All Forum Posts by: Nancy Roth

@Tyson Luthy

Chiming in more than a year later (Happy New Year 2017!): You provided such an excellent and well-organized list of factors, thanks very much. I have integrated them into my criteria list for prospective lessees, but wonder why you did not include some criteria that loom large in the Baltimore market.

One is the applicant's utility history, especially water bill payments. Because water and sewer charges are billed to the property owner, the tenant's payment of the water bills will not show up in the general payment history, as an electric or gas bill might. If the water bill goes unpaid the city levies a lien on the property that must be paid before the property can be sold or otherwise transferred. Also the rent courts in Baltimore have recently ruled that landlords may not bill tenants for water as part of their rent, leaving property owners scrambling to change the provisions in their leases. In effect one must pay the bill and get the tenant to reimburse. That is not very easy! So if I hear from a previous landlord in Baltimore City that the tenant owes for water, that's a big red flag for me. Is that not so in your market?

Also, as a last step in screening, many of my colleagues visit the applicant's current home to see how well the tenant has taken care of it. Sounds like you do not do that? If not, how do you assess that aspect of the applicants' suitability? 

Hi, I'm working on my first project, which is a well-located 2-unit building in Baltimore. I listened to the $1,000 series of "Doctor Cashflow" CDs, including the very last CD, which he hypes quite a lot in the first 5 CDs, and which purports to tell you HOW to approach the nonprofits who do the housing referrals for cognitively disabled adults. He keeps saying "Don't do it your way, do it my way," throughout the CD series. 

His explanation of the needs of high-functioning cognitively disabled individuals is still interesting and relevant, but I'm sorry to report his methods are now terribly out of date. He recorded the CDs in 2000, before the Internet was as big a force in the lives of nonprofit service organizations that do case management for their cognitively disabled clients. He assumes that if you start by calling the agency and talking to the person who answers the phone, you'll get off on the wrong track. That may have been true at one time, but now I can look up the name and direct email address and phone number of the person who runs the housing referral program and call them directly. And I have done so, in fact. 

Also (this is very key), the way these cases are handled vary widely state to state. I think he was working in New York State. But the program he describes is quite different there compared to that in Maryland, and I'm sure it's different from how your community in California handles it. 

Good luck,

Nancy Roth 

@JD Martin Hi, I take Section 8 all day, but also accept the need to do heavy, consistent screening of all applicants. Section 8 recipients are just like any regular market tenants--some are bad, some are good. Due diligence is necessary.

Appreciate your comment about how fast you expect to recoup the expense. I assume you mean in net operating income. When I first acquired the house I did not know enough to rehab proactively as you do. I just fixed what didn't work. Now I know better. When you buy a substandard house, what do you aim to spend on a proactive rehab?

A trustworthy contractor thought the lower kitchen cabinets were sturdy, so it could be granite going in if I can get the right price. 

BTW I'm not putting in a skylight to get more rent, I'm opening the drywall ceiling to reveal an existing skylight so I can call the room a bedroom. Without a window it cannot be advertised as a bedroom in Baltimore.

Thanks for taking the time to write.

@Dimitru Anton Thanks, that's helpful. I've learned from bitter experience to screen like crazy (including home visit) before signing a lease, to ensure the tenant knows how to keep up a property. I do have a tenant who has occupied a different house for several years, is raising her children there, and is keeping it up appropriately.

Dumitru Anton

Dumitru Anton

@Christine Swaidan If I want to advertise the middle upstairs room as a bedroom it has to have a window. This is an interior rowhouse, and like many in Baltimore and other older cities, the middle bedroom has no window except the skylight. So opening the skylight is a must. Fortunately it appears to be in very good shape, no sign of water anywhere.

@Greg S. I completely agree about the carpet. I'd never have installed it myself but when I bought the house it was already in and new. The tenant's young child made a mess of it. Out it goes--with her security deposit to replace it with something else.

Question for everyone: Some landlords I know have begun to install cheaper builder-grade granite in their rentals instead of laminate because of the durability. I haven't researched comparative cost yet but even if it's more expensive at the outset it evens out because it lasts forever. Has anyone else found it cost-effective? 

Thanks to all for your time and thought. I'm learning a lot! --Nancy

@Michael Gansberg 

Thanks for your advice. It's really an intelligent way to think about rental rehabs, I couldn't get my head around it until I saw what you wrote. 

@Julie Thevenow thanks for that. Also very helpful. 

Best,

Nancy

@Jeff Bridges

Hi, Jeff, your name sounds familiar and I may have met you. Thanks for replying. Yes of course I'd put on a cage for $100-200. But as I've written above, it would be a whole new HVAC system, ducts and all, for a house that has none. So it would cost a good deal more than just putting in a condenser. 

The kitchen would be getting only a slight upgrade, it was pretty new when I bought the house, but the laminate counter was a cheap one and is showing wear and tear only 3 years later, so to me it's not an upgrade on the kitchen so much as upkeep. As mentioned I expect to get only about $100/month more in rent.

Section 8 figures are so deceptive and confusing! The rental amounts they approve are often not in line with what they publish and in recent years in Baltimore, landlords have seen decreases in rent of the same units when they turn them over. So to figure this out I'm just using the rents shown on MLS.

FWIW, neighborhood is Pen Lucy in 21218. Not a war zone, plenty of long-term homeowners, but rents are certainly not the highest. 

Many thanks,
Nancy

@Michael Gansberg 

Thanks, this is so helpful. 

May I ask further, is there a minimum investment return below which you will not go? Based on MLS figures for rentals in or near the neighborhood of this rental, I don't think I will get more than $100 / month in additional rent. Of course I'll advertise for more, or if it's a voucher holder, request more, and whatever I get over $100 is gravy.

I don't think I can do this work for under $10K. It's a little more than cosmetic, unfortunately. There is no HVAC at all in the house; the previous owner, who was rehabbing it when the housing disaster hit, installed electric wall heaters to save on cost, I think. They work fine but hog electricity and obviously are not ideal as a sole source of heat. Also resale value of the house is going to be much lower if there is no HVAC at all!

So it would be a whole HVAC system going in, ducts and all. HVAC plant and ducts is $7-8K alone. I could save $3K if I don't add CAC but it seems pennywise & pound foolish to leave out CAC while I'm doing this! 

So using your formula, simple return is $1200/year / $10K invested is 12%. Return on this rental has been much higher, in the area of 30%, pretty spectacular. Still I have to keep up the property if I want it to continue getting a good return, and I do want to be able to sell it one of these days. 

If you were in my place would you do this scale of repair?

Appreciate your advice,

Nancy

The Section 8 tenant who has lived in my rental for two years has given notice, and in addition to the usual maintenance to make the single-family rowhouse ready for next tenant I'd like to make a couple of important upgrades. 

How could I analyze the amount I can afford to spend on an upgrade based on projected gross rent receipts? Or net rent receipts? 

I know how to determine the appropriate purchase price when acquiring a property, but I've already had the property for three years. I own it free and clear, having paid about $33K (including settlement fees) for it three years ago. I invested about $6K in it after acquiring it.

Here are the upgrades I'd like to do:

Install new HVAC (with or without AC? I don't know)

Pull up carpet and install vinyl plank resilient flooring

Replace crummy, warping laminate kitchen counter

Uncover a skylight that was drywalled over in a bedroom

The townhouse is in Baltimore City. I had been getting $1207 in rent from Section 8 for it as a two-bedroom plus den home. If I uncover the skylight and the den becomes a bedroom again, and I upgrade to central air, I believe I could get more--but it's unpredictable, so would like to analyze from the previous rental amount. I plan to hold this rental for the long term. 

Is there a method to help me figure this out? Would appreciate guidance.

Nancy Roth

@Chelle Knijnenburg There are a few national organizations (Catholic Charities for example) that provide these services, but most are local nonprofits. So the names of the organizations in Cedar Rapids may mean nothing in Colleyville, Texas. I went online to the Maryland Developmental Disabilities Administration and looked up their contractors. There were maybe 200. I went to all their websites and pared it down to about 40-45 based on what I could discern about the services they offer. I have been calling them one by one to tell them about my house and ask about their programs. So far have not hit the right one. There may not be a right one, but if there is, I will find it. 

Because the funds for this kind of housing comes through HUD, and goes to the states, and the states contract out locally, you have to look in the state where you want to do business to identify the right partner. So you would start in Texas, find the department in the state government that deals with people with disabilities, and go from there.

Yes, I have been exploring government programs, but their grants are targeted to local social service nonprofits who do the programming and support for the people who have been identified as having challenges. Some of those nonprofits, like Associated Catholic Charities, own their houses, and I believe they can get grants to identify and convert a house for their clients to live in. Others, like The ARC, rent units owned by landlords, but The ARC pays rather modestly. 

I might qualify for a government grant if I really get into the business, develop a couple of residences, and form a nonprofit. But I don't foresee that in the near future. As a rule I think the government grants are not aimed to for-profit businesses. They may give incentives, such as loans with slow payoffs or low interest, or a property tax break, but grants, I don't think so.

Rent subsidies, that is something I'd be looking for. 

Thanks, Dave.