All Forum Posts by: Bill Crow

@Josh Thomas

I would look at various combinations of income. That is, if one party bails, can the others make the rent? If they are highly dependent on one or even 2 to carry the load, your risk is much higher.

Maybe CO is different than TX, but my TX lease says they are all in or all out. Rent must be paid all at once, no partials. A default by one is a default by all.

We always ask groups like this if they have lived together before. It helps if some or all of them have, so there”s no big surprises in living habits that would cause an early exit.

I would ask for a higher deposit. If anyone leaves early, they forfeit any rights to deposit refund even if the others fulfill the lease obligations.

Personally, I am not a fan of guarantors. They have no control over the situation and no commitment to you other than their signature. If they walk, it’s too expensive to go after them.

Lots of varied opinions and all with good advice. Good luck!

@Nathan Gomes

The 1099 takes about a minute to fill out. HOWEVER, the challenge will be that you need to get a W-9 from the contractor, which gives you their legal name, address and tax ID number for reporting the payment. If they are avoiding taxes, they won’t give you the info.

@Bill Crow

Oh, and our lease says the whole rent must be paid at one. All or none, no partials.

@Keith Allen

I agree with Jim Cummings and his approach. That’s what we have used and have been rather successful. We also ask if any of the parties have lived together before. If they have, there’s a bit less chance of them not getting along. You should also have a plan in place for the possibility that one does move out and the other two want to bring in a replacement.

Interesting variety of responses. Sean, I applaud your ingenuity in reaching out to the Bigger Pockets group from the tenant's point of view. Here's my two cents' worth - sorry it's a little long.

You are the first tenant post-rehab, so the fact that you are "test driving" this for the owner should be a consideration in your conversation with the landlord. You've obviously gone to significant effort to document and examine the problem, which is a heck of a lot better than a tenant who calls and says "the heat doesn't work". 

Evidently that landlord has made SOME effort, having sent an HVAC person there twice. I wonder what the outcome of those service calls was. 

Looking at this from the landlord side, this is not just the tenant's problem. If this tenant has a seemingly legitimate issue with the house being cold, so will the next tenant, and the one after that. Telling the tenant to like it or lump it is counterproductive in multiple ways. Once the landlord is aware of the issue, it needs to be addressed if the landlord intends to hold onto the property. Otherwise, it will be a continual thorn in the side every year, and it has the potential to damage landlord credibility.

In your conversation with the landlord, emphasize that it is in both parties' best interest to diagnose and permanently fix this situation. You definitely have negotiating room with the landlord. At worst, you break the lease and he can keep your deposit and/or take you to small claims court. I imagine, however, he would prefer not to have an empty unheatable unit to market in winter, and still have the same problem to deal with next year with another tenant. There is motivation on both sides to find a solution. Terminating the lease (without mutual agreement) should be the last resort.

As far as space heaters, they use more electricity (higher cost to tenant) and pose some degree of safety risk. If you go that route, LL should be asked to pitch in and compensate in some fashion for the additional expense. Physically, the advice others have given, such as closing off the upstairs vents and sealing off the path to upstairs (if feasible) are good advice for maximizing the use of the existing system.

I try to keep my BP posts positive and informative. In this case, I must speak up and say I am disappointed to see responses such as "you are out of luck" and "this would be a comfort issue". Both of those comments seem like knee-jerk reactions to a tenant complaint. To the credit of those who made the comments, they both came back with "work with the landlord", which is a much more appropriate answer in this situation. 

I'm confident the house was not advertised as having "some heat" (60 degrees) and the rent wasn't bargain-priced based on this defect. Working HVAC is a basic creature comfort in the 21st century in the vast majority of homes. To dump this on the tenant, even if you're legally correct (which I personally doubt that a judge in a tenant-friendly state would agree with), it's the wrong thing to do. This tenant has documented the insufficiency of the heating unit. Considering the short duration of his tenancy and the newness of the rehab, it would be hard to place this burden on the tenant's shoulders legally or morally.

@Shawna McCasland It’s an interesting concept. Particularly the first year after your purchase, you don’t know what care the appliances and systems had before, and a home warranty would be similar to an insurance policy for those items. That being said, I elected not to do so. Here’s my thought process: For $500, I can replace just about any single appliance or repair a couple of them. The only things home warranty would cover that cost more are generally the water heater and the HVAC. The chances of getting your money’s worth consistently are not good. I would choose to pay actual costs for actual expenses. I notice you said you both work full time and don’t want to do repairs. Same is true in our family. Who changes your AC filters, fixes running toilets, etc? Those types of things aren’t within the scope of home warranty. Maintenance provides you the opportunity to monitor the property and observe how your renters are treating it. (We change the HVAC filters, and our preferred service providers will tell us if they see anything we should know about when they make a repair). There’s a whole litany of concerns/issues some people have had with home warranty service providers. I’ll pass on going down that road here, except to say that if those issues arise, they could affect your reputation with your tenant if legitimate repairs don’t get made in a reasonable time and fashion. We had one instance where we got a new $2500 AC compressor unit for our $75 service fee. On several others, the $500 was spent with no return (we typically got seller to pay for the first year warranty). Law of averages will play out in favor of the warranty company - if it didn’t, they would go broke. Tried to say a lot in a short space - hope it helps.

@Bradley LaBrie I could be wrong, but I don’t think the only issue is cost. If I understand you correctly, you’re asking them to apply before ever seeing the property. If I were a renter, I”d pass you over for that. Why not just pre-screen in your initial contact? As far as sources go, I trIed Zillow a few months ago and was not Impressed wIth the reportIng. Landlord Station has a couple options at $25 and $35, less if you subscrIbe.

I believe that the landlord and the property must be approved by HUD before you can receive Section 8 funds. Check your local rules just to be sure.

Basit quoted the rule, and the reason for it, correctly. 

Any rent that is less than what you would charge an unrelated party puts you at potential risk if audited. If you choose to proceed using something "close" to market rent, you should feel sure you would be comfortable defending your number in the event that you have to. A CPA could help you here.

In very general terms, the IRS says you cannot create a loss or magnify a loss by deliberately undercharging for your products or services. Doing so undermines the intent of a business, which is to generate a profit. If you were audited, the IRS could disallow the business deductions in part or in full (talk to a CPA for greater detail).        

If you get through this event, my recommendation is  (as Dennis said) to avoid renting to relatives. Very few things have the potential to cause more family drama than mixing business/finances with family. Plus, not renting to relatives avoids any air of impropriety such as the dilemma you have now run into. Good luck!

@Bill Crow I also do the open house method when I have multiple potential tenants.