are companies that will screen tenants for a fee, but you will have to manage the property.

Finally, if you haven't already, check out some of the calculators on this site, especially the rental calculator. It may make you aware of some costs you weren't expecting, such as vacancy and CapEx.

I think the best advice you can get is that you shouldn't overpay for the property. Do your own research, find out what the property is actually worth and what the actual expenses are, not what a realtor puts down on paper for you. On that note as well, if you find a property, do your due diligence, and you cannot get a price that will give you a positive cash-flow after all expenses(even if it is minimal), you need to be able to walk away from it. Do not fall in love with a property.

I've got 7 units at the moment, and without a doubt, I'd say REI was the best decision I've made so far in life, but it's a lot of work, and you probably won't be able to do it full-time without multiple properties under your belt.