All Forum Posts by: Zach Davis

The fact that he's a contractor doesn't mean much. I'm in the process of closing on a couple of buildings where the current owner had a tenant "contractor" maintenance guy. We had to stipulate in the purchase agreement that he was to stop all work immediately because he was "remodeling" one of the units and ripped out a load bearing wall to open up the kitchen to the living room. He spanned a 4x6 16' to support the trusses... They've dropped 3" in the middle. He also ran the 220 for a laundry room he ripped out over to the garage where he planned to put the new one. The wires were twisted together, covered in electrical tape and about to be buried in the wall. When I asked how he planned on getting the plumbing to the garage he said he hadn't thought about that...

Having tenants do repairs seems handy at the time but it puts them in the wrong mindset for a good tenant. It flips a switch and now they feel empowered to fix or change whatever they want. They go from being a tenant to viewing themselves as a maintenance man or manager. When I was a property manager we even had a guy's son start bossing the neighbors around because his dad was "in charge" of the complex. Not exactly a comfortable environment. I cant tell you how many buildings we took over where we had to remove the owner's old on site manager. Once that switch is flipped they don't seem to be able to give up whatever power they thought they had and it can cause a lot of problems with the new management style.

We are having a hard time finding properties that will cash flow due to high property values. Rents have risen substantially in the Portland area but irrational property values are overshadowing those increases. I will say however that it makes it nice to refi. The last property I bought was a rehab and rent with private money. In one year the appraised value increased 15k over what it should have with the rehab alone. I was actually able to pull out a good chunk of my initial investment when I refinanced. I'm very conservative and cautious with my investing so that's saying something...

I was fortunate to learn early on that creativity trumps property values, interest rates, rents, and economic climate in most cases. There is almost always a way to make money, you might just have to change the method.

I'm not sure which ones you are buying but there are 60W equivalent Philips available at HD for about $7 each or cheaper for Utilitechs at Lowes. You can wait for the 20% off coupon for Lowes or Home Depot and stock up using that, you can usually find one online that may not have a valid bar-code but can be taken to the competitor where they will match it. I personally will continue to use incandescents until I can't get them anymore. They're just to cheap and put out great light, plus I don't pay for the electricity and none of my tenants have had any issue with them.

Home Depot 60W Philips

HD SlimLine Philips

Lowes Utilitech 60W

Its going to depend on what is in the lease. You should have language in it that states that the tenant can't do business out of the unit. That could be the hammer if they are pet sitting for a living. It should also state that they can have no more than X number of pets in the unit. There's your hammer if they are just watching them for friends for free. 

If the lease says non of the above asking nicely will go a long way. As soon as you can, get them on good professional lease paperwork stating those things. Good luck.

You have to divorce yourself from the situation. Its not you choosing, its the business. Establish your screening criteria; income, criminal history, credit, etc. and stick to that. Do not let your emotions push you into accepting a tenant that you otherwise would not. Yes, you run the chance of not accepting someone with bad credit that would have been a good tenant but it will save you from accepting a lot more bad tenants.

People lie, numbers don't.

Personal involvement in these decisions is how people get sued for retaliation or discrimination. You have to have something legal to point to in the event of a lawsuit. I go a step further and run them in the order they were received whenever possible. The only way I get to the second application is if the first doesn't qualify.

I have read and re-read Dave Ramsey and Robert Kiyosaki. The more you get into it you realize they aren't that different in their philosophies. Neither believes in consumer debt or buying flashy things you can't afford. The only real difference is the use of debt as it pertains to investing. Dave tends to have the Ex-Addicts' approach, if I use any part of it, it will drag me back in all the way. Kiyosaki doesn't like debt unless its making you money. 

If you have ever heard Dave Ramsey tell his story, you realize that the debt isn't what caused him to loose everything, the type of debt was. He was over-leveraged but was still doing fine, the issue was that the loans he was using could be called at any time and were after an ownership transfer. That triggered the domino effect that ruined him the first time around. If he had been using regular mortgages or commercial loans it probably never would have happened.

Both methods will end up with the user being FAR better off than the majority of the population. I personally use Kiyosaki's approach to investing but plan to use the cash flow and equity to get into a mid sized complex free and clear in my later years. Its much easier to manage one 40 unit complex that you make 200k a year on than 250 units that make you the same.

In Oregon, if there was no check-in/check-out sheet then you are pretty much SOL. You have to be able to prove that the damage was not there prior to the tenant moving in, her having pets doesn't prove anything. That is if it went to court, chances are she doesn't have the means to sue you so you can try it and see what happens but it is a risk and probably not the best way to run a business. If you do have the original rental agreement, and more specifically, a check-in sheet that she signed showing the unit is in good shape with no smells or other issues then go sick.

As far as the flooring goes, you shouldn't need to replace the sub-floor unless it's rotted out. Pull up the flooring, scrub the sub-floor with your cleaner/disinfectant of choice, then set up some fans, let it all dry out, and throw down a coat or two of KILZ Original primer. All other surfaces should just need scrubbed unless the actual urine sat on them and soaked in. You could also try scent bombs after cleaning everything to get rid of any remaining smell.

House hacking is a great way to get started and the FHA is a good way to do it if the numbers work. I can't say whether its good or bad in your situation, the numbers for the individual properties are all that matters. I run the numbers as though I am buying a rental property. If income from all the units minus mortgage, insurance, taxes, vacancy, cap ex, maintenance, utilities, etc. equals the right amount of money in my pocket then its a good deal and I'll take whatever reduced living expenses I'd get while there. If it wont cash flow when I move out and use it strictly as an investment property then I want nothing to do with it, regardless of what it may save me while I'm there. The only difference an FHA makes to me is adding the mortgage insurance to the list of expenses when I tally everything up on my spreadsheet. If it still cash-flows well with the added expense of the mortgage insurance then I'll still buy it, if not then I'd pass.

You can mention someone by typing the @ symbol and then starting to type in the name of the person you are trying to mention. The person or a list of people should pop up on the bottom of the reply box and you can click the right one. @James Post for example. Good luck!

FHA is a decent program if the numbers work but don't there are a few things to be aware of. 3.5%-5% down gets you a market rate mortgage but you have mortgage insurance, which is now for the life of the loan. The good news is that they just reduced premium amounts, its now .0085 of the loan amount as the yearly premium. Just make sure that its added in when you run the numbers. They will also take somewhat longer to close, cost marginally more in closing costs, and the property has to meet HUD requirements.

Duplexes are just like SFH except that you can claim the other side as income, with 15%-25% (I can't recall which) removed as a vacancy rate. You don't have to use the income if your personal finances are in order but you can if you are trying to purchase a property that you wouldn't otherwise be able to afford. Triplexes and 4-Plexes are the same except for one weird rule; 85% of current rents (all of the units) have to be able to cover the monthly PITI payment. Its not really a rule that will matter in many purchases but I did have one where the rents were so far under market that it would have ended up requiring a 15% down payment since the total loan amount was restricted by that rule.

Also, you can only have one FHA mortgage at a time, there are some instances where you can get another but they don't apply to most people. Good luck!