All Forum Posts by: Mike Wood

@Jason Hines  I believe you are confusing an eviction with the end of a lease.  Since they are month to month, you can likely give them 30 days notice on non-renewal (pending confirmation that is what the current lease states and that notice complies with your local laws).  But that does not guarantee that they will move out, given the current COVID issues.  If they refuse to move, then you must file for an eviction.  You can not force them out, if they do not leave voluntary then they must be legally evicted.  Given that a lot of courts have stopped evictions (for non-payment of rent) during the COVID pandemic, you might be stuck.

Personally, I would not try and raise the rent on a current tenant 50% all at once.  I just don't think it will work.  I also think making the current tenant reapply and do a full background credit check is not a good way to start your relationship.  They have 10 years of rental history, you have inspected the place, so you should have a good idea of the kind of renters they are.

Lastly, if you are convinced you can rent the place for 50% more than they are paying, I would wait until your local courts allow eviction for non-payment of rent (current CDC guidelines limit evictions for non-payment of rent until the end of 2020).  Once you know that you can legally get an eviction, I would provide the current tenant with notice to end the lease.  I would not even offer them the 50% increase unless specifically ask.  In the meantime, I would collect the current rent rate of $800 until I provide them with the notice of non-renewal.

@Nagendran Manidas The value of the empty lot would count toward the equity/down payment if you owned it free and clear. The banks will NOT care about potential equity, as they are only concerned about protecting their investment.  From there perspective, they are concerned if you default midway thru the build, and they are left with a half finished project, in the case, there is no equity in the project.

For example (using round numbers, as I have no idea of the specifics of your project), if you purchase the house for $50k, and the land value is $40k, the would give you credit for the $40k as equity toward the 25% of total costs that you need to put up.  If your demo, soft and build costs are another $200k, then the total cost is $250k, they would lend up to $187.5, which would require you to put up the other $12.5k in addition to your original purchase of $50k.  While I have seen banks lend up to 80% LTC, most will not, especially now with all the COVID concerns.  You may also run into alot of banks that will not give you a construction loan with zero experience.  

Even as a long term hold, I would not be crazy about this deal. For my builds, I want 25% or more built in equity and at least $200 per door cash flow. For me the equity is a bigger deal, as the long term financing limit of 75% LTV for 2-4 unit play a big roll how much trapped cash I have in the property.

@Nagendran Manidas Your post is missing alot of useful information. Are you planning on selling or rent the units out. If selling, anything less than 20% profit is simply too small to risk, as you will have closing costs that will eat up most of 10%. If renting, you will need to see if the property will cash flow once financed (assuming you are looking to finance this once built, which would be max 75% LTV for a 2 unit property (max 70% LTV if you cash out).

As for financing, I think that may be tricky, since you would be initially distroying value as you demo the original house.  Typically, most investor construction loans are going to want you have down payment/equity of 25% of the total costs of the project, or put another way, they will finance a maximum of 75% of total costs (not value, costs).  Talk to local banks that do investor construction loans to see if they would do that.   Terms on construction loans typically are in the 5-7% interest, interest only payments based on the draws, and 12 month terms.

@Emily Wiu  That HVAC company left you with a mess.  Like Dillon, its hard to tell what they have done, but the equipment is never going to operate properly as left from the previous company.  We are not sure what they told you when they left it like this, but have to assume they told you it would not work and left.

How old is the equipment?  It appears to be a Goodman gas furnace with a cooling coil above it.  I have never seen a cooling coil installed in ductwork like the original installation, its a pretty sketchy original installation. 
If the equipment is older than 10 years, I would say stop wasting money on repairs and get it replaced (you may be able to reuse the existing outside compressor it uses R410a refrigerant, but if its R22, it junk).

The way they left it, it is not operational for either heat or cooling.

Personally, I would review what you paid to the original HVAC company and see how they took advantage of you. The fact that they made 5 trips and left it in this condition is very alarming (personally, I would consider sueing anyone that left the job in this condition unless they told me about it and we agreed to it).

Additionally, given the condition and arrangement, I would simply plan on a full replacement, as the arrangement of the equipment is not typically, making it very serviceable, and its likely the equipment is older and does not have alot of useful life left.  Just a guess, but your likely looking at $2500-3500 for the replacement (inside air handler/furnance and outside compressor).

@Theo Daubresse  We personally use a minimum credit score of 650, and have found it to be a very good indicator of who will pay their bills.  Before we implemented this minimum score, we tried or many years to not use a score and only look at the credit report for recent delinquencies (less than 24 months old).  What we found was those will low score almost always had issues with paying on time or with returned rent payments (insufficient funds).  Based on my experience, anything under 550 is nothing but trouble, unless they are young and have no established credit. 

If you are renting in C- or D areas, you will be forced to accept tenants with low credit scores, no way around it (higher quality tenants are not looking in those area very often).  But if its in a B area, then credit score is a very good way of anticipating future problems.

As for security deposit, its always one (1) months rent.  And we do not let anyone move in without fully paying the security deposit, as once they are in, it is nearly impossible to get any security department balance.

@Troy Sorrento  Are you saying that you found someone over the weekend that needed to move tomorrow?  In my experience, anytime you have someone needing to move in less than 1 week, its a major red flag.  Of my twelve units, with my first units rented over a decade ago, my only two (2) evictions were from tenants that provided excuses about having to move in less than one (1) week.  Not sure about your screening process, but I hope you checked them very well to avoid any surprises. 

@Troy Sorrento  You will need to get used to tons of people acting very interested during initial conversation and showing, only to have low percentage of people actually following thru with applications.  That's the business.  I would guess that for me, 10-20% of the people that I show the apartment to complete an application.

If you haven't found a tenant yet, your pricing is wrong.  That is the primary reason.  Even a bad neighborhood or strange layout can be overcome with the right price (not saying these are the issue here).

As for your qualifications, I think the request for credit file and landlord letter to be a waste of time.  Good tenants will find that to be burdensome and bad tenants can fake those.  You should be doing these as part of your due diligence during applications review.  There are plenty of services to run credit checks and background checks (Cozy, Smartmove, Zillow, etc.).  

You should also consider using an online application (Cozy, Zillow, etc.), as I highly doubt that anyone will fill in a written application right there on the spot, it takes time and the applicant will feel pressured to complete it.  When I did use paper applications many years ago, I think only once did someone complete the application on the spot, most would take it with them.

I also think that asking for deposit, first and last months rent (basically 3x rent to move in) is also an issue, that's $4500 for someone to move into your place, not exactly pocket change.  

If you think the rental requirements are an issue, I recommend that you be upfront about that in your listing information and initial contact with the perspective tenants. This will avoid showings that will never lead to applications.  For example, we require a minimum credit score of 650, that along eliminates 50% of my initial contacts for most of our properties.  If I don't mention that until after the showing, I have wasted their time and mine, showing a unit that they can not qualify for.

And again, lower your price since you've had almost 2 months and its still not secured with an tenant.

@Patryk Prokopiuk I agree with others that if your not comfortable, you should walk. The seller knows that they can find another person to sell it to, and are not likely even worried about your "list" of issues, since some of them aren't really issues.

My guess is what you consider a real problem is just considered not in perfect condition. For example, you want to deck repaired or replaced because of some "rotting" and the fact it's not sitting on concrete.  The deck is functional as is, I bet, and the sellers know that.  No idea of what your inspector thinks "rotting" is, but its likely a very small issue that likely is not the end of the deck (or you would have factored that into your offer).  

If I was the seller, I would also tell you to walk and refuse to correct your list.  The pest control request would have been to nail in the coffin for me personally.

I would suggest that you reevaluate what you need.  If you want perfect, I would only look at new construction or renovated properties.

@Calvin Brock  You are not going to get a simple answer, as it depends on the quality of the rental, location and property type, etc.

Edward, based on what my lender is telling, it will affect any conforming mortgage. Maybe their bank has it wrong.