All Forum Posts by: Justin B.

This is something I spent a LOT of time looking into.  I have stats I ran and analysis I did back when I first started and determined that 3BD/2BA is the optimal size.

Some key things I noticed are:
-- Less than 3 bedrooms and the vast majority of people with kids (or that want to start a family) are out.
-- More than 3 bedrooms and the rent doesn't really increase much.  I find it's not usually worth the price difference.  People who are looking for 4 or more bedrooms are more likely to be buyers than renters.
-- People are usually searching for a minimum of 3/2.  It's the same logic behind why someone prices a house at $199,999 as opposed to a flat $200k.  You want to show up in as many searches as possible.  The opposite also holds true.  A lot of people put their max at 3/2.
-- No one wants to share a bathroom with kids or guests so less than 2 bathrooms is usually ruled out of searches.

I found in the area that I rent, 3/2 with one of the bathrooms being attached to the master bedroom is the best case.  A garage or a carport can add a lot of value to those types of houses if already there.  I wouldn't build one if there isn't already though.

What all that boils down to is the 3/2 seems to be rentable to single individuals up through families.  It's just going to have the widest range of renters available to it.

Whether or not an area is "unsafe" is an opinion.  Crime rates are public and the tenant should be aware of the area they are looking to rent a house in.  Them blaming you for the area being unsafe is like them saying "It's raining too much.  You didn't tell us it rains this much here".

Most robberies are not random.  I have a friend who lives in a nice neighborhood and has been burglarized several times.  The reason was because his sister was a drug addict and her and her friends did it looking for money.  The likely scenario is that someone was driving by and saw the open window or someone they know did it.  I'm not saying this is the case for sure, but it being random is a less likely explanation.

Getting robbed (especially if it's never happened to them before) can be a scary thing.  People don't like to be in places with negative memories.  The camera/spotlight purchase was probably an emotional decision (because they have kids), but the odds of them staying are not likely especially since they are renting and it's easy to move.  It's likely in the next month or so they are going to realize they don't really want to be there and they will move at the end of the lease no matter what you do.

The camera and spotlight system are going to be more of a deterrent to future renters than anything else.  I personally would not rent a house that had 16 cameras and spotlights all over the place.  I would assume they are there for a reason, and not a good reason.

I would politely decline to pay for it and say they are more than welcome to take the system with them when they leave.  Also remind them (politely and in writing) that if there is any damage caused by the installation/removal of the system that they will be responsible for those damages.

Just keep in mind, if you pay for it, you are responsible for it.  Repairs and technical support will be on you and that's not a responsibility you want.

There are strategies like that but due to the complexity (it has to be done correctly), you really need an attorney involved for planning. With just a few houses it may be more hassle than it's worth. Depending on where you setup the LLC and what the fees are for all that, you could easily dig a deep hole into your profits just keeping your entity structure straight.

There are so many things to consider that books are written about it. In a forum post, I can only hope to simplify. If buying SFR's, it probably doesn't make sense. If buying a commercial property, absolutely, no question.

To answer your question with what little I know about your situation, I assume your 2 properties are SFR's and you're looking to get a few more. I'd say stay personal because as Bill pointed out, LLC's can't get "mortgages" in the sense you know them. They can only get "loans" with the property as collateral. These loans can be called In-House Loans, Commercial Loans, Business Loans, etc, but the one constant is that you typically pay 1-2% more on the interest rate, it's only amortized for ~20 years as opposed to 30, and they usually come with 5-7 year balloon payments (meaning you have to refinance). Plus, banks don't like them (In general). They aren't backed by the government and are riskier than traditional mortgages because the bank is using their own money instead of the governments. That doesn't mean they don't do them, it just means they are harder to get and more scrutiny is put into your application. AND on top of that, you are still going to have to personally guarantee it (99.9% of the time).

I do like the protection an LLC affords but in your case (what little I know from your post), I'd keep going personally as long as you can. Then go from there. I'd suggest an umbrella policy as a minimum.

Is there a current mortgage on it? If not, try an owner financing approach.  Ask them for a loan with interest for 12 months with a balloon at the end of it.  Never hurts to ask.  You will pay a lot less than a private lender.  If there is a mortgage, that's out.

Even if a realtor gets involved, the seller pays the realtor fee, not the buyer.  I'd recommend using a realtor when you go to sell.  Their fees are worth the service they will provide.  Just work that into your numbers before you buy.  If adding realtor fees when you sell make it not make money, it's a bad deal already.

Outside of that, yes, you need a full contract no matter what you're doing.  Make an offer, if accepted, put together a contract, then purchase.  Your title company and attorney would get involved at the appropriate places of the process.  If you don't know when that is, not trying to be harsh, but you might need a little more education before jumping into a flip using private lending.  Real Estate is a great investment, but if you don't have a good idea of what you're doing, your much more likely to buy a bad deal or make enough mistakes along the way to kill your profit.

You are on point with the pro's and con's like a previous poster said. If it was me, I wouldn't purchase under my name. If it was some SFR's, I might have a different response, but seeing as how they are multi-family (even if they are under 5 units each), I'd put them in an LLC. Terms won't be as good on the bank loan but if done right, protection is there. And of course, NOTHING is 100% foolproof in protecting you, but an LLC would be the way I'd go in your situation.

REI is funner than any game I've every played. Don't get me wrong, I like escaping to the world of a good RPG from time to time, but that's short lived. Usually after about 50-100 hours, it loses it's attraction (especially if you beat it). REI has lasting power!

My advice is pretty simple.  There are LOTS of ways to get money besides the normal ways.  Credit cards, 401k loans, Home Equity loans, refinances, hard money, etc.  My advice in the case you are using a method other than cash on hand to get cash for some or all of your down payment is this.

Figure out what your monthly expenses are for the property.  If you cannot rent the property for an extended amount of time, what effect will it have on you?  Of course no one wants that to happen, but if you can't pay your own rent, or buy food, or something of that nature if you have to foot the payments, then I'd advise against doing it.  If you can afford footing the bill in that case and it won't affect providing for yourself, then I'd say go for it.

In your case, if you have a lot of money available by using a HELOC, go for it. Just make sure you can afford the HELOC payments in the case you can't rent the property and your golden.

If your lease doesn't specify a penalty for breaking it, technically it means they are bound to the lease.  BUT, that's a battle you'll never win.  Normally I see 2 months rent as a normal lease breaking penalty.  It varies and state laws could come into play.  Remember, just because your lease says they are bound to something, if it goes against any laws, it will never be upheld.  The problem here is if they can't afford the rent, they probably aren't going to be able to afford the penalty.

Your time is the most valuable thing.  You could impose a penalty, take them to court, etc, but in the long run that will eat up a ton of your time, not mention add stress.

Try something like offering the tenant out and you won't impose a penalty if they are out in 5 days or something like that and begin looking for your next tenant.  If they won't leave and force eviction upon you, then at that point, you have no choice but to take them to court and then since you are spending time anyway, specifying how much they owe and putting it in the judgement is what you'd want to do.

If they leave without any hassle, consider yourself lucky, get a new tenant, and chalk it up to a lesson learned.

I assume you got burned recently?  I completely agree.  It goes back to the whole, do what's right, even in a wrong situation, type of approach.