All Forum Posts by: Jon Gorman

Hi All,

First timer here in the process of renting out a house. We've been living in a townhouse for the past 5 years and at the end of August moving into a new home we purchased, planning to rent out our current house. I put it up on Zillow and have received TONS of inquiries. Probably approx. 25 people have contacted me.

I just read Brandon's Tenant Screening Ultimate Guide in this forum--so helpful! I have some remaining questions. I learned from that article that you have to be careful about not discriminating and fully documenting how you are deciding to choose a tenant, and I want to make sure I am doing things as ethically as possible.

I've scheduled tours with about 7 people so far. My plan is (and please weigh in--I am new at this and open to feedback): Give tours to people this Sunday while also interviewing/screening them. Then, ask them to fill out the application that Brandon links to in his article. I'll sort applicants according to variables like income, job stability, etc., then ask "finalists" to Apply through Zillow, which will give me their credit score and criminal background/history. I think the application through Zillow is something like $29. 

If I have a few good applicants left and their references all check out, can I go with my gut? 

Should I develop more criteria? 

Am I allowed to deny someone for no other reason than I chose someone else, or does it have to be based only on objective criteria?

Should I refund their $29 application fee if I've asked them to apply but then I go with someone else?

Thanks so much for any thoughts/feedback/guidance!

Jon

Thank you! 

Hello,

I would love some input/guidance around timing to buy my next house.

I bought my current starter house ~5 years ago for $237,500 and put 20% down. 3.75% interest, 30-year mortgage. Principal + Interest + Property tax + Insurance = $1241 per month. Current principal balance is 160,997. Current estimated value on Zillow is 260,000.

3 years ago I bought an office building for 475,000 and put 20% down. I occupy the office for my own work and rent out the other offices, which covers all expenses. So that building isn't costing me anything per month and my rental income covers all expenses plus some extra which I just leave in an account in case any maintenance emergencies or vacancies pop up. Current equity in that building is approx. $130,000.

My initial thought was that I would stay in my current house and pay it off fully, then save for a new downpayment to move into a new house and rent out my current house for some extra income. But then I realized that it might be advantageous to start saving for a downpayment sooner:

I am currently putting $1600/month towards my current home mortgage and $1600 in a savings account (mutual funds) for a new down payment. I have about 19,000 saved up so far in that account. 

So essentially, I'm putting 3200/month towards housing and I was thinking if I can afford that much per month, we might want to start looking for a nicer house. We now have a kid and are thinking about a second, so a roomier house, yard, better school districts are motivating us to start looking. I don't yet have enough saved for a 20% downpayment, which has always been a "rule" I believed in, but I could put down a very low downpayment such as 5-10% on a house in the 400-500k range and monthly payments will still fall within what I am paying + saving currently. I could then still rent out my current house, maybe for $1800/month (based on going rates in my area). OR I could sell my current house or do something like a HELOC to have more of a downpayment.

Given my situation, would you suggest waiting a few more years to keep saving for a downpayment and paying down my current mortgage, or would you suggest looking into buying a new house sooner but putting down a downpayment less than 20% and having to pay PMI, but that's a longer period of time that renters would be contributing to paying down my current house. I live in an area where housing costs seem to keep rising steadily because the houses within the best school district are in extremely high demand, compared to surrounding areas with poorer school districts. So the longer I wait, the more it will cost to buy a house in the area where we want.

If I left out any details that would be helpful to know, let me know. Thanks in advance for all of your collective wisdom!!

J

Hi All,

A few years ago I bought a commercial office building that I rent out to healthcare professionals and it has been successful so far. I know there is some demand in my area from people wanting to rent a similar space.

I found one property I am considering buying. It's 4 offices. I have one potential tenant who wants 3 out of the 4 offices and a few other possibilities lined up who might be interested in the 4th.

Here are some factors to the decision:

• My ultimate goal is to buy and hold properties for a long period of time so that once they are paid off, this will be my retirement income (I'm currently 35).
• While I have a positive cashflow on my first property, I don't have a lot saved up at this point that I could put towards a downpayment for the second property.
• I talked to a banker who, based on my current finances, would finance 100% of the property, 5 or 10 year loan, 4.5%, amortized either 20 or 25 years.
• So...from my perspective that looks like $0 down other than closing costs, and tenants lined up who are interested in the office.
• One problem is that given the asking price, and what the monthly mortgage + operating costs would be, the rents for the 4 offices would be 20-25% higher than the market rate.
• The potential tenant who is interested in the 3 offices is willing to pay that because there are some unique characteristics that they are specifically looking for that would be hard to find somewhere else.
• Let's say that tenant is willing to sign a 5 year lease initially. I'm worried that if they break their lease and leave, that leaves me with 3 offices to try to fill quickly, all of which are slightly more expensive than the going rate.

I had a thought about offering to this tenant (who is interested in the 3 offices) to invite her to go in on the purchasing of the property, maybe inviting her to be a 10% owner, the thought being that if she has some skin in the game, she would be less likely to cut and run and leave me high and dry. 

Any thoughts? Should I pursue this property? Wait until something comes along that I could price to be more in line with market rents? Advice on inviting this tenant to be a part owner?

Thanks in advance!

Jon

Hi! I often have the same question for myself...what if my goal, instead of increasing number of properties, is to increase my cashflow/passive income as quickly as possible? If the mortgages I have are 20 or so years away from being paid off, but I'm looking for a way to increase my income (increased above and beyond my current positive cashflow) in the next 10 years--is it better to pay down mortgages more quickly or take on more leveraged properties?

Ok, great! Thanks for the info!

In the recent podcast with Ben Kinney, Ben suggested looking for duplexes and small multi-families with out of town mailing addresses, e.g., maybe a property that someone inherited and is more likely to want to get rid of. How does one find listings with out of town addresses?

https://www.biggerpockets.com/blog/biggerpockets-podcast-322/#comment-282895

Hello,

I'm currently considering expanding my commercial investment portfolio.

Here's where I'm at so far:

I bought a 7-office office building for $475k. I'm currently covering all mortgage and operating costs and then some. Currently $353k left on the loan with a bank, should be paid off in ~15 years. My plan is to keep it long term for income in my retirement.

I like this model of purchasing a small office building and holding long term, allowing tenants to pay it off and then it will be income for me when I retire. These are niche tenants in a healthcare field that I know well.

There is another office building I am looking at. Asking price is 390k and it has 4 offices. Operating costs per office are significantly higher than my current building (because it has only 4 offices as opposed to 7), but I have a potential tenant who is interested in leasing out all 4 offices immediately. Assuming I get it for the asking price (though of course I would try negotiating that down a bit), one bank I talked to (who has the loan on my first building) will lend me up to 75% of the sale price, leaving me to cover up to $97,500 + closing costs. I probably have just about that much between the equity in my current home and some savings. The banker said I couldn't take a LOC out on my current office building because they need me to carry at least 25% of the value before they would give me a LOC.

Should I go for it--take out a HELOC on my house to afford the down payment on the second office building, assuming I can get that potential tenant to sign a lease before I make an offer?

Or...is that spreading myself too thin by leveraging too much of my current assets and running the risk that if something goes wrong with the potential tenant, that leaves me in a jam trying to fill an office building with relatively high rent prices?

Thanks for any input!

JG

Thank you all for this great feedback!

Jon

@Ronald Rohde Thanks!!