All Forum Posts by: Randall Alan

@Joan Liu

What you describe is often the pitch of someone doing rental arbitrage.  In essence they want to lease your house, and then re-lease it to someone else for more money than you are leasing it to them for - keeping the difference for themselves.  This can be done on a long term or a short term basis.   

The short term basis of this would be to AirBnB or VRBO your house - where they rent it as a long term rental from you, then lease it out on a nightly basis for the same purpose - to keep the difference for themselves. 

Either way, you will have no idea who is in your property at any given time.  

They will usually never own up to these facts - instead they will use the cover of "our corporate clients", etc - it's a big tell!  

As a landlord who likes to have control - this doesn't work for me personally.  You will have to decide for yourself.  If I were you and I was going to consider the 'opportunity'... I would want some major security deposit on file - maybe 6 months rent (personally), and / or possibly have them carry an insurance policy with you as the named insured for a descent value for any damages, etc - with the policy specifically written for the type of business they are actually running. (I'm not even sure what type of insurance that would be... commercial liability, perhaps?  I would ask an insurance agent and even they may scratch their heads!)  These extra expenses will probably scare them away.  They will move on and look for the next person who isn't smart enough to figure out what they are up to.

It's highly likely that if there was a claim on your own policy it may not be covered if it was being sublet for a separate commercial purpose (AirBnB, etc)... so I would be really careful about making sure you are covered insurance-wise.

Proceed at your own risk, and all the best!

Randy

Quote from @Tommy Ray:

Please define wealth.  What is wealth to you?  It is important before you start and get to far that you have an aim point...  A goal to work backwards from to today so you can make a specific plan and take deliberate action daily towards YOUR goal.  The longer the perspective the better.  

Imagine whatever the specific goal is-- maybe 100 rental units paid off for instance.  Now how to get there?  Realize at the outset that real estate will involve all different types to service, maintain, repair, improve, insure, manage and eventually sell.  Be in your future mind and realize how important it is to identify the range of specialist that you will need for the life of those assets.  Before you buy you 1st build you awareness of real estate investing, potential team members that you will need over the journey that will likely last the rest of your life and commence recruiting people and investing time seeking out knowledge and WISDOM.

Wisdom would say buy in the down cycles of the market and refi cheap when rates are low but investors often have ants in their pants.  Can you build a team local and in an away market--yes.  Do you need unique checks and balances in your away market so someone is representing your interests in the away market--yes.

Slow and steady wins the race.  Seek out mentors, seek out a greater understanding of the connected whole.  Over the years I picked business degrees, real estate license, tax preparation training, loan officer licensing and training, investment / CFP training and it is all tied together in one big connected body of knowledge that emphasizes appreciation, debt pay down, cash flow, and tax write-offs...  Invest--do not save.  Delayed gratification is good.  Learning is earning. Holla if you need help fleshing out your dream.  Get'r done

 @Tommy Ray

I think there can be some challenges to your power-point slide.  Margin calls in a market downturn potentially being one.  The cash-out refi necessarily means thousands of dollars in additional expenses - likely setting you back further than you went forward in mortgage pay down during the same time period if refinancing in 1-2 years - but hopefully earning more equity in the meantime (fingers crossed).  Your plan probably works fine in an up market - but we never know where we are heading.    

Just for fun I looked up the rate to borrow against your portfolio... 7.8 - 10.88% VARIABLE interest at ETrade from Morgan Stanley (see pic).  It would seem to me that would be more expensive than getting a traditional loan these days.  While margin borrowing is doable - I think it opens you up to potential pitfalls that could be avoided going a more traditional route.  If you have $100,000 in your brokerage account to borrow against, why not just use the money and secure a traditional loan, versus gambling with an unknown and variable future rate?

Just my 2 cents.

Randy

@Srinath Gopinathan

I don't have an exact answer for you - but would guess that it is because the the covenants and bylaws spell out what the separations are between what the HOA is responsible for, as well as what the condo owner is responsible for. So think about a roof leak in your condo. It is likely the HOA is responsible just for fixing the roof - not damage to your unit itself. So any damage to your unit is YOUR / your insurance company's responsibility. The insurance company wants to understand the limit of their liability and those documents spell out what the HOA says they will pay for and what they will not. It probably helps them price out their policy to you so that they make sure you have the right coverages in place.

All the best!

Randy

@Linda Roberts

You can charge whatever your tenant agreed to in your lease - whether they pay it or not is another story;  or you can try and work with your tenant.

Like you say - the basic goal is not to have any rental gap.  We try and split the difference between what our lease says, which is like yours - "two months rent".   But depending on the nature of your tenant they may just opt to stop paying rent, walk,  and see if you chase after them - to which the usual answer is: it probably isn't worth it.

So what we do is say, "Look - the lease says 2 months -but really we just don't want to be out any rent.  You will remain responsible for the rent for up to 2 months - but what we will do is turn on our marketing, find a new tenant, and as soon as we get them in the unit, you will be off the hook for the balance of the 2 months owed.  

If we are given a proper 30 day notice - we can usually have a tenant ready to move in within 2 weeks of the exiting tenant moving out.  So it ends up being a win-win for everyone... we have no rental gap, and the tenant still gets part of the deposits back.  We have gotten good enough at it that it is often just a few days between the move out and move in.

Hope it helps!

Randy 

@Brian Gerwe

We have financed about 25 properties in the past 5-7 years.  It was a frequent occurrence that something they would ask for was not available.  

What you need to know is that they are trying to "check some box" on a due diligence form.  Often what they ask for is not what is always required... it likely says something like "Verify the duration the entity has been in business" and someone decided "A letter from a CPA would be acceptable and easy".  But usually, so would a number of other items.  

Option 1 is to go back to your lender / broker and just say, "I can't get that, what else will work?"  They are use to this response, trust me!...  and they will offer up a different suggestion on what you can provide.

Option 2 is to think about what else proves your existence... in my mind, previous tax returns certainly do that.  Also - your current registration with the Secretary of State would show you were also in business.  In addition - checking account statements showing deposit income going back X number of months would also do that as well.  Also leases from tenants for the property, hell, just showing them the loan for the previous property where it was financed as an income property should also do the trick perhaps!  

In a pinch, my broker has had me write an LOX (Letter of Explanation) anytime something weird needed to be attested to - but probably not for the specific items you mention.  But they might ask you to write an LOX explaining that you are unable to procure a letter from a CPA - and then offer up something else that checks the box.

Hope it helps!

Randy

@Raj Singh

When you inherit tenants there really isn’t screening… they are already there… you are the new person… not them.  

With that said, your ‘screening’ comes in the form of observing how they perform (and have performed) paying their rent and taking care of the property.  

You can sign a new lease with your new tenants, but I would say you should honor the lease rate of your tenant still under lease… but definitely have them sign your lease because without it you have no agreement with them between you and them.  For the month to month tenant you can change their lease rate as you see fit… but if you are changing it significantly you should phase it in to help them have time to adjust and prepare for it (in my opinion)… maybe across 2-3 months.

It’s likely that your tenants are use to each other having already lived next to each other.  Presumably you inherit most situations figured out… utilities, who mows the lawn, etc.  

Your concerns will likely be less with the tenants and more about learning things the previous landlord didn’t handle (deferred maintenance, whether the tenants pay on time consistently, etc)

all the best!

Randy 

@Francis Bediako

I would look to connect with your local real estate investment group.  You will be able to rub shoulders with like minded people and find mentors local to you that will be willing to help you out.  The online community is always here to answer questions as well,  

I’m not quite sure your definition of a job opportunity is in your post?  Maybe you mean to be able to partner with people?  Having your license gives you the ability to leverage your commission in helping people purchase their acquisitions… that might be one thought for you?  Could be a form of equity you could bring to the table in partnering - in addition to cash you could throw in your purchase / sales commission as a form of equity in the deal. I  don’t know the ins and outs there… but it might be worth investigating?

All the best!

Randy 

@Spencer Perron

Yes, I would definitely have concerns about future financing as you mention.  Also realize your insurance is based on the number of units as well.  It’s entirely likely you would have to switch insurance products  - going to a commercial policy - but check with your carrier. 

I doubt your current loan would care too much because usually it’s only looked at when underwriting…. But being that they may see the insurance change it might pique their interest in that change … you can always ask them - most banks will gladly advise you of their policies regarding such items 

4 plexes are attractive acquisitions… I’m not sure I would bump it to five if it were me.

All the best!

Randy

@Tyler Steinke

I'm having a real hard time getting past the $100 / month profit on a $510,000 investment! And if that is just with PITI, you are likely losing money after maintenance & Capex. Was this an appreciation play?

I would say sell - every day of the week from a cash-flow perspective.  That same money sitting in a high yield  savings account would be earning you $7,500/year at 5% on $150,000.  

You could deploy that money elsewhere and buy a few  smaller (or at least less expensive) homes in a friendlier market and come out way ahead unless you are content with just waiting for the market to appreciate.   I’m a cash-flow guy - as real estate is our full time job - so no cash  flow equals “sell” in my book. 

All the best!

Randy 

 @Fredrick C. Oesterle

Some of this depends on the terms in their existing lease and potentially state law- like if it says the lease terminates if the property is sold.  But from my personal perspective their previous lease does not involve YOU at all.  Your name is not on it.  I personally honor their lease rate through the end of their current lease - and usually this is all the tenant is concerned about.  As long as you do that, you will not get any pushback from a tenant signing a new lease with you.  I will ask them to sign a new lease when I take possession so that they ARE bound by MY terms and conditions.  You can either make your new lease expire at the same time as their old lease - so you can modify your rental rate then; or you can bake a new rental rate into your lease at the time their old lease would have expired - so something like "Through X date your rental rate is the old rate, and beginning the next month your new lease rate is X $ more.

All the best!

Randy