All Forum Posts by: John Stovall

I just did this! Our original LLC manages about 25 properties. Our new one, with my original partner and a new one, is buying 5 properties. (3 of which were in the original LLC.)

Our original LLC is running all of the properties and charging a fee to the new one. Our new passive investor is OK with this because the fee is much smaller than a traditional property manager, and since the 2 original partners also own 2/3rds of the LLC, he feels the property will be well-maintained.

We did this because there was a project we didn't have the money to put down 20%, we felt it was a REALLY good deal, and our contribution was the equity we had earned with the 3 properties we sold to the new LLC.

Let me add that our CPA gave us several tips when we set it up that we didn't think about. AND, the yearly fee in Georgia is $100 for our LLC's.

I guess the big question is whether you told the tenant that you were trying to sell the place when you rented it. If you did, the tenant is wrong. If you didn't, and you plan to invade his/her privacy with showings, I think the tenant was put in a position of doing something like this.

My guess is that the average gain on a "newbie" flip is close to zero. Even though I rehab for long-term rent, I'm so much better on my 22nd one than my first one! If I was flipping, I would guess that I would have broke even on the first one and made my higher profit on the last one. I now know, for example, the types of homes I can do well, and those I don't do well. 

So let's say you're like me, and on your first 5 homes your profit is $1000, $4000, $10,000, $15000, $16,000. (This is truly what I would think I would make on first ones if I had flipped instead of rented.) In this scenario, you would actually do better with your brother's deal than if he loaned you money at 10%. And at some time in the future, you should have the capital to go your own way. (Disclaimer: I actually made $20,000 on my first flip before I started doing this seriously. Now, I understand what dumb luck it was. I now realize the people who purchased it probably overpaid because they are trying to sell it now at the same price with no luck.)

Of course, I would be thinking like you if I started today, but with hindsight, I think I would take the deal.  I'm not sure I would fund someone new to the business at 100% -- it's very rare --   and you may be MUCH better at me in the beginning. I think several of the guys are telling you that we wish someone would have funded us, and taken the risk, when we started just to gain the experience.  AND, I think they are also telling you that if there is a better deal out there, take it.                             

I live and invest in a much smaller college town, Americus GA with Georgia Southwestern, and when I first began, I figured college students were going to be my target market. Now, although I do rent to some, I try and get young professionals because of the turnover.

All of my properties have wood/tile/upgraded vinyl flooring, granite counter tops, dishwasher, deck, and upgraded fixtures. I have been very successful with this. I go to Lowe's weekly and check out clearance items and stock pile them for my next project. Almost none have a carport -- it's needed in Georgia when you get older and don't want a hot car or the paint to fade -- but I don't think young people see the need.

I also put a deck on all my houses as someone else noted. 

I just finished my latest project, rented it, and was asked to their open house. It was funny because I bought a $400 light fixture that I got for $70 in the kitchen, and I had about 10 comments about how great it looked. I also had several people ask me about my latest project and if they could rent it. This confirms my thought that spending a little extra, especially when you get a great deal, is a good idea that sets my properties apart from my competitors in the area.

I just bought appliances for several of my rentals, and I did it during the black friday sale at Lowes. Since it was over $2500, I asked them to bid it out. I also added everything else I would be buying that included tubs, light fixtures, etc. They gave me an additional 10 to 15% off everything. (Remember it was a Black Friday sale. Very often they give me more off.)

Used appliances are often good deals, but they often have something wrong with them. Because fixing appliances, for me, is such a pain in the neck, I usually buy new.

Since no one has responded, I'll take a stab: I take great pain in explaining to people that my units are what I consider "clean" when they move in, but my mother's version of clean might be a higher standard. I give them a week to find out any problems they might have, but I make it clear to them that I will either fix the problems or note it as "previous damage" on their report with respect to their damage deposit.

When there is a dispute, I often try and work out a solution. In your case, in the renting process, the tenant stated, "my son is allergic to dog hair. The apartment must be 100% free of this," I'd probably do what she says since renting her the place with that understanding something I agreed to provide.

If that is not the case, I explain to the tenant that I rented the place at a price with the existing carpet, appliances, etc. I then agree to whatever changes they want if they either agree to a new lease at a higher price, or pay a percentage of the cost of the repair. I've found this to be a much better way of handling the situation than just saying no.

Let me add that I had the following exchange with a tenant: I provide a lot of safety lighting at my units, but I had a single female ask me for additional lighting on her place. I gave her the speech above, and she said she would pay for it. I thought about this and decided to put it in at my expense because she was a good tenant who didn't feel safe at my property.

We just have a 10% penalty in our lease. Based on the other replies, I think I am going to change it to something like the $25 + $3 per day.

This is why these forums are good. I haven't really thought about it too much.  I often waive fees if the tenant calls or writes me to let me know it will be a day or two late or something.

I also have a conversation when signing the lease about this. I explain that the bank does not allow us to be late with our mortgage payments, and if the tenant is late, it causes problems for everyone. I also have a friend who rents who has no late penalty, and instead tells tenants, "There will be no late rent paid." He then explains that if rent is late, he needs to find another tenant. He must explain it well because he has about 15 units without anyone paying late. Let me add that he is a fanatic about maintenance, etc, and his units are very desirable.

I read this post with interest because I have had a couple of instances where potential tenants give me a deposit and change their minds. I always make them sign a statement explaining that their deposit is non-refundable unless they actually move into the apartment, but honestly, if I get another tenant to rent it, I usually refund it unless there were other expenses occurred by me because of their change of mind.

I'm a little shocked by most people here thinking it's some kind of fraud rather than the tenant just having buyers remorse. I also find that it's a problem that there wasn't someone there to explain what the deposit was, have some sort of document signed (rather than just a receipt for the money), and that it's probably not a "best practices" case when an apartment is shown and rented by giving them access to the lock box and dropping the money off to another tenant.

Let me add that I've done plenty of things while renting that were not exactly the smartest when I am busy with other matters.  I think in this case I would just return the money and chalk it up as a minor inconvenience in the grander scheme of things.

I'm not sure I get a grade of A, but I do view my tenants as a customer. I also teach marketing and assure my students: The customer is not always right. I live in a small town and am very friendly with all of my tenants and even the neighbors of my buildings. I have 9 units now, have never advertised for any tenants because I get them through referrals, and enjoy being a landlord.

I will agree to any tenant demand but will then request an increase in rent if I feel like it's something that was not agreed upon when I rented the apartment. I'd say about 90% of the time they forget their request, but 10% of the time, they agree to a higher rent.

I sort of ignore the 50% rule as well when figuring cash flow. I do look at the age of the roof, the hvac, the appliances, etc, and then figure my expenses based on all of this. I also maintain a fund for all of my rentals for extraordinary expenses that I would not expect.

I also get 80% financing from 4.75 to 5% using an 5 year ARM where they also let me add any repairs/remodeling to the cost of the home. I get that from a local banker with a portfolio loan. I also make sure what I tell him comes true -- like potential rents, costs, etc.