All Forum Posts by: Ted Rud

One thing to keep in mind when browsing Zillow, Craigslist, Facebook, Rentometer, etc. to get rent estimates, is the time of year you are looking. Here in Fargo, ND, rental prices have already started decreasing with winter right around the corner. Most people don't like to move during the winter months. The rentals I mainly focus on are also located near colleges, so there is a big demand for 1 year leases beginning June 1st (right after college ends), or August 1st (right before college starts). From my past 3 years of experience renting out houses near colleges, if you can show your property 3 months prior to your new desired leasing date (for me that is before college starts or right after it ends), you will have your greatest chance of success.

One example from this past year is when I found out in the middle of Feb. that the current tenants did not want to renew a lease for June 1st. I posted the house on Zillow on a Weds, had 7 interested groups of college kids by that Friday, set up an open house showing that Sunday (5 groups showed up and 4 took applications), and had a signed lease in hand by the following Monday!

With regards to Cash-on-Cash return, that will vary from one market to the next. The 1% rule is followed pretty closely in the market I invest in (monthly rents ~ 1% of the cost of the property). With that being said, we target properties that will Cash-on-Cash return 10% or more. From what I've been seeing, we are a bit conservative with some of our estimates and have actually been seeing 12%-15%+ Cash-on-Cash returns on our purchases. We also self manage so that is a big cost that we are currently avoiding. At some point in the future, we will start using a property management company but we plan to self manage our properties until the rents have increase enough over time that we will still cash flow nicely even after paying an 8%-10% property management fee.

Hey Jared! Depending on the City, there may be a tax lookup website available to see who pays the taxes on that property. From there, you could try mailing the owner (if the location is different from the physical address). You could also try looking up the LLC (if owned under one) and see if there is a phone number listed there. Or, have you knocked on the door and asked whoever lives there who the owner is and if they might be interested in selling?

First of all, let me start by saying that I'm not upset about anything at the current moment and am writing this topic in more of a lighthearted mindset. Yes, there are times when I get those calls/texts from tenants that make me want to pound my head into the wall, as I'm sure most of you do as well, but I thought it would be fun to share some of those issues with the hopes of learning/teaching and potentially avoiding them in the future! I'm sure many of these issues have happened on numerous occasions and what's the next best way of learning after past experiences? Learning from other people's past experiences! So Let's Hear Them!

I'll go first.

When you show a house to a prospective group of college students. Only to find out they aren't looking to move in for another 9 months and were hoping you could hold it for them. #ImNotMoneyBagsMcGee

Do you think they will apply? "Nope"

It sounds like you've looked into the "Norm" when it comes to rental practices in your area. There are some locations where it is a standard practice for the Landlord to pay for some, if not, all of those things. If these potential tenants come from a different area, maybe they have different expectations. For the market I'm in, it's standard for the tenant to pay for all of these things unless they are living in multi family unit and the electricity is not metered separately. In fact, we recently renewed a lease on one of the units in a triplex where the main floor tenants are to mow the lawn and remove snow in exchange for reduced rent. Most of our rentals are located next to a college so a majority of our renters are college kids. My best advice is to get a good feel for what the renters are looking for before spending your time showing them the property. If you can vet them out prior to a showing, expectations can be set and you can avoid those extra showings for scenarios that definitely won't work. My biggest pet peeve is showing a group of college kids a rental house only to find out that they aren't planning to rent a place for another 9 months... but they were hoping we could hold the house for them until then. lol

I've been thinking a lot about this exact scenario lately, as I'm looking to bring on some friends as hands-off investors in the next year or two. If you are going to be 50/50 partners (50/50 cash & equity growth), 100/0 on rental management, then I would charge a fair rental management fee. You can keep the cash flow & equity growth 50/50, but charge a 10% management fee (or whatever is typical in your market). So essentially you would pay yourself half of the management fees and your partner would pay you the other half (could come right out of rent). As far as forced equity goes, this is a tough one. You won't actually realize that equity until you sell the property and there may be additional equity created just by holding, paying of principal, etc. 

If you plan on doing a cash out refi, at minimum I would structure it so you pay both partners back their initial contribution, then if there's some left over, that could go 100% to you (since you coordinated all of the rehab work). This could be done immediately upon the completion of the rehab, or a couple of years down the road (would be more beneficial to you as principal would be getting paid off and the property is appreciating in value... assuming the market keeps going up). That is something that should be discussed when setting up the structure of your partnership/deal. If I was your buddy and you paid me back my full contribution and now I have 50% equity and 50% cash flow in a positive cash flowing rental property that I don't have to manage, I would be over the moon! I would be ready to go another round!

The biggest thing you will want to do up front is plan with the end in mind. How long does your buddy plan to keep his investment in the property? What happens if one of you die? What happens if the market turns south and now you need to pump money into the house to keep it a float? What happens if after you pay him back and he wants to sell so he can realize his 50% equity in the property? All are things you will want to discuss before diving in!

Another thing you could consider, is maybe your buddy brings 75% of the down payment/rehab costs to the table and you cover the remaining 25%. All equity and cashflow from there out is then split 50/50. He brings more money, you bring the experience, you split everything 50/50 after that. This may vary based on the initial price of the property and how much time you plan to spend managing the property.

Keep us posted with how you decide to proceed and how it works out!

Good luck!

Did you flip and sell the first property or are you keeping it as a rental? If you still own the first property, have you considered getting a Mortgage or setting up a HELOC to fund your next deal? If your still looking for a hard money lender, I would recommend talking to local real estate agents or networking with local REI groups.

James, I would talk it over with your lender but here is a possible route you could take - 

Use your HELOC for the purchase/repairs of the property and when finished, get financing on the property. This will hopefully allow you to pay back your HELOC (and possibly more). If you go this route, you only need to pay for financing costs once (since you will not need to refi) and this allows you to borrow against your HELOC at 6% (much better vs hard money).

This will lower your up front costs and still allow you to leverage your money.