All Forum Posts by: Tim Swierczek

@Mike H. and @Jill Herges the sellers would not be able to evict you unless you break the master lease.  It does not work that way in Minnesota.  This is why you need them to approve the lease in case something did fall through on the purchase.

I would decorate you from having a lame duck seller pick our market your tenants. It's imperative you do it.  @Jill Herges PM me if you would like to talk it through.

@Jill Herges I do this all the time or some version of it. For example, in the last 12 months, I have purchased 4 properties with 7 total units and all have been vacant at the time of PA. The SFR is exactly your scenario, the others the leases were signed and negotiated with me before closing but no tenants moved in prior to closing. In all cases, I marketed and choose the tenants to my satisfaction. In the case of the SFR with the longer closing, I paid a one-time sublease fee for the right to become the property manager and choose the tenants. I do all work and are responsible for all repairs and LL utilities until closing which covers about 6 weeks of tenants in the property.

Finding a tenant in Nov-March in MN is an awful situation to be in.  You will have a terrible pool of tenants, and in my experience, if you start marketing the property for immediate move-in once you acquire it you will get the irresponsible non-planning tenants and the desperate ones.  Ick! 

I can hear arguments for not allowing tenants to move in before closing but if you are certain you will close you should be marketing for tenants now, for a November move in.  At least you will get the planners instead of the dead beats.

Personally, I would take them up on it, just give them a fraction of what the rent will be.  Offer them $500/month, you keep the rest for your troubles.  Then you market, screen the tenants and enter into your lease.  Give the sellers veto power based solely on the credit, criminal, and rental histories, and monthly rent terms.  You pay them when they issue you written permission to enter into the lease.  

Since you're concerned with liability to tighten your standards and get great tenants.

This can be and should be a Win-Win

~Tim

@Kristi Beeksma my process is most similar to @Bettina F.  It's very important to have written rental criteria, it's actually required by law in Minneapolis and although federal law does not specifically state you must have it you almost cannot legally operate without it.  I speculate that most LL's discriminate without even knowing it.    

Here are a few tips

• Get and read homelinemn.org's book for landlords
• Use the MN Bar Association lease (free and can be found online) or the MN Mulitihousing Association lease
• Always allow the prospects to pre-screen themselves, make the criteria readily available so that you can easily send it to anyone before they view the property.
• If you change your written criteria document it and stick to the criteria.  if you have someone who meets the criteria you need to rent to them.  Then change your criteria to better reflect your rental standards. (this is an area most LL's fail, luckily for them, they are not called out on it, the penalties are severe.)
• Consider using a different online application.  While I applaud Kristi's approach, it's cumbersome.  I like making them provide me the copies as part of my application which I can do because I use a customizable online application.  Both Cozy & SmartMove do not offer this functionality.  You can see my application here https://www.rentapplication.net/tim/  and then just delete my name in the URL to go to their site and sign up if you would like.

Good Luck

~Tim

@Account Closed  what city is it in?  This deal looks a lot better being it's a  3/2/2.  If the location is right then yes you should strongly consider this one.  I have 3 tenant move outs today so I will not be in front of a computer.  Feel free to call me if you care to discuss.  If this place is in the twin cities the rents on 2 beds range from 1000-14000 and 3 bed 1200-1800.  even at average rents 1200 X2 and 1500 X1, this deal with 3700 in gross rent looks much better.  Closing costs vary but if you include your escrow set up your probably looking at 8,000 on that price.  feel free to PM me your number.  I won't be able to reply by computer today and likely not tomorrow.  the rate will be lower too.  4.-5 to 4.75 is likely.  Unless you don't own a home now and then your strategy should be a house hack.  I love these deals and have helped dozens of people execute them.

@Natalie Hideg I'm not an attorney and don't know the answer to your question.  However, the most similar situation is if someone breaks a lease they owe you until you re-rent it. You cannot profit in that situation so I can't see how the state would allow you to profit in this situation since it's a statutory reason to terminate the lease.  I would be very surprised to hear you could keep any of the money and based on your potential legal costs in a court case I would personally err on the side of getting the place rented as soon as possible.  Keep the deposit and give the rest of the money back.  You could try to keep any lost months rent but I think it's asking for more trouble than it's worth.    Good luck to you.  Please report back your decision and tag me.   I'm curious as to how this works out and what you decide.

@Account Closed It's so hard to analyze a deal without intimate knowledge of the transaction, but here are my thoughts.  In MN you need to pay water as part of your LL utilities.  I'm a lender and I have no clue how you can find a loan for only $2500 closing costs.  The title and state taxes & fees should cost more than that, even if there are no lender costs.  Are you paying an above market rate?  How many are bed's & baths the units?  If they are a mix of 1 & 2 beds that rent is inline and that's ok at best.  If they are 2 & 3 beds then the rent is low and under rented which is great for you and makes this deal look a lot better.  

Correction, I see you're paying 5% so that's why the costs are so low.  and 39 years just to get 415 on 3 units is with 255 Down is awful.  The only way you do this deal is if it's a mix of 2 & 3-bed units.  Otherwise, that deal is down right terrible.

@Jessica Wood  First you are doing amazing and one thing I like about RE investing is that there are many ways to do it.  That being said you asked for advice and while your method is working for you I think you would be better served to put 25% down on all your properties and re-leveraging the to this level.  Then buy as many good deals as you can.  You should be able to easily cash flow as much or more than with your paid off home and you will now be spread out over many properties.  This will minimize risk as @Kevin Powell points out, and it will grow your net worth in the process.  The best news is someday you will have more paid off properties, and while you may think you can do this by paying off a property at a time rental real estate does not work that way.  if you have 1 property paid off you have 1 set of renters paying your profit each month and while its bigger monthly cash flow on one property it is not necessarily bigger cash on cash return on your equity.  When you get more properties, say 5, you have 5 people paying down your mortgage at once instead of one person giving you money to buy one property.  In that case you loose time and lots of it.  By the time you save up for your large down payments you are giving up equity.  If you subscribe that the market is appreciating then you lose a portion of that down payment each year to that appreciation on the house you were going to buy, instead of receiving the appreciation and the principal reduction from your potential 5 tenants you are giving the appreciation to the seller of your future investment property.  Be safe in your investments but be careful not to be too "safe" it will cost you hundreds of thousands of dollars.

@Nick Ritter @John Woodrich 's reply is spot on.  From a lender's point of view, I highly recommend owner occupying your first several houses, house hacking as it's called here.  I am not so sure that we are headed for any sort of major price reduction.  I do feel the low and mid end of the duplex market is ripe for a minor correction but I wouldn't expect prices to fall dramatically.  If you can purchase a property and live rent-free while in school or even working then I would recommend doing so and get your purchase history started.  I do also agree strongly with John's assessment of waiting a few years before going to grad school.  Good luck either way.  It sounds like you have set your self up well. 

PS- I am a local mortgage pro so PM me if you have any specific questions or would like to meet.

@Canneton Howard have you figured out the payback yet?  $11,500/200 is less than 5 full years and that is a 20% return.  I'm not saying I'd love to pay that kind of money but it could make sense.  As for price, it sounds like a steal.  I have had it quoted twice and in my market, the ductwork, plus patching, painting the walls after install is easy $15K, not including the furnace.  Now subtract the rent gain you get from paying utilities and see how that goes.  Lastly, when the code is f'ing silly get creative.  

@Andrew Lorei sounds like you need to answer more questions first. What is your primary residence? You cannot buy FHA if you don't live there unless you are the co-signer and FHA has specific criteria, for example, you must be related to the other person you can't just say you're a co-signer to buy an investment property. That being said there are legal structures here that can work, but you would need to prove your intent and ability to live in an MN property if you are working full time in CA that would be difficult at best.

Are you planning on living in the property?
Is your partner planning on living in the property?

How many units are on the property (ie single family, duplex, etc)?

What is your combined monthly income, your's and your partners?

Other factors will be what is the lowest score middle credit score between you and your partner?

How long have you each been self-employed?

What relationship do you have to the seller?

After all those questions were answered I could give you all workable structures, however, if your partner is only giving you the benefit of property management, and you still need a co-signer you should consider paying 10% for a property manager and keep the other 40%. 

I realize this might be a lot of questions but any answer you get on this forum that does not have that info is speculative at best.

Cheers, 

Tim