All Forum Posts by: Jeff Takle

After some discussion with the company I mentioned, they decided that they weren't willing to do this for a small property owner (<10,000 units if you can believe it), which confirms what inspro says. Now let me use the term "surety bond" innappropriately:

I wonder if there is a business model to be made here...I don't see why you couldn't issue your own form of surety bond to a tenant. In my experience, tenants who damage the property seem to fall to one extreme or another--either the damages are minimal ($100-$200) or they're incredible ($3,000+); seldom in between.

An alternative model might be, "Instead of a $1,500 security deposit, you could pay a $350 surety bond" payable and insurable to landlord. Your homemade surety bond would guarantee covering the low end (b/c you've collected the bond up front) and if you capped the surety bond at $1,500 say, you are still eligible to go after damages in excess of that amount just as you can now with security deposits, so the only part "at risk" is the delta, the $1,500-$350 = $1,150. At these rates, the question is: Will your tenant do $1,500 worth of damage more than one out of every three renters? ($350 collected * 3 tenants = $1,150 = amount at risk).

I can't decide if this would be worth it; certainly if I look at average damages left behind that I deduct from SD, doing this kind of bond probably works in my favor, but to try it, I'd want it to work VERY MUCH in my favor. Any takers???

If you have a washer/dryer in the unit or building, you can make it coin-operated and generate a little money.

You can also charge them for an Internet connection. You may run afoul of the Verizon rules if you plop a wireless router into a building and let everyone leech off of it, but they will probably never know and if they find out, the penalty is probably just to shut it down. $20 / month high speed wireless per unit * 6 units = nice margin on a $50/month internet bill. Internet is one of the few "utilities" that is an owner can still legally add a premium to and provide to the tenant as a service.

Here's something to consider. If you tenants have cash flow problems, there are several things you can do:

1) Spend a lot of time working with them, catering to their specific situation and cutting a lot of slack (very likely to be abused by tenants in general--there are exceptions)

2) Be a complete hard-nose and send eviction notices the second they're late

3) Find a way to help manage the cash flow problem, aka make debt collection someone else's responsibility.

I've tried #1 for years and in the main, it invites abuse and I've spent inordinate amounts of time dealing with rent collection, the old "give them an inch and they'll take a mile". Drove me bananas. I've been trying #2 in earnest for about a two years but it's difficult because tenants bristle to defend themselves and wiggle out, lean on the local tenant advocacy groups, etc. My latest (and current favorite) solution is #3.

I accept rent payments via credit card, and set up monthly recurring payments. Tenants gain frequent flier miles or reward points and I get rent paid on time. Plus, when VISA delivers the rent to me I don't have to worry about it bouncing. If a tenant has a bad month and doesn't get paid for a few extra days, VISA provides them the 30-day grace period to "catch up" and pay. VISA is responsible for debt collection -- not me. I get paid the same day every month. The payments never bounce. I don't need to go to the bank to cash anything; I never lose the check; the mail never loses the check; and the dog never eats the homework.

There are a few places that will help landlords accept rents by credit card--many will only collect using electronic checks (e-checks) but tenants in my limited experience don't really see an upside to doing that. They're not comfortable giving landlords electronic authority to debit their account. Yes it costs money, but it costs less to collect rent for 5 years straight with credit card than it would to miss/lose even a single month's rent from a tenant over the same period. To me that insurance is well worth it.

-J
[yes, surely I am biased, but I have tenants paying with VISA and AMEX and it's absolutely fantastic--not a single missed payment and nobody late even a single day since they signed up.]

Brian,

I'm afraid I disagree and think vdini's right. Pretty much any buyers I've worked with would in that situation ask me "Why wouldn't they put down more?" and there aren't many good answers. Saying, "Because they want to limit their risk and be able to get out of their contract at essentially no cost" doesn't really motivate the seller.

Frankly, why put down an EM deposit at all if you're going to do $10? I don't believe they're required. When in doubt, I've heard people using $1,000 as a deposit--it's still a pretty small amount that you could walk away from with bearable pain, but it's got enough zeros behind it that you'll probably avoid any specific issue about it.

In particular, an EM can certainly weaken a contract. Two otherwise equal contracts, one with a $10 EM and the other with a $50,000 EM tells me one of the two is more serious--If it were my house, I can't see how I could view the $10 offer as better. That's the lithmus test. Home selling/buying is an almost entirely emotionally-driven experience for non-investors (and many investors too).

J

I am interested to learn what most people do once they've actually purchased a foreclosure. Do you rent it out? Flip? Lease-option?

I don't know of anywhere that has this broken down...what's the most common things done with Foreclosure purchase...

Deyl,

Hey, how are things going in sunny (HOT) CA?

I should have thought that Bill silenced all of his critics when he teamed with Warren Buffet to donate BILLIONS just a couple of months ago. Their combined philanthropy exceeds the Rockafellers, Carnegies, and Kennedys combined. (I made that up, but I think that's actually close)

I think we should all be so lucky to have a heart able to willingly let go of a few billions of dollars, no matter how much we have. Ask yourself if you would <really> part with 10% of your income for a cause that was worthy. You couldn't count the people who would actually execute--versus just blab "oh yeah, of course". If you make $100,000 a year and chose to hit the 10% mark by giving at church, you'd have to put $200 a week into the offering plate. Have you ever seen someone put $200 into an offering plate? Every week? I haven't. Do you know anyone making six figures? I know tons.

True, "with great power comes great responsibility" (the Bible, not Spiderman)...but, Giving is much harder to DO than it is to TALK about. I say, "Great Job Bill! More people should 'Be like Bill'."

I would suppose that you could "up" the security deposit amount for the surety bond in order to compesate for potentially lost rent, e.g. If a tenant had a choice to pay $1,500 for a security deposit or $350 for a $3,000 surety bond payable to you, I have to believe they would go for the $350 surety bond. Less risk for them and greater protection for you.

Although tenants get the deposit back after move out, it's such a hassle and always contentious if a landlord has to deduct anything that I think a lot of tenants would rather just pay the bond and be done with it.

Property management, mortgages, title companies, banks, auctions, appraisors, home inspectors, construction/remodeling, investors, community planning / development, lawyers, coaches, financial advisors...

Not to mention that at some point in your life you are very likely to buy a home to live in--the small price you would pay for a proper education on fundamentals or advanced concepts could very likely pay back tenfold at the closing table.

IMHO, proper education is almost always worth the money. Real estate touches every single person in the country, comes up in almost every conversation, and touches every career. I think it's a great field that's highly applicable even if you don't choose one of the many, many careers.

I agree that you shouldn't do it. VERY hard to make a profitable margin on it and VERY likely you'll lose money. If your refinance loan is at 7%, then you'll have to consistently beat 7% (after tax, after mgmt fees, after your time/effort spent) just to break even. And why take on extra risk just to break even?

Based on averages, you would have lost money every year since 2000.

A few more free resources are:

oodle.com
backpage.com
They syndicate a bunch of listings from various sources.

Rent.com costs a ridiculous fortune.
Yahoo rentals has never yielded even a single call as far as I know.

In college towns, some of the off-campus housing offices maintain websites with listings--those have been really good and worth whatever money I've paid into them.

Good point abuot the neighborhood; probably explains a number of no-shows around a sketchy place I owned...