All Forum Posts by: Tom Lipps

@Jennifer T. Very good point Jennifer. In a few years I do intend to refi to purchase another rental property. @Joseph Cornwell Also really good points. The property is in the Oakhills school district (one of the better Highschools on the West side of town) @ Everyone Thanks everyone for the advice, I'm going to start making as many small changes/improvements as I can now with the intention of asking the current tenants to leave after their lease expires. I plan to give them a 60 day notice. I'm also going to try to find them a comparable place to live... I can see them fighting me and digging in their heels....

@Jim Goebelundefined

You make some really good points.  First a foremost, you may be right, I may be too aggressive with my cost analysis. I'm budgeting a lot for paint, and A LOT for laminate flooring.  

I also like your point about doing work now, while existing tenants are still there. They don't use the basement, so it should be minimally intrusive.

Hi BP!

I'm curious about your thoughts/recommendations here...I have a 2 bedroom unit with two tenants with declining health.  I mention this only to say they are relatively high maintenance. I'm averaging at least 1 call per week to make minor repairs (admittedly these are things that need to be repaired). I think I can "train" them to be less needy in the long term.

I inherited these tenants, and they're currently paying a 1 BR rate of $600 for a 2 BR unit. Their lease expires in October. A 2 BR rents for about $755. I can convert the basement to a 3rd bedroom, which has a market rate of $986.

Once their lease expires I have two options:

1. Raise rents to the 2 BR rate of $755 ( I may use a gradual increase to make it hurt less)

2. Request the tenants leave, flip to 3 bedroom, and rent to new tenants at $986

If I convert from  2 BR to a 3 BR, I've calculated a payback period of 2.3 years... here's the high-level of how I came to that number:

Annual Opportunity Cost:

• 3 BR vs 2 BR Rent = $2,790
  
• My Time (expect less needy tenants) = $1,183
  • TOTAL OPPT COST= $3,973 <-- This is a favorable number

Cost to get unit ready as 3 BR

• Total to flip = $7,551 (includes paint, new floors, converting basement to bedroom, etc)
•   2 Months lost rent = $1,510 
  
  • TOTAL UPFRONT COSTS $9,061 <-- This is an unfavorable number

Payback Period 

• =  $9,061 / $3,973 = 2.3 years (Note if I'm conservative in my nubers, this becomes 3 years)

Couple more things to note, they're set up on re-occurring payments and have not missed a payment. They're a bit much but in general, pretty decent folks and they keep the unit in pretty clean shape. (This is a B minus neighborhood in Cincinnati, OH).

So my question to you BP is:

1. Am I missing anything in my analysis?

2. If you were me, based on the given info, would you:

                 A. Keep the tenants and raise rents to a 2 bedroom rate? 

                               OR

                 B. Ask them to leave, convert to 3 BR, and raise rents to 3 BR rate with new tenants?

Thanks as always for the advice!

- Tom

Ever get a resolution on this? I'm curious about te final outcome.

Thanks for the feedback! My gut leans towards Replacement Costs (rather safe than sorry), but my ROI leans towards "Actual Cash Value" :-) I also have an umbrella policy. I need to speak to my agent to understand how that plays into this discussion..

Hi BP!

I have a question for you. My insurance Agent gave me two options to ensure my Duplex:

1) Replacement Cost

- if building is damaged the company buys the cost to replace the item

including current labor and material cost

- for example, if a fire occurs and kitchen is damaged and to fix it cost is

$10,000 the company would pay the $10,000 less your deductible

- if you want REPLACEMENT COST coverage you need to insure the building

for what it would cost to rebuild the building from ground up based on today's price for labor and materials

- Company replacement cost estimator shows it would take $328,000 to build the build like it is

2) Actual Cash Value

- this is similar to MARKET VALUE or Replacement Cost less Depreciation for age

- for example, kitchen fire again and to REPLACE the cost is $10,000, however if you

have Actual Cash Value coverage company would depreciate for the age and may reduce

claim with 30% depreciation, so payment would be $10,000 less $3,000 depreciation leaving

payment of $7,000 less deductible

Can you tell me what type of insurance you have? What are the pros/cons of each type?

Thanks as always!

- Tom

@Ryan Doherty Hey Ryan. One trick I've found to trying to age a roof (if you're lucky) is to go to the property on Google Earth, then use the option that let's you "go back in time." It will show you Arial shots from over the years. If you're lucky, you'll notice a particular year where the roof goes from old to new.

Please read full post,  I've answered all your questions already in prior posts.

Its a 600 Sq ft apartment,  and it took me about 3.5 gallons (I bought a 5 gallon bucket).

I didn't go with Color Place. See my earlier post,

"or those following, I bought the the Pro Series 200 paint from Sherwin Williams (About $35/Gal) per @Joe Splitrock 's recommendation. I'm hopeful that it will coat with one layer, saving me labor and time.

I went with a Semi-Gloss Creamy and plan to paint walls, ceilings, and trims with this (I think I will paint doors solid white). Once it's all said and done I'll upload an image to this post so you can all see!"

Still took two Coats in most places. Some I got away with one coat and touch ups.

Hi BP!,

I took better pictures yesterday with my DSLR camera and in the daylight. Here's the living room. The door, trim, and walls are all the same color... but notice that all look different? Maybe it's in my head, maybe it's how the light plays off them, but I'm still so grateful for BP (specifically  @Brandon Turner) for the idea to paint all one color.