All Forum Posts by: Michael Garofalo

If she already moved out and is not living in the unit, I'm not sure I would pro-rate anything. You are doing everything you can to remedy the issue in a timely fashion. Even if she was still planning to stay for another 6 months, I would not pro-rate anything. Now if it took several weeks to get the hot water heater installed, that's a different story. IMO 3 days is not a big deal.

No problem. I have found that $25 is the gold standard when it comes to raising rents YoY. $50 on $490 is over 10%, so proportionally that is somewhat substantial.

Again, if it were me I would not increase it all, at least for the first year. Let's say you increase to $50, that would equate to $600 in added revenue over the course of the entire year. If he doesn't like that and decides to leave, and if the unit sits vacant for more than 1.5 months, financially that rent increase makes no sense. In my humble opinion, you probably will not be able to find a qualified replacement tenant at $540/month given it's condition in such a short time frame. And if he has as much junk as you say he does, then showing it to prospective tenants before he moves out probably will not yield you with the demographic you are seeking.

Hey @Gary David,

As a general rule of thumb, you should get familiar with your local and state laws re: rent increases. Even if someone has been there for a long time, some states do still have rent control measures in place. You need to honor the existing lease terms. Once that lease expires, then you would be able to increase rent in accordance with local and state laws.

Personally, I would not raise rent on a tenant who has a history of paying that has been there that long, if I did not have the cash reserves on hand for a full-scale renovation. If I were you, I'd let this tenant live there for another year, and collect rent from him at the current amount until you have enough cash saved up to afford the vacancy and unit renovations. If you increase rent and drive him out now, the unit sitting vacant would be a problem and if it is outdated, you won't find anyone to pay the fair market value of $750. 

Once you are financially ready to renovate, I would still give this tenant ample advanced notice. If he's been there since 1998, the humane thing to do is to let him know what is coming so that he has enough time to make alternative arrangements. Yes this is a business but coming in guns blazing on day 1 saying you are going to raise the rent drive them out will likely not end well in your favor.

A final word of caution: please make sure if you go through with buying this you do have cash reserves for unexpected repairs/capex. If you don't have any sort of nest egg, you may want to question this purchase or identify alternative forms of financing so you have a buffer in case things don't go as planned from a cash flow perpsective. 

That is completely up to you, @Adam Na. People probably have mixed thoughts about that. Me personally, if it was as tenant I had for years and knew they had a good track record, sure I would potentially make that concession for them if their financial situation changed. For someone you have only rented to for 2 months, it's probably a tougher call.

The best advice I can give would be to have an open dialogue with the tenant over the phone to understand their situation. Given everything happening with Covid, I tell other landlords to try and be flexible and work with the tenants, assuming they are respectful and not causing issues. Now, if this tenant was late on their first 2 payments and is calling you every week with unnecessary/annoying requests, then that is another story and i probably would not show any degree of flexibility since they aren't doing their part to be good tenants.

@Heidi Smith you don't need to close your HELOC if you don't want to. You just need to get a subordination agreement prepared and signed by the bank who holds it. I refinanced my primary residence 1st mortgage a few months ago, but left the HELOC in place so I still have the revolving line of credit available to me and wouldn't be forced to re-apply for another HELOC (and thus deal with all the paperwork and headaches associated with that).

If I were you, I would go this route. I've heard a lot of banks are not offering HELOCs to customers at the moment given the economic turmoil caused by Covid. If you close it and think you can easily get it back, that might not prove to be the case.

@Will Vines I would not do this. While it sounds tempting to accept that much cash up front and parlay it into something else, this to me indicates something is off. Just think about the situation at hand and your own comments made. If it feels sketchy, it is sketchy, and jumping to rent to this guy may end up costing you more in the long run.

@Charles Paddock I can answer your first question. For proof of funds, a letter of intent is likely not going to be sufficient. You need to show bank statements or lines of credit, to illustrate cash (or cash equivalent) in hand. Whenever I have been asked to provide proof of funds, I would take my HELOC statement or bank account, and just blur out the account numbers or other sensitive data (aside from my or my entity's name, of course) before sending.

Maybe others have had different experiences but I know if I was going to sell, a letter of intent would not be acceptable form of proof of funds.

@Connor Brokenshire I'll be honest, I have never heard of a plumber recommending you flush 2x to get things down because the pipes are older. Is this someone you've worked with before and trust? A sewage backup is caused by 1 of 3 issues. Either the tenants are flushing things down they shouldn't be (baby wipes, paper towels, hair etc.), roots from trees are penetrating the pipes leading to the street, or you have a collapsed pipe somewhere that needs to be replaced. Just this past year, I replaced the main sewer lines in 2 of my properties, and have dealt with tenants flushing things down they should not be. 

If I were you, i'd get a second opinion and have a plumber snake out the main line then scope it with a camera to confirm whether or not you have a bigger problem.

@Josh Rodriguez yes they will count your rental income but you have to have the tax returns to prove it. Ideally you would have that income appear on the past two (2) years. If you just bought the property and have valid lease agreements in place, then you might be able to count a portion of it. At the end of the day, each bank has their own set of rules, and it depends on the type of loan you are trying to get. Community banks are always the easiest to work with on these types of things. It's best to talk to a variety of lenders to see how they would treat things and then pick the one that will be most accommodating with the best terms. 

Hey Tyler,

Rentometer is good, I use it when I evaluate any deal and one of the local bankers I work with also uses it to supplement their underwriting process. Just be sure to put in the exact number of beds/baths, and focus on the average number. I have been able to rent out my units around the average, with a buffer of $25-$50 depending on the time of year. With Covid and people not moving around as much, I would say run your numbers with the assumption that rent would be $75 or $100 below what the average figure is, if you really want to be conservative.