All Forum Posts by: Jason Powell

Travis, good that you are conservative. Its good to plan for the worst. I am personally conservative by nature, but I would think it's VERY conservative to set my price limit for a worst case scenario of continual 100% vacancy and floating the mortgage from your paycheck. I'd go with a good emergency fund for that and make sure the mortgage and expenses were paid even at 25% vacancy. That's pretty safe.

To answer your question Travis and Matthew about "suburbs", I probably used that term too liberally. Last 2 properties I bought that were in the generalPortland area was Forest Grove (suburb of the suburb I suppose). I have no desire to be a landlord in Portland due to anti-landlord legislature, outrageous tax hikes, and the trend I  which both are going. Really though, I am not as driven by guessing which area is more up-and-coming. That's like splitting hairs to me for buy and hold. I make way more money by purchasing a dollar for 75 cents wherever that deal is and making sure it cash flows as opposed to guessing the hot spot that appreciates 12% next year vs 8% average (as an example). I would care about that a lot if I were pur basing land to develop and sell.

I'm not overly fond of the Portland market in general at the moment for buy and hold cash flow properties unless you find a steal of a deal. I feel like we are at the tail end of the market cycle. Last two properties I bought were in Lebanon, OR. I'm focusing on deleveraging right now, mostly for my own personal reasons and lifestyle simplification.

Comes down to personal values, goals, risk tolerance, and time. If your goal is to get as rich as possible, max leverage will do that for you. Tradeoff is you will have thinner margin for error, maintenance, softening market, etc. You'll have to operate at peak efficiency to make good money, which means more time, stress, and headache. 

I'm someone who values peaceful life and time to the extreme. I like a mixed approach best. Pick the amount of income you want real estate to provide you, and buy the amount of units you'd need, such that if they were paid off, you'd hit your goal. Once you have that amount of units (leveraged), focus on paying those off via snowball method. Going one by one is too slow.

Travis,

Why is your budget capped at 450k? If it's cash, I'd recommend saving up a but more before jumping in. Otherwise, I don't see why you wouldn't be qualified for a lot more if you're looking at 3-4 unit building. FHA loan limits increase per unit, and they count rental income towards your DTI ratio.

I HIGHLY recommend NOT doing all the building additions and such that you were mentioning ad your first deal. Instead, if you're very handy in construction work, I'd find a bombed out 4 plex and rehab each unit as time and money allows. If you do all the work yourself, you can do a full remodel for about 5k per unit.

Id also highly recommend not investing in Portland as a landlord. They are hammering landlords more and more lately.  Instead, go out to suburbs or secondary suburbs. Within the last 12 months, I've picked up a 4 plex for 329k and 8 plex for 640k in suburbs where I'm still getting $950 for 1 beds and $1,100 for 2 beds. Deals are out there but way harder to find than "normal markets". 

I'm opinionated I know, only because of felt a lot of pain and a lot of gain through the process of doing exactly what you intend to, including rehabbing 10+ units by myself. I'm happy to share much more over the phone including contacts I've built. Message me if you'd like.

Welcome to the area and good luck!

Jason 

Thomas - I think you are spot on. The tenant already did say more than once that if I wrote him a $4,600 check he will call it even and find another place to live.

Fortunately I had at least some sense and put him month to month. Would giving him a non renew, or "no cause termination" as I call it, not be a sign of retaliation?

Mike - I do have a photo showing the closet walls and floor lined with plastic, grow lights, thermometer mounted to the wall, etc. But they obviously moved the plant for the inspection. I'm not aware of how someone could "prove" that was the cause.

Bill - Thanks for your response, that's a bit comforting. I've so far hired 3 people to inspect for moisture in the walls, pipe leaks, or exterior water leaks. None found any. I tried to clean the mold (after 24hr notice of course) and was told to "get the F#! $ out of there. Luckily I brought a witness. I guess there's not much more to do until the tenant actually sues me or stops paying rent. I'd serve them a no cause termination in a heart beat if I wasn't worried for retaliation.

Devin - I did have them sign a mold and mildew addendum. However, how can I prove or disprove they use their bathroom fan, open the windows twice a week, etc. If they live a lifestyle conducive to mold growth, and are generally very dirty people who don't clean anything, is it really my job to continually clean up after them?

I agree it is a two way street when inheriting tenants or a landlord. However, even the nicest most generous landlord in the world will be the "bad guy" when they buy a poorly run and dejected property for the purpose of renovating and raising rents. In my case, I offered to work with most existing tenants and not just boot them out (which I should have done in retrospect). Others, I had to just boot out (i.e. one guy hadn't paid rent in 5 years.)  I even gave that guy an additional 30 days above what I was obligated to to be the "nice guy".

Thank you Deanna!

I have called a remediation company Servpro. They encouraged me not to take a mold sample to a lab or do an air quality test, indicating that it would be a pointless endeavor. They stated that the important thing is to find the cause and implement a solution (cause is very possibly from tenant at this point). The tenant grew weed in the apartment for a period of time (right before I purchased the building 6 months ago) and admitted to smoking weed in the unit while I owned it. Not great things for humidity.

He is on month to month, and I would LOVE to serve a no cause - but could he come after me for retaliation?

I bought a building 6 months ago with inherited tenants. Against my better judgment, I let one of the tenants stay and did not serve a no cause termination. The property inspector 6 months ago noted small spots of mold on some baseboard corners, and also noted that he could not find where the bathroom fan penetrated to the exterior.

Zoom forward 2 months - I routed the bathroom fan properly to the exterior (fixing the humidity issue). The tenant requested that they clean up any visible mold instead of myself or someone I hired.

One week ago, this tenant has come out of the woodwork wanting to sue me over continued mold growth (about 5 spots, the size of the palm of your hand). I have no reason to believe there is any moisture issue from the building itself (and I've had more than one contractor come out, two even that put moisture readers on the walls and ceilings with no abnormal results).

My question is, what steps should I take as a landlord? The guy pointed right in my face and told me he was going to sue me for everything I've got, take my building from me, and then burn it to the ground. I've got many more details to this lengthy story I could share, but would SO appreciate your knowledge and experience!

Is it possible to acquire more than one plex using the FHA loan (I know that in most cases you may only have one at a time)? I called 7 local lenders today and presented my situation below, only to get bewildered responses and varying answers. 

I purchased my first and only property (a 4-plex) on 3/31/14. Since then, I have been occupying one of the 4 units, and renting out the others.

On 2/15/16 I refinanced the same property into an owner occupied conventional loan, after showing 20% equity. 

I now want to buy another plex using the FHA loan asap. This has been my game plan for several years now, but I'm now wondering if this is even possible. Will underwriters allow me to purchase a second plex, or will they deny me because they feel like I'm trying to use FHA as a means to acquire investments? If there is an issue with this, is there any criteria I can meet for me to show a "reasonable and logical improvement" on my current situation?

Thanks!

Chris,

I was just recently in your exact same situation - 4 plex with existing tenants, way undervalued rents, in Beaverton, OR. Here's a couple bullets points of advice I'd give from my experience, in no particular order.

- If you feel confident that you can pump the rents with a little updating (or even without), do this as soon as possible. The sooner you renovate and pump rents, the sooner you can get quality tenants and start getting a better return on your investment. It hardly ever makes sense to drag the process out unless you flat out don't have the money to do so.

- Ask yourself whether or not you are really willing to live in a construction zone and move several times (even though it is next door). This is a huge pain. I live in one unit of my fourplex and renovated mine while I did some of the others. I would hate to rinse and repeat 3 times.

- Odds are, the reason your tenants live where they do is because they rent is a steal of a deal. I wouldn't be overly concerned with making the tenants happy or worry about retaining them through the remodel and rent hike. Certainly go out of your way to treat them with respect, but there thousands of new fish in the pond that would love to rent your newly renovated unit. I jacked my rents 50% and rented them no problem. Don't let fear stand in your way. I caution you to not let the tenants control you. You own the building. If you have a verbal commitment that falls through, you have nothing. If you communicate in writing (perhaps after verbal conversations) and follow the law, you will have infinitely more leverage.

- One thing you might want to consider is offering tenants something to get them to move out early. If you have a verbal conversation with each one telling them you have to remodel and hike rents, they won't be thrilled and will probably hop on Craigslist that night to see what else is out there. If you issue them a 60 notice on October 1 when you close, you'll be pushing their move out date to Christmas/School break. It probably won't take much to get them to consider moving out much earlier. It might be as simple as offering a full security deposit refund if they move out in the month of October. I also offered one tenant $200 to allow me to perform renovations while they were occupying the unit. This allowed me to show the unit while they were still living there (in a much more presentable condition) and reduce my turnover time to zero.

Hope this sparks an idea or two. Good luck, and let me know if there's anything you need, contacts, etc. I currently do not have a lawyer.

Thank you everyone for your responses.

@Account Closed Your assumptions are correct. Are you talking about marketing to motivated sellers who are willing to carry almost the entire loan? If I blow my $ on marketing, there's no way I could ever finance a deal, regardless of how sweet it may be. What kind of marketing are you talking about?