All Forum Posts by: Tina Opel

I have a property account set up that all expenses come out of. If I have to contribute money in order to pay the expenses I transfer them from my personal account into the business account and then pay them out of the business account. 

So anything that I contribute to cover expenses (the tenant's rent doesn't quite cover the mortgage and escrows) would not be considered rent at all, but rather investment capital? I don't know why but it never occurred to me that I could contribute $0 in income even though I have to pay a few dollars each month anyway.

I am house hacking a duplex and have been planning on paying my business the same amount of "rent" that any other tenant would be required to pay but I just thought of it that doing so might not be the best idea. My main thought behind doing so was that I could build up a reserve quicker to be able to buy a second property since I can't spend it on personal expenses, but if I do this will that increase my "rental income" and make it harder for me to claim a loss on the property. If it will then I'm probably better off saving up for my second property outside of my "business" so that I can claim a greater loss but still set aside for future purchases. In all of my research I haven't ever heard that legally you have to pay yourself rent and count it as income but I don't want to unknowingly do anything illegal and then have to pay for it later. Is there a best way of handling this? Your advice is greatly appreciated!

Thank you both! My predicament is that what the landlord told me (in writing) doesn't correspond with what the applicants told me. I decided to give them a chance to prove that what they told me is correct, but if they can't provide proof then I will move on. This is my first investment property so I'm still trying to learn what I can and cannot do without getting into trouble. I appreciate both of your responses. Have a fantastic day!

When screening a potential tenant are you allowed to tell them what their past landlords said about them? I am in the process of screening someone who ended up moving out of state 6 months into a lease for a job transfer, so when I contacted the ex-landlord I expected them to say that the tenant broke the lease. They did, but they also said some things that I wasn't expecting, things that go against everything that all of their other references have said. I read somewhere on here about going back to the applicant and saying that there was an issue with the landlord review and that they should get in touch with the landlord and work things out until a positive review can be written. Is that all you are allowed to say or can they know what exactly was said?

Well if I would leave the other unit vacant then yes, I would be paying that much out of my own pocket and it would definitely be a no go. But with the other unit occupied I'm paying less than half of that amount.

I am looking to find my first rental property and I have one that I feel would be a really good investment and was just wondering what others think.

The property is a duplex, built in 2003 in a very desirable town with excellent schools. Each unit is 1,500 s.f. with 3 bedrooms, 1- 1/2 baths and a 2-car garage. Two stories each. One unit has just been totally redone inside, with all new appliances, flooring, paint, fixtures, etc. The other unit was done 4 years ago, but has been repainted and still looks to be in excellent shape. Many major replacements have been done in the last couple years as well. 

The asking price is $209,900 and I have been pre-approved for an FHA loan with 3.5% down for a 30 year term. Property taxes are $2,500 and insurances are an estimated $3,000. Tenants cover all utilities so I included $100/month for maintenance, $160 for vacancy savings and $210 for cap ex in my analysis.

Both units are currently vacant but unit 2 was posted for rent about a week ago with some interest, so even though I am prepared to have to find someone right away I am expecting that it will be full by the time I would get the keys. In the past the tenants have paid $1,095 for unit 1 and $995 for unit 2 (this is what I used in my analysis to be conservative), but the seller has unit 2 posted for $1,095 and thinks they will get it. According to Rentometer the normal/high end in this area is $1,175.

If you need more info let me know. I am meeting with my realtor and the current owner tomorrow to go over their records for the property, so if there is anything that I should ask them please let me know.

Thank you! 

I did misunderstand what you were saying. I thought you were saying that you don't think I'll actually get the $150 a door that the numbers show. I have called the electric and water companies to get a monthly average cost over the last year for that particular property. The entire building runs on a single meter and the owner pays the bill each month. They were only able to go back a year though so I guess I should ask the seller to show me actual bills from previous years (especially since last year was mild). In most of my calculations I have been using $1,000 just in case something is being left out. I can't think of anything else since this covers electric, gas, water, sewer and trash, but I just don't feel right about the $630 being enough.

The property is in a class C neighborhood. It's an older, stable neighborhood with not so great grade schools but 1 existing college nearby and a new medical school going in. It's actually on the edge of a commercial area and a residential area. Many of the buildings immediately around the property are being updated/well kept but I'm not sure how much weight that holds.

At the moment I am leaning more towards no on this property. I hate the idea of putting my dream on hold once again, even for a little bit, but I found an article this morning that makes me think that I have probably been underestimating the monthly allowance needed for both vacancy and cap ex costs. I do feel confident that I won't have to put much work into it in the beginning but I don't know how much that stuff costs yet, so I think I was underestimating it. So with that in mind I think I'm going to be a lot closer to break even, which isn't a position that I want to be in I don't think. I need room for error.

That said- I haven't fully decided yet so I would still appreciate any opinions. And I can't thank you enough for all your input so far. It is nice knowing that even though I haven't found any personal mentors to help me through the process I still have people that I can discuss things with.

Thank you all for your feedback- I appreciate all your time and opinions! I'll try to hit everyone's questions.

The utilities of 500 and 130 are for all 4 units and it is "built in" to the rent. I guess this is one of the things that attract me to the property. I don't like the idea of paying the utilities each month but I also think that the rent is low considering that it is built in. So I don't think that it is operating at it's full potential in that aspect.

And I agree, $150 per door seems high to me as well, but when you throw in cap ex and vacancies it's not so crazy. I may be new but I've read enough to know that I will have to deal with both expenses at some point, it's just a matter of when.

I will be living in 1 of the units for financing purposes, but I don't see myself being there long-term. For this reason I am running the numbers as if all 4 are being rented. And honestly, I'm leaning more towards myself "paying rent" as well. I'm thinking that I probably wouldn't have to, but what better way to force real estate investment savings than to require myself to pay rent that will ultimately go towards improving the property or purchasing a 2nd investment property?

I went to see the property today and learned a few things that may help with the analysis.

Unit A- Normally rents for $850 but owner reduced it to $750 because she wanted to get a tenant in quickly; owner is actually currently living in this unit but has active tenant leads (they were showing it and gave out an application while I was there), plus may want to rent it herself if the property sells and nobody else rents it. When I move in this is the one that I would occupy. The typical lease is 1 year.

Unit B- Has been occupied by an older gentleman on disability for the last 10 years. In the last 5 years it has gone from $400 to $475. He wants to stay there but if the rent is raised very much the current owner doesn't think that he will. The owner said that he is a good tenant and always pays on time, so keeping him could mean a long term stream of cash without much effort, but if he were to go I could go in and totally update the unit (hasn't been done since he moved in) and then increase the rent. He just resigned his lease in April for another year.

Unit C- A new tenant just signed a 1-year lease last Friday. This unit normally goes for $1,000 but because the owner wanted to get someone in quickly she reduced it to $900. 

Unit D- The business used to be owned by the property owner, but she recently sold it and now they are leasing the space. They are just starting the 2nd year in their 5-year lease. They have been at this particular location for 15 years.

The only repair that I could see needing to be done in the near future was a leak in the basement. I am not at all knowledgeable about what to look for with this though so I took a couple friends to help  me out. I haven't heard their input yet other than that they think the property is priced to high.

I have verified that the electric/gas is $500 and the water/sewer/trash is $130. The seller hasn't given me any proof of income or expense yet though so I haven't been able to verify that this is everything, hence the $400 cushion. I think this should cover the vast majority of the utilities though.

Cap ex and vacancy would be on top of  everything listed. Since the seller hasn't provided proof of income yet, other than saying that they are almost always 100% occupied (taken with a grain of salt), I'm just assuming a 5% vacancy rate.