All Forum Posts by: Mike F.

If there is going to be another person living there, it's pretty simple, it's no different than renting it fresh to two new people. 

Get an application from the new person, sign a new lease with the new person, up the rent to market, they are both responsible for paying the rent, both responsible for maintaining the place and both are responsible for any damages upon move out. 

As said by Sue, I don't see why it's a big deal to have him sign a new 12 month lease with terms of keeping the rent the same for the next 6 months andn acceleration clause for the rent increase in 6 months. If he squawks like Sue said you could just say, no problem I'll keep you month to month, then you've still got the option anytime with 30 days notice to either raise the month to month rent by $100 or hand him a new longer term lease later at a new rate.

Michelle, there is no right or wrong answer there are only levels of comfort and risk which are directly connected to risk/reward, your tolerances to it all. There are people who believe any investment outside of a CD is too risky, there are people who will bet the farm, putting everything on red or black and if they bust they just take solace in the belief that some of the most successful  and wealthy people have said they went BK 3 times before they finally hit it big. My only opinion is what I would do or what I have done based on my goals and my levels of comfort. You have to start with yourselves and start outlining your levels of comfort and risk to get started in all of this, and then bouncing them off places like this forum to get feedback and continue evaluating your choices.

On the surface your plan of taking on 'good' debt (equity of your home) to pay off bad debt (car debt, CC debt) appears to be a good one. I say that also based on if you would then apply the freed up cashflow toward positive things, such as paying off more debt or building equity or purchasing assets. If the freed cashflow goes to living a more lavish lifestyle, going on a vacation or taking on more bad debts then the whole plan is flawed.

Yes Michelle, be very careful and take this slowly, you're leveraging here with your current plans of getting investment capital out of your equity. Would have been a great plan 3 years ago and you would look like a genius. Done 8 years ago you would look like an idiot. 

Doing your cash out refinance and paying down debt with your extra free cashflow you gain every month is a win/win since you're getting ahead and gaining networth each month. Doing your cash out refinance and using every dollar to service new dept leveraged in investment real estate will put you at risk to the economic cycle.

I would plan all your investments based on best and worst case scenario, using the great recession as your worst case, if your plans succeed through a worst case scenario then that's a sound investment (you won't get a high a return because you will be leveraging a lot less, but you will be safe from going BK, losing all your investments and your current home).

There are plenty of ALL-IN type investors, nothing to lose mentality investors, they all look like geniuses during the up cycles but they grow very quiet and disappear and go bust in the down cycles. Getting rich in real estate with that mentality is like trying to get rich through a lottery ticket.  Real estate investors with true net worth typically get their slowly, making great money in the up cycles and still making money in the down cycles but most importantly they are preserving their wealth in the down cycles and are then able to safely leverage a small percentage of safe wealth as the down cycle turns to the up cycle again. 

The long and the short of what I'm saying is go slowly and invest a portion of your capital, keeping reserves intact and always keeping a safe margin of networth to "good" debt ratio.

You don't need to appeal to all buyers or renters. Better to appeal to the market you are looking for. Adults without kids prefer a shower over a tub hands down. Adults with kids ages 2-5 years old prefer a bathtub hands down. Who do you want to rent your place? You  don't need all renters you don't need all buyers, for renters you just need the ones you want, for buyers you just need one.

It seems the majority of investors on these forums buy for cash flow, but Colorado is great for appreciation which is where your net worth comes from. Your grandmother is worth what she is not because she has 2 million dollars in real estate debt with some cashflow, she is where she is at because she bought and paid off and has equity which is net worth.

A SFH is a great investment in Colorado as it has the best appreciation rates. I say to buy one property first, get your feet wet, learn the ropes, go slowly. Conserve your capital, nobody went broke from being underleveraged with money in the bank. Get that first rental, have some cashflow and put every dollar back into paying off that mortgage. Be wary, think long-term, the market today may not be the same in a year, don't put yourself in a leverage position that could put you at jeopardy if the economy goes in the toilet. Your grandmother got where she is slowly, nothing wrong with that.

Alex can you put some numbers to the above as far as expected returns would be?  I have some cash that needs to go someplace and am considering options also and am curious what the expected returns could be on those options you listed.

Thanks

This is where I think the biggest differences lie between the pros and cons of self versus property manager involvement.

I'd hope the PM has the long-term best interests of your rental in mind above all else, however business is business and people are people, with the choice between keep spending time on meeting prospective tenants for another month with no commission, or getting a payday by accepting a marginal renter who technically meets all of the requirements on paper but lacks that solid vibe you as an owner are looking for in a renter, I think the PM will take the easier more profitable path, especially since the system is set up for additional profits for the PM for the worse the tenant turns out to be.

So how did your unit get shown to a new renter with damage to it? You said at the last walk through everything was as it should be so I'm assuming your PM actually met with the previous tenant at vacate. Did the previous tenant criminally break back into the unit after they vacated?

There is no advice to be given since you choose to use a property management company, I'm not trying to convince you to change and there can be no advice if you feel this company is doing an outstanding job.

The point of my reply is that while you're praising the situation, I see it as the opposite. It's common sense to understand that given two equally capable people managing a property the difference between them would come down to motivation, who has the most skin in the game, who has the most to lose, who has the most to gain, who has a personal buy in to the property, who's attentions are divided more between properties?  It's never a shock to hear sudden surprises from property owner's having things like this occur when they are hand's off. Let's face it most property management companies are reactionary with very little being proactive, self-management tends to be the other way around. 

Not saying you should change what you're doing, it's the reaction to this that I'm commenting on. My reaction would not be, "Thank God I have a property management company in place to deal with this mess," my reaction would be, "Dang it, got bit on this one, well, that's the price I pay to have a property manager in place, just the law of averages biting me in the butt again, guess it's the nature of the beast." The lesson to newbies is there is a price to pay with hands off management, there are pros and there are cons, this one is not just a random act of God, it's one that is an example of the cons of using a property manager.