All Forum Posts by: Leo R.

@John Giachino how significant is the foundation damage, and how confident are you in your repair estimate?

Foundation damage can range from some superficial cracks that can be patched over to significant structural problems that could cost tens on tens on tens of thousands to repair (or may not even be worth repairing, and might necessitate a full demolition of the house).

Personally, significant foundation/structural issues are one of the things I look for first, and I generally won't buy a property at any price if it has significant structural issues.  If these foundation problems are anything beyond superficial, I strongly recommend getting multiple quotes from licensed pros who have experience not just in fixing foundation problems, but fixing foundation problems on 100+ year old properties that have the same type of foundation as yours (keep in mind: fixing a 1900 sandstone block foundation is a whole different ballgame than fixing a 1970s reinforced concrete foundation, which is different than cinderblock, which is different than...etc., and you want quotes from people who have experience fixing the same type of foundation as yours). 

Also, you've probably already factored this in, but I'd suggest creating a "worst case scenario" financial model which includes extremely high interest rates at the time when you need to refi.   ...it's all but guaranteed that rates will continue to go up for the foreseeable future.

Good luck out there!

@Hunter Gibson  house hacking is arguably the best way to get started in real estate investing--it's often the best way to get your foot in the door on owning a property, and you'll learn a lot of valuable lessons about how to buy a property, how to manage a property, how to be a landlord, etc....plus, it's a relatively less risky and simpler technique than BRRRRing, flipping, or any of the other RE investment techniques, which makes it ideal for a new investor learning the ropes.

Although it's pricey, neighborhoods inside the SLC interstate "beltway" (Sugarhouse, Liberty Wells, 9th & 9th, the Aves, anything near the U) tend to be the easiest to find tenants for--especially tenants for a house hack. In a house hack, your tenants will likely be college students/ grad students / young professionals--single people mostly under the age of 35. These people primarily want to live in the neighborhoods I just mentioned, but relatively few of them will want to live in outlying areas like West Valley...I'm not saying it's impossible to house hack in the outlying neighborhoods, just that it's more difficult to find high quality house hack tenants in those areas.  Another advantage of owning property inside the SLC beltway is that those are the properties that will probably appreciate the most, and those are the properties that will probably be the most resistant to a market downturn...EVERYONE wants to live in those neighborhoods, and they aren't building hardly any more single family homes in those neighborhoods, so it's a fairly straightforward supply vs. demand issue.  

On the downside, those central neighborhoods I just mentioned are the oldest neighborhoods in the city--which means the buildings are the oldest, which means that you need to understand and keep an eye out for old house issues that could cause you big bucks in the future (structural issues, lead paint, asbestos, galvanized steel plumbing, outdated electrical HVAC / electrical systems, years of un-permitted and shoddy "repair" jobs covering up other issues, etc.).  Most of the houses in those neighborhoods are early 1900s unreinforced masonry, and it's fairly common to find significant structural issues that would cost a fortune to repair (not to mention, these are the properties that will suffer the most damage when the big earthquake happens--which is a matter of "when", not "if"). Find yourself an agent and an inspector who both have extensive experience with old properties, and who know how to spot the myriad of issues that old properties can have. If you can, pay a contractor with old house experience to walk the property with you...the more experienced people you can get looking at the property, the less likely you'll miss a major issue that ends up costing you $$$ down the road.

Another issue with the older houses is that they often have less square footage, and/or weird floorplans...however, the weird floorplans can sometimes work to your advantage if you can learn to spot easy potential improvements that would enable you to have an extra tenant or increase rent. For instance, sometimes an un-used dining room can be easily converted into an extra bedroom (extra tenant), or a-not-very-useful space can be converted into a bathroom (extra rent)...sometimes, a weird floorplan that actually drives away other buyers (thereby making it easier for to buy the house) can be altered to your advantage...you and your agent need to be good at spotting these types of possible improvements that can turn a house that would otherwise be a month-to-month loser into a cashflower.

Good luck out there!

@Scott Trench  I may be mis-understanding, but I was wondering if you could clarify a couple things...

In 1), you say that we're nearing all-time real wage highs (adjusted for inflation), but in 6) you say that the real federal minimum wage is nearing historical lows   ...Isn't that contradictory? How do you square the idea that we're at all time wage highs, yet the federal minimum wage is nearing historical lows? ...I suppose that theoretically, the median wage could be near an all time high while the minimum wage is near an all time low, but it seems contradictory...

Also, I'd be interested to hear how you reconcile the idea that we're at all time wage highs, yet (as others have pointed out), for the average American, it seems much more difficult to make ends meet compared to a generation or two ago... As was mentioned, a generation or two ago, Americans could afford to buy a nice house, have two cars, support multiple children, have minimal or no debt, and adequate reserves for a comfortable retirement--all with nothing more than a high school diploma...today, we have folks with advanced degrees, no kids, no house, tons of debt, who live paycheck to paycheck.  ...this dynamic seems to support the idea that costs of living have far outpaced Americans' earnings over the last couple generations.... I'd be interested to hear your thoughts...

Thanks!

@Paul Sanchez  as has been mentioned, the 85% cash out sounds too good to be true...how well do you know this broker, and how much do you trust them? Brokers are known to paint an overly-rosy picture for clients (telling them that certain things are possible that, in reality, are not possible --or are very difficult to make possible) --they will often do this in an effort to secure the client's business (i.e., they tell you what you want to hear so you'll sign on the dotted line).  I'm fortunate to have a broker who I've worked with for years who is both highly experienced, and who will be completely honest with me about what is, and what is not possible (even if it means he loses a deal).

Now, for the other part of your question--you asked whether there's a chance your refi rate will be higher than your buy rate...I'd say that not only is there a chance, but it's almost a guarantee. The fed has already all but committed to more rate hikes, and my own personal speculation is that inflation numbers will continue to be bad for at least the next couple quarters, which will cause the fed to clamp down further with higher rates.

I suggest you create a "worst case scenario" financial model, where everything goes horribly wrong in your deal (i.e.; rates go way up, the property has major unexpected capex, vacancy is high, etc., etc.).  ...in fact, I'd say that ALL investors should create a "worst case scenario" model when analyzing any property...although that worst case scenario may not occur, knowing what it would look like will help you make a better decision.

Good luck out there!

What @Bruce Woodruff @Sergey A. Petrov @Robert Szalay said is 100% correct. 

Regardless of what you do @Mary Jay, the bottom line is this: if you refund deposits to every tenant who threatens to sue you, you'll be refunding a lot of deposits, you'll be losing a lot of money, and you probably shouldn't be in the landlord business.

Successful landlords and property managers have clearly-defined systems in place to avoid situations like this, and to manage  these situations when they do occur. Successful landlords and PMs do not allow themselves to be bullied or coerced by deadbeat tenants who damage their property and violate their lease.

If you continue to own rental property, this type of situation will occur again at some point, and if you don't stick to your guns, you will continue to be taken advantage of, and you'll continue to lose money.

The first few times you encounter a situation like this, it is is stressful, yes. But with experience, this type of situation will become almost inconsequential to you--but only if you establish the systems that we've described for dealing with these types of situations. On the other hand, if you cave to this tenant, and the next tenant, and the next tenant, you will never build up the "thick skin" that is required to be a successful landlord--and you'll be stuck in a never-ending cycle of stress and needlessly refunded deposits...

...not to mention the fact that (as others mentioned), you'll be producing more and more entitled, deadbeat tenants who think they can get away with property damage, lease violations, drug use, and extortion...those deadbeat tenants then go on to hurt other landlords, PMs, neighbors, community members, police officers, or anyone else who has to deal with their childish behavior.  In so many ways, the landlord/PM sets the tone and the standards for the community, and encouraging this tenant's behavior by capitulating to their empty threats just creates a crappier community for everyone.

I'd be interested to know how many of the couple folks who suggested refunding the deposits are actual landlords with PM experience...my guess is that not a single successful landlord with any significant degree of property management experience would suggest refunding the deposit in this situation.

@Mary Jay Based on what you've said, it sounds like you are 100% in the right to keep the deposit, and you have little to worry about.

Do the following: follow the local/state law on the process, document all the damages with photos, send tenant a professionally-worded and formatted itemized list of damages with photos of the damages, and with an itemized list of the associated costs, deduct those items from the deposit and--if they exceed deposit amount--keep the full deposit, and lastly--don't engage with the tenant any more after you've done that and anything else your local laws require you to do). 

When you send the tenant the itemized list of damages & costs, you may also include an item in your list that says something like: "After the tenant vacated the premises, there was a strong odor of marijuana in Rooms X, Y, Z. Possession / use of marijuana is a (misdemeanor? felony?) in the State of X, as described in (list the relevant law/laws).  Use of illegal substances at the premises is also a violation of the lease (list the relevant sections of your lease...if you don't have this in your lease, add it for future tenants)."  ...when the tenant realizes that if they do take you to court, they'll have to explain to a judge why they were smoking marijuana in your property, they'll probably realize it's a bad idea to take you to court.

Hopefully this helps ease your mind: what you're experiencing is very common--bad tenants who lose their deposit constantly threaten to sue landlords (and believe me: after about the 5th time it happens, you'll begin to ignore these types of empty threats). Assuming the landlord is competent, is acting within the bounds of the law, and has done nothing wrong, it's very uncommon for the tenant to actually sue the landlord in these situations. Even if the tenant has the motivation to begin the lawsuit process, they quickly realize that the court fees / attorney fees would cost much more than their deposit, and even then, they'd likely lose their case.

Also, think about the type of person this tenant is--do you really think that they have the intelligence, motivation, and perseverance to navigate the court system? Based on how you've described them, probably not. 

Assuming that you are a competent landlord operating within the bounds of the law, and doing the deposit retention process correctly, you probably have little to worry about.

Good luck out there!

@Noah McPherson  sorry you're experiencing this; that would be a stressful situation.

In addition to causing damage, the family members staying there are creating an enormous new liability for you...for instance, if they have a kid who falls down the stairs, or they have a dog that bites a neighbor, or they cause property damage that you can't hold them responsible for because they're not on the lease and haven't paid a deposit... At the end of the day, having strangers who you have not screened in your property increases your risk exponentially; a lot can go wrong, so you'll want to try to fix the issue ASAP.

And, as others have said: if your lease is decent, then there should be very specific terms in the lease that make this a clear lease violation.

I would calmly explain to the tenant that what they're doing is not allowed, and that their family members need to vacate the premises immediately, and leave it in good condition. Make it clear that if they don't leave immediately, you will retain their deposit and begin the eviction process. Make it clear that if you complete the eviction process, then an eviction record will appear on the tenant's background check, which will be seen by any future landlord or employer who runs a background check on them--making it very difficult to find a new property to rent.

If they respond favorably (their family members leave immediately, and leave the house in good condition, and the tenant causes no other problems), then I'd consider letting them stay until the lease ends (though, I probably would not let them renew their lease).

Good luck out there, and let us know how it goes!

@Cecilia Ann Jones I went to college near Baltimore, and have spent plenty of time around the city; it's got some fun neighborhoods!

Generally speaking, if a rental is taking a long time to rent, it's often because A). it's not being marketed correctly, B) it's priced too high, and/or C) whoever's managing it isn't doing a good job responding to inquiries/setting up viewings.

Based on what others have said, it sounds like you may be priced too high.  But, it's also possible that the property isn't being marketed correctly and/or that you PM isn't doing a good job, so I'd say it's worth looking into those issues as well...

It's a good-looking A- to A property, and it looks like you've got professional photos...the presentation is good...but, as others have mentioned, even the best-looking property might not attract tenants if something about the property (its rent, its location, the types of tenants it attracts, etc.) is out of sync with the market...

It's worth considering: who is your target consumer? Is it three young professionals splitting the rent? Is it a wealthy couple who want to have a lot of extra BRs and BAs? Is it a family with a kid or two?  ....considering that it's got 3 bathrooms, I'm guessing it would work best for three young professionals (and if you rented it by the room, you'd be more likely to hit or exceed your rent target).

Good luck out there!

@Matthew K. That's a lot of info, and I'm not entirely sure I follow everything after one read-through...

However, this may be relevant: I was recently looking at doing a cash-out refi to fund purchasing another property, and in my case, the numbers really didn't make much sense because it would have turned the property I had from a cashflow all-star into a mediocre cashflower, all so that I could buy another property that would also be a mediocre cashflower in a market that is very uncertain...in essence, I would have been taking on way more risk for no increase in net cashflow (sure, you could argue that the new property would have added a new source of appreciation to my bottom line, but right now doesn't seem like the best time to be reliant on short- or mid-term appreciation). As many have said many times: having a plan that hinges on future appreciation is essentially speculation (perhaps now more so than ever, given market dynamics).

Good luck out there!

Unless you have a LONG history with the agent and you trust them with your life, don't base your financial models on your agent's rent estimates (and even if you do trust this agent with your life, still don't base your models on their rent estimates).
Do your own market analyses to get an idea of rents, and then assume that you'll charge 5-10% less than the market (which, you'll often find yourself doing in order to get a tenant placed to stop the bleeding--especially when you're new and running on thin margins).

I've been working with my agent for many years, and I completely trust him on all things real estate. He's probably the most knowledgeable person I've met when it comes to residential real estate. But I still do my own market analyses.