All Forum Posts by: Leo R.

If you're looking for financial education, there are a million and one resources available...I don't personally have a favorite, but perhaps some of the finance pros on here do (I'm sure it's been discussed in the forums--so you can probably find some suggestions if you dig around).

However, I will say this: if you're a beginning real estate investor, your deals should not require advanced financial skills. Your first deals should involve relatively straightforward, basic math --basic things like ROI and money in versus money out. It doesn't take financial genius or extensive education to understand the fundamentals of real estate investing financials. 

What DOES take quite a bit of practice and education is learning about all the other things that are involved in REI --things like thorough due diligence, understanding value add potentials, understanding tenant demand (or lack of demand), understanding what types of tenants do (and do not) rent certain types of properties, knowing how to screen and manage tenants, understanding how to spot problems at a property before you buy, understanding the costs of maintaining a property, etc., etc. You can learn a lot about these topics through educational materials (and I would definitely suggest studying up), but at the end of the day, a lot of this stuff can only be fully learned through experience and the school of hard knocks. You can prepare yourself to learn to swim by reading books, but ultimately, the ONLY way to learn to swim is to get in the water.

Good luck!

 100%

Personally, I'd collect deposit, first month's rent, AND last month's rent at signing.

Whenever I hear about tenants trying to "entice" a landlord with something special like pre-paid rent, or offering to pay more rent than what was advertised, it throws up red flags. In addition to potentially running afoul of fair housing regs, there could be other issues...

You have to ask yourself: why would a tenant offer to go out of their way for a landlord?  Presumably the tenant has some incentive (possibly an incentive that the landlord doesn't know about).  For instance, a tenant who offers to pay all rent up-front might be hoping that this will make the landlord relax their screening criteria.  

OR, perhaps they're hoping that if they pay up-front, the landlord won't monitor them or their use of the property after they move in. Indeed, a lot of landlords probably would do this--if a landlord has 12 months' worth of rent up-front, they won't be particularly motivated to check up on the property for those 12 months. This could be a HUGE red flag. Although it's pretty common for tenants to want their privacy, if a tenant is actively trying to keep the landlord at bay, it's probably a bad sign. You have to wonder: WHY is this tenant willing to pay the landlord to stay away? (Perhaps because they're using the property for illegal activities) ...unfortunately, this is how meth labs get started.

I'm not saying that this is what's occurring in your case, but you do need to stop and wonder WHY a tenant would be willing to go out of their way by paying a lump sum, paying extra, etc....

Good luck out there!

@Zac Gronda awesome post!

Also, Loyalty.  Treat a dog right, and they'll treat you right. That's worth its weight in gold.

Nothin's better than a good ol' pup by your side.    :)

 Lol, yeah--ventilation is key when there's a trench with 2' of water in it, and piles of mud in your basement   ;)

@Tim Bee the net is almost meaningless without knowing what "per door" means.

A "door" could be a mobile home, or a 10k sq ft luxury mansion.

Indeed, they often mention on BP podcasts that some investors will brag about their door count without disclosing what they mean by a "door"...10 doors might be an impressive portfolio if it's all A grade luxury homes, or it might be pretty unimpressive it's a crumbling D grade apartment complex....

$300/mo cashflow could be a home run for the mobile home, but could be a complete disaster for a mansion.

@Nikki Nicole there's not enough info to go on here.  

We'd need to know things such as: what are you going to use this lot for? What's the location? What's the appraised value? Does this lot include access to any amenities? Is there an HOA? What's the size of the lot? What are the geographical features of the lot? Does the lot have any infrastructure (e.g.; sewer hookups, an RV pad, etc.)? Does the lot have any water, will it perk, can you drill a well, etc.? Does the lot have road access, and if so, who maintains the road? What are the seller financing terms? etc., etc., etc.

...We don't even know if this is a lot in an established RV park in a major city, or a lot in the middle of nowhere with zero infrastructure....

Without context, it's impossible to know whether it's the deal of the century or a total bust.

@Jeremy Morgan sounds like an issue I wouldn't want to take on for any amount of money...

You mentioned this is your first property. This is a scenario that even highly experienced investors wouldn't get involved with...

Why make life miserable for yourself? There are much easier ways to get started in REI--start off with something simple and straightforward!

 lol; I wish...this was one of those jobs that didn't cost a ton of money in terms of supplies, but cost a fortune in sweat.

I can't even imagine how much it would have cost to hire pros to do this (assuming you could even find a pro to take on the job).

@Pat Rach renting by the room is substantially more work for a landlord, but it also tends to produce substantially more rent income. Lots of properties that don't cashflow as a traditional rental WILL cashflow as a rent-by-room rental.

If you rent by the room, you will need to adjust your lease accordingly--which means thinking about all the various issues that might arise in rent by room situation (for instance--who is responsible for cleaning common areas, what are the rules about having guests, what are the rules about noise, etc.?).  

In my experience, the most common issues that arise in rent-by-room situations are 1) a housemate is making too much noise, 2) a housemate is making too much mess and not cleaning up, or 3) a housemate is having too many guests over (who make too much noise and cause a lot of mess).  These issues are almost guaranteed to occur at some point, so your lease should address these issues pre-emptively. It can be well worth it to hire a cleaner to take care of the common areas, and split that cost amongst the housemates. The lease should have terms about how frequently housemates can have guests, and whether those guests can stay overnight. The lease should also have terms about quiet hours, and acceptable levels of noise (the easiest way to deal with the noise issue is to not allow musical instruments, and to require everyone to use headphones instead of speakers).

You can manage utilities in a variety of ways--the easiest is for the owner to have all the utilities in their name, and then charge the tenants a flat fee for the utilities. Alternatively, the owner can sum the utilities each month, and then divide that number by the number of housemates and charge the housemates accordingly (this takes a little more work for the owner, but it helps ensure that everyone is paying their fair share).

Tenant screening is ESPECIALLY important in a rent by room situation--a bad housemate can make even the nicest property unbearable, so you should definitely study up on tenant screening (but, you should do this regardless of what type of rental you want to operate).

Also, the layout of the property is ESPECIALLY important; some houses simply do not function well in a rent by room situation.  For instance, a small house, where all the bedrooms are right next to each other, and where all the housemates have to share a single bathroom will not function nearly as well as a larger house where the bedrooms are more spaced apart, and where each housemate gets their own bathroom. Square footage, bedroom spacing, and the bathroom to housemate ratio are probably three of the most important things to consider for a rent by room house--I'd strongly suggest avoiding any house where more than two housemates have to share a single bathroom. 

Ideally, you want a large sq footage house with multiple stories, where the bedrooms and bathrooms are on separate floors. For instance, I have a 3-story property that's 5 br 3 ba --1 br/1 ba on the top floor, 2 br/1 ba on middle floor, and 2 br /1 ba on bottom floor. If I rented it by the room, this setup would make it so that no more than 2 people would be sleeping on each floor--this amount of separation would greatly reduce housemate disputes associated with noise problems, cleaning issues, etc., and would make the house much more comfortable for the housemates than a place where all five bedrooms were on the same floor.

Renting out rooms is a GREAT strategy for young adults. Most young adults can't afford their own place anyway, and usually have to have roommates regardless of where they live--if you're going to have roommates anyway, you might as well have roommates who are paying you! (However, keep in mind that the downside of this is that you can't be friends with your housemates in the same way that you could if you were all tenants...if you're the landlord, you're running a business, and this often means you have to be "the bad guy" and enforce rules).

Lastly, it's very important to understand that some neighborhoods will work great for rent by room, and others won't.  First of all, some cities/neighborhoods have laws against rent by room.  Just as importantly, some neighborhoods do not attract the type of tenant who will want to do rent by room. Usually, rent by room tenants are college students or single people in their 20s, so the property has to be in a neighborhood that attracts those types of tenants. For instance, a neighborhood right by a college campus, and/or near a trendy area that has the types of bars/restaurants and other amenities that attract young adults.  ...most young adults don't want to live out in a suburb surrounded by families and retirees, they want to be surrounded by other young adults; so it's important for the property to be in that type of neighborhood (otherwise, you may end up with a lot of vacancy).

Good luck out there!