All Forum Posts by: Marc Globensky

 Yeah Why would I pay tenant in causing damage to my property money to leave. I'll win in court.

 So its a double qualification? Does this still apply if the buyer qualifies for the mortgage by themselves without the rent?

It depends on the properties you buy. Some properties based on location, age of mechanical equipment, and property health are incredibly costly upfront if nothings been updated. Having a PM that has preferred vendors/contractors and an internal maintenance staff typically save you money because your pm gets discounts for the business they provide the vendors/contractors. If your properties are older than 10 years, I'd hire a PM and hang on for a bumpy 5 years it'll be expensive even if you do BRRRRR there's always something wrong. Additionally, if you've never livid in that market a PM is a Pro in that area and can better provide insight on what rents really should be and what type of tenants to market to for your property types. Your PM also has the advantage of seeing the tenants before leasing it out were as it might not be advantageous for you to spend two hours commuting just to let a prospective tenant view your property. A PM would also have more experience dealing with bone heads that maybe aren't the best of people to rent to based off a single conversation. My wife and I manage our rentals in Indiana but not in Texas, but we currently live in Arizona. the biggest reason is my experience in property management and high expectations of property managers puts me in a position to think most of the PMs in Indianapolis are garbage and or incompetent at their jobs... I have tons of horror stories in dealing with 3 different property managers in Indianapolis. However, the ones in Texas are great and will never manage my rental their as long as they keep up the great work.

I will tell you though when you start interviewing PMs you need to ask these questions.... When I found out that some states charge these things, I realized I overpaid for my rentals, and it made my propeties immediately lose money.

Do you have an in-house maintenance team? How many people are the team? How do you charge for their repairs? Is it included in your property management fee or additional?

What does your fee structure look like? Is it a flat fee ie 100 dollars a door or 10% of rents? Do you charge for new leases and lease renewals? If so how much? Do you offer discounts for the more properties I provide you?

How long are your unit turns taking at the moment? What's the average cost of the turns?

What are your new tenant qualifiers that you look for? IE does the tenant have to make 2x rent or higher? IE what does an acceptable criminal history look like? What credit score gets a new tenant accepted? What do you charge for a class C security deposit? 2x rent? What type of properties do you currently manage?

These questions in my opinion are the most valuable. How the pm treats their rental requirements will determine if they are good at managing your assets. I had a property sit vacant for 3 months because the PM required a 3x deposit and income requirement in a class C minimum wage neighborhood. You don't charge that for class C. At most security deposit should be 1 month rent, and gross income should be 2.5x income tops, but not less than 2x income. Obviously, it depends on local laws, but knowing your local micro market makes the difference when marketing.

Hey all,

Thought someone would find this story helpful or entertaining at the very least. Also advice is also welcome.

A little bit of background on me my experience and the tenant. I have been managing Retail, Office, Industrial, Section 8, and SFH/MFH properties in Phoenix since 2018 and have seen some wild shhhh-tuff. The craziest thing I've seen though is in my wife's rental. I do not understand it but literally every single thing that I've dealt with in my several years of property management I have had to apply to my wife's home... Yes, we did pay 4k for an inspection prior to close and none of this stuff came up.... Here's a list that totaled to this year alone being 35K and growing worth of repairs:

1) Replaced both furnaces from tenant damages 2 times.

2) Replaced stolen AC units from previous seller stealing them.

3) Repaired duct work in multiple locations from previous owner improper installation plus wear and tear.

3) During covid I went through 3 property managers because they refused to evict a tenant that ultimately didn't pay rent for 6 months and cost us over 10k in unit turns. Part of this was why I went through 1 of the 3 property managers. They decided to make a 5X5 box for a closet in one of the bedrooms instead of knocking a wall out and closing the other sides sliding door that was originally the closet.

4) B unit panel was damaged by someone likely the tenant and has wires dangling out and now we have to replace and update it.

5) A unit didn't have the right switches and amp levels, so a panel upgrade was completed to support the newer AC system that was installed.

6) B unit flushed their childs diapers down the toilet and clogged the unit up and we ended up having to spend 6k on having a plumber come in exuviate adn reinstall a new sewer cleanout.

7) Replaced every toilet due to damages/wear and tear and had multiple roof leaks from upper unit to lower unit. 

8) Due to the leak ended up having sewage remediation company come out and rip out drywall, carpet, faming, and plumbing.

9) Due to the toilets and sewage am still currently working on replacing the carpet which was brand new due to the unit turn... 

10) The tenant in unit B cut holes in the walls of the exterior of the home and because they leave food out in their kitchen, we now have rats in our walls and a random racoon.

Now before I go on to the last major item note that most of these issues are completed and were completed in under a week. The roof leak and toilet repairs have taken quite a bit of time due to insurance company issues but was still done in under a month. The only issues still needing done are the carpet reinstall and following up on the rates and racoon to make sure they aren't back in the home. The rats and racoon issue were as simple as repatching the holes the tenant cut out for them with one-way doors and bate traps. Obviously, there are continues efforts to make sure they don't come back but 6k later the issue was told to us to have been resolved by the licensed contractor...

11) Due to the issues the tenant is experiencing with all the random repairs and constant contractor visits he wanted to break his lease. Unfortunately, the IAR lease we used doesn't have an early termination clause instead it states that should they terminate their lease they are liable for the entire lease duration. Which is over 16k, so I told them if they just gave me a move out date, I would keep their security deposit and call it even... I also informed him that any damages done to his personal belongings are to be covered by him and his insurance as that is what renters' insurance is for and is specifically referenced by an example just like this one in the renter's insurance lease addendum.  Apparently, they didn't like that and filed a complaint with the Department of Health. What they don't know is what this process typically looks like... The DOH won't come in and condemn the property or break their lease unless it's a serious issue. I've dealt with them in the past in Phoenix. What does happen though is the DOH will come in and inspect a bunch and every time they come in and inspect, they find a new bs issue to repair. The issues they gave us weren't that bad either they want us to reinstall the carpet, fix a door the tenant punched a hole through, replace their screen door or remove it, fix a couple of windows that the tenant glued shut, and replace drywall that was completed during the repairs from the toilet leaks (when the DOH inspected the property it wasn't finished yet). If anything, the tenant just pissed me off because they could have brought the issue to me or moved out. Their security deposit is 700 dollars. It's not worth all the drama. I also plan on serving a ten-day notice for all the damages he's caused now. At first, I was going to let it go, but now FUUUUUdge that. Indiana is a weird state though you can't take a tenant to eviction and get the judgement for nonpayment of rent or damages while in eviction court... You have to take them to small claims court and get a judgment. So basically, I'm going to serve him a ten-day notice for the damages for repayment and if he doesn't repair, I'm going to take him to small claims court. either that or he forfeits his security deposit and move tf out.

Also his lease stipulates specifically that the windows are supposed to be able to open and if glued shut or otherwise damaged he is required to pay for the repairs. 

My wife and I have gone above and beyond for this tenant on the repairs and have handled waaaaayyyy more maintenance requests then what's listed here too. I understand his perspective, but he signed a contract. 

oh dude!!! that flooring is perfect for a rental. I'd recommend in the future open the box and look at the flooring. this unit looks great and should have no problem renting. if you hate the flooring so much I'd recommend negotiating a discount maybe 10-20% off but don't be shocked if that doesn't happen. in the grand sceame of your investment career this is nothing trust me. you'll be fine.

 Is w2/1099 income no longer used in addition to other units income during the underwriting process for these types of property?

Are you talking about FHA/VA/Conventional or simply DSCR?

I don't see how this would ever work in an owner occupied 2-4 unit. I've always been under the impression that you can only use 75% of the leases rents in underwriting for gov backed loans along with w2/1099 income from previous 2 years, and the buyer has to live in the property/one of the units for at least 12 months. when the average rent for a 2/1 in theses types of cities are 800 that will add up to 2400 on a 4 plex with 3 tenants. on a 250k four plex this would never work with 0-5% down on an owner occupied. it makes using a government backed loan impossible to use basically.

When I look into something like this, I find it very hard to rationalize what's going on... Mortgages were essentially invented by banks in the 1950's to profit off home purchases and create opportunity for everyone to own a home. Our economy currently has similarities to 3 major bad economic times. It relates to the great depression because of spending and failing banks due to bank runs and poor investment strategies, the 1979–1988 time frame with high rates, and 2004-2008 excessive growth in home values in a short time. One thing I see a lot of YouTube and market experts fail to consider when they look at the inflation affordability and growth of our economy is the average age of people who purchased their first and second homes during these time frames. from what I've looked at the average age has gone up. Additionally, in 1988 the average college graduate started out making 58k a year when mortgages were at 18% and homes were 50-90k but the amount of people living in America trying to buy a home was substantially less and the internet wasn't big enough to sell from your couch to directly impact a national housing market. By this I mean moving from California to the Midwest and paying cash for 4-5 homes was almost impossible unless you knew a guy because Zillow didn't exist. 

However, there are also other indicators that show a very healthy economy like low unemployment, growing GDP, low PPI, and a recovering/lowering CPI... 

If we do have a phat economic correction like we did in 2008 it won't be because of what's already happened it'll be because of some new thing we've never dealt with before.... Or WW III could pop off and then this simply doesn't matter...

Although I will say this, in terms of affordability, for the new and average home buyer, either home values have to go down 30% or more to cover the phat increase in rates should they stay (which they will), or rates have to become normalized around 3.5-5.5 to justify the current home values. New college graduates today make just as much as a new grad did in 1988 there hasn't been much wage growth per say. Also, with the re-addition of student loans and growing demand for bachelor's degrees for minimum wage jobs outside of retail, come January next year we may start to see the economy slow down for those that were ignorant and unprepared. I expect to look back at the last 5 years 10 years from now and say to myself I'm glad I spent time educating myself and paying down debt rather than trying to grow...

In all reality though Mortgage rates will stay at or around 7.5-8.5% and home values may go down depending on your area by a marginal 3% if our economic history repeats itself...

Have you looked into barrowing against the value? Most retirement accounts allow you to barrow up to 50k I believe for any reason. if you have stocks you can also do margin barrowing. If you have a whole/universal life policy you can also barrow against the cash value as well.

 Could you expand on this a bit and provide an example of what you mean?