All Forum Posts by: Lindsey Voorhees

Except for a few so-called "experts" on these forums, PMs work at the direction of the owner. If your brother didn't want rents raised, that's on him, not the PM. Seems like the fees the PM is charging is fair. If your brother kept him for 19 years, he's probably pretty good at his job. 

Before raising rents you need to find out the condition of the unit. If your brother bought a 10 year old unit and the tenant has been there 15 years, it's safe to assume the unit hasn't been updated in 25 years. That may be part of the reason rents are below market. If it is, it's up to you to decide if it is worth it to have the unit vacated and updated so you can get market rent.

Assuming rent is below market taking into account the condition, your tenants are fully aware of this. Nothing wrong with rewarding a good tenant with a little under market rent. Little being the key word. 5%-10% max.

I would not approach the tenants asking them about increasing the rent. YOU make this decision. It's not a negotiation, it's a seller offering a product for its value. If the current buyer doesn't want it at the new price, someone else will. 

I wouldn't worry too much about the 10K repair to the one unit. Most people view it as an expense, but I view this as an investment. By spending 10K, it allows you to rent the unit. The return on that 10K is going to be spread out over the next 10-15 years. 

#1  I'm sorry to hear about your brother.  This is never easy.

#2  is being an out of state OOS your dream?  It might his dream and passion, but maybe not your passion and dream.  If it isn't, sell them.

#3 Can you qualify for the mortgages?  That alone might answer your question.  Also remember depending on when he bought them and when the mortgages were originated the interest rates might be very different today with higher payments.  Lets say he bought 5-10 years ago they might be at 4-5% on the loan.  If you refinance in your name today it might be more like 8%.

#4  OOS investing not always easy or for everyone.  You might just sell all of them and put the proceeds in good growth mutual funds.  Much easier to manage and less to think about, less stress.  I don't think that would dishonor your brother at all.

#5  Nobody likes their property manager.  I'd be interested to see who it is.  Same company for all 6 homes?  How do you feel so far about their service?

#6  One thing I also don't like is that rents seem to be low, net cash flow seems to be low.

Would add a column Under MKT Rent =  (Market Rent - Actual Rent) / Market Rent

This will give you can idea about how far under rented the properties are.

From a quick glance, 3 appear to be significantly under rented: Meadowbrook, Mardell, Waterview.

Low tenant turnover is one goal of landlords, but NOT at the cost of never raising rents!
That's a very distorted view of the idea and often tied to mental inertia.

YOU NEED TO ASK YOURSELF IF YOU WANT TO BE A LANDLORD!
There's going to be a decent amount of upfront work to properly balance this portfolio:
1) Probably finding a new PMC, which is NOT easy. Just read some of the many negative posts here about PMC challenges.
2) At least 2/3 low-rent tenants will probably move rather than accept a decent rent increase. The properties will probably need expensive rehabs like the $10k you just spent, probably more. You may want to do one at a time to not get into a negative cashflow position - starting with the worst one first.
--- INCREASE STRATEGY: send tenants a letter referencing Zillow rents and ask how much of an increase they think is fair. You're looking for at least 10%. Get rid of the tenant with the smallest increase. 
3) You'll need to monitor the rehab expenses. Many investors somehow think that PMCs are experts at everything, including rehabs. NOT TRUE! So, this will be another investment of time on your part.
4) You'll ALWAYS need to "manage your manager". Once you get through the above, plan on 4-6 hours/month. Even the best PMCs make mistakes that you need to watch for. 

FYI: call the lenders to find out what type of mortgages these are. If FNMA, FHLMC, FHA or VA, they can NOT force you to refinance as long as you keep payments current. This applies to most other types of mortgages also. IGNORE the lender verbal threats and hire an attorney familiar with mortgages advise you if the lenders send a foreclosure notice.

You may consider spending $300-400 each for a professional inspection of each property. This will give you a pretty good understanding of their condition and deferred maintenance. Any that are more than 30 years old, also get a sewer-scope to avoid surprises there. 

Get with the insurance agent on these and have yourself added to the policies. You'll also want to understand the amount & type of coverage. The longer held properties are probably under insured. 

Be careful about advice to put these in an LLC. With enough insurance it's usually not needed and can cause other issues. If you can avoid the deeds going into your name at all & directly into an LLC, it may allow you some anonymity. Just don't register yourself as the LLC agent!

Try to remove any emotional attachment to this portfolio! Make the best decisions for you and your future lifestyle goals.

When you say Potential Income if Sold, why are you taking the Estimated Equity and deducting the Principal? Equity is exclusive of debt (ex. Place is worth $1M and there is a $400K mortgage balance = $600K in equity). If sold, you get 100% of the equity. The Potential Income if Sold column is meaningless, get rid of it.

Those mortgage payment numbers have to have the property taxes escrowed into them. 

Rent minus mortgage = Gross. But you say that the gross includes the property management fee. Only way that is possible is if the rent is actually higher than what you have listed. Find out what the actual rent is and put PM fees in its own column. 

Let's assume the vacant unit gets rented. You're now cash flowing around $3.3K per month. That's only 3.3% return based on 1.2M in equity. However, unless your brother did something crazy like very large down payments, it appears that these places have seen decent appreciation.

Taking property #1 as an example, I'm curious why rent is showing at $1480. Zillow (😒) estimates rent at $2353. Looks like this long term tenant moved into the place and was paying $1095 in 2011. Why isn't that rent $500 a month higher? Property #6 shows rent at $1550, but Zillow estimates almost $2,300. Also, it appears the rent hasn't been raised since move-in 5.5 years ago. All the while the value of the place has gone up close to $100K. That renter is getting a $100K more expensive item for the same price. 

Confirm all current rents and what they should be at. Get them up even if you plan on selling the places. I'd suggest breaking out all the costs into their own column on the spreadsheet. That way you can easier see what can be addressed and what can't. 

I'd strongly suggest that you spend a few dollars and talk to an attorney. My guess is the bank would like you to refinance so they can adjust the interest rate from around 3% to around 7%. Have you looked into the possibility that you can assume the existing mortgages since it was an inheritance? 

Your numbers cause concern. You list a current net cash flow, but there is no mention of how much the property manager is taking to manage the units. 

You list a 609K mortgage balance, but a $7,500 month payment. At a 4% interest rate, that's about $2900/month. Can we assume that your property taxes are rolled into this payment? What about insurance? 

Have you figured out the return on this investment. You have 1.2M in equity. At a safe 5% ROI you'd get $60K a year. Between principal reduction, appreciation, and actual free cash flow, what are you making?