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Any advice for a first time slumlord?

3,155 Views | 15 Replies | Last: 5 yr ago by Red Rover
Kool
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AG
I have been interested in diversifying my portfolio a bit, possibly as a hedge against future inflation. I recently acquired a condominium unit and have just secured a tenant for a two-year lease. The property is currently titled in my name, but I am in the process of establishing an LLC for protection, more than anything. I have two weeks before the tenant moves in (a single professional lady in her 30s with no pets - I got lucky). Any words of wisdom from any of the Business and Investing Forum as I go forward? I have a full-time job, so I don't really have a lot of time to spend on managing the property. It is fairly new, and I just had a full inspection prior to my purchase of the unit. The contract is signed as is the HOA lease agreement. I will be paying the HOA fees and she will be paying all of the utilities. The living room and dining room furniture is mine and will be left in the unit per the tenant's request, as are washer, dryer, refrigerator, and microwave. I have several months remaining on the warranty of the heating and air conditioning and other homeowner's warranty from the purchase. The contract is a standard Georgia rental contract which was provided by the realtor who found the tenant. Thanks
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Ragoo
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Too long for a derivative.
CS78
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Kool said:

The living room and dining room furniture is mine and will be left in the unit per the tenant's request, as are washer, dryer, refrigerator, and microwave.
I'll pick this line. May be too late but do yourself a favor and don't include these items in the lease if possible. Some areas a fridge is expected, some not. You really don't want to be spending your time swapping out a washer or dryer when they go out or paying $100 diagnostic fees in hopes of maybe getting them fixed. Fridges are expected here due to all the students but if my units have the other stuff I tell the tenants they are welcome to use it but it is not part of the lease and will not be repaired/replaced if they go out. Also inevitable that the next tenant will show up and expect you to store them because they already have their own. Being in the landlording business is good. The appliance business, not so much. Saves a ton of headache.
dlp3719
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AG
Be strict about rent being due on the 1st. Enfore late fees if they are late.

When they give a sob story (and they can be really good stories) about all reasons you should let them live rent free, explain that you have a mortgage and bills that have to be paid too and if they don't pay, they are evicted promptly. No free or late rent - no matter what.

Drop by to change the HVAC filters every 6 months. It will let you check interior condition and save your equipment. They will not change the filters.

Good luck!
OilAg01
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dlp3719 said:

Be strict about rent being due on the 1st. Enfore late fees if they are late.

When they give a sob story (and they can be really good stories) about all reasons you should let them live rent free, explain that you have a mortgage and bills that have to be paid too and if they don't pay, they are evicted promptly. No free or late rent - no matter what.

Drop by to change the HVAC filters every 6 months. It will let you check interior condition and save your equipment. They will not change the filters.

Good luck!



All of this.
Martin Q. Blank
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Agree on appliances. Explain if the washer/dryer go out, there is no warranty.

And on the filters. I visit the properties every month to collect rent and change filters. Gives me the opportunity to check the condition of the property. Home Depot has a special on filters today so stock up ($5/ea): https://www.homedepot.com/SpecialBuy/SpecialBuyOfTheDay

Also, removes any excuse for rent being "lost in the mail." Rent is due on the first, late on the second. Have a plan in place as to when to post pay or quit notice.

You are maintaining yourself so be prepared for lots of requests. Especially from a single woman (the worst when it comes to this). Put a $50 trip charge in the lease. Only fix necessary items. Drag your feet on stupid requests. Learn to say no.

As far as LLC, make sure it has its own bank account and GCL policy. Much more difficult to "pierce the corporate veil" if those are in place.
mwp02ag
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I much prefer to use cozy.co to collect rent. It's free, easy and automatic. Only drawback is it take 5 days to fund. There are others that fund same day though, cozy is really good imo.
diehard03
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Quote:

The property is currently titled in my name, but I am in the process of establishing an LLC for protection, more than anything.

I'm be curious from the more knowledgeable, but is this really going to work (to try and "back end" the LLC side)? The bank already has your personal guarantee on the property and I doubt they want to give that up.
Kool
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diehard03 said:

Quote:

The property is currently titled in my name, but I am in the process of establishing an LLC for protection, more than anything.

I'm be curious from the more knowledgeable, but is this really going to work (to try and "back end" the LLC side)? The bank already has your personal guarantee on the property and I doubt they want to give that up.

There is no note on the property, but I planned on taking out a mortgage after properly establishing an LLC
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diehard03
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thanks for the clarification. I didn't take your "title in my name" literal enough.
AgCPA95
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mwp02ag said:

I much prefer to use cozy.co to collect rent. It's free, easy and automatic. Only drawback is it take 5 days to fund. There are others that fund same day though, cozy is really good imo.
Big fan of cozy.co as well! We also get maintenance requests through the site. FYI - you can pay a fee to speed up the float time to maybe a day, but for right now cash flow isn't a concern and the time value of funds for a few days doesn't add up to enough to worry about.
AgCPA95
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Martin Q. Blank said:

You are maintaining yourself so be prepared for lots of requests. Especially from a single woman (the worst when it comes to this). Put a $50 trip charge in the lease. Only fix necessary items. Drag your feet on stupid requests. Learn to say no.

We also added language that explains that light bulbs and clogged plumbing (toilet, sink, bath, disposal), unless cause by landlord negligence are not paid by Landlord. Also added language that they are to change A/C filter each month that I supply.

I self maintenance very little (almost none) due to my schedule, desire to do maintenance and location of some properties so I have a contractor for basically everything plus a handyman in the two locations I own properties. They all have my information on file, how payment works, etc. A text to them with tenant contact is all I have to do and I've built trust with the team over the past 11 years changing out folks that are not good team members.
Removed:09182020
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AG
I invest out-of-state so I use a property manager. If you're planning on being a longer term investor, even if you are local, I would recommend using a property manager for the following reasons:

1. Your time is valuable - If you don't want to be running over to Home Depot or coordinating plumbers appointments, or taking 3AM calls someone else will handle this and bill you for it.

Also, because your time is valuable, how much do you make at work? Calculate that rate x the cost to manage your rental portfolio. If you're giving 8% of the rent to a PM, and that 8% is about what your time is worth to deal with things, that 8% should be underwritten into your deal anyways to see if it makes sense.

2. Property managers rarely make much money on PM fees, but make a lot of money on broker fees. When they have a new unit to sell, they're going to call their customers. You get access to a lot of good off market deals.

3. Repairs can often be cheaper than DIY. If they are big enough and have scale, they are negotiating new water heaters from the manufacturer rather than paying list price at home depot.

4. They take far less **** from tenants with sob stories. I'm a softy. If someone gives me a halfway plausible reason they can't make rent I'm inclined to give them more time. My PM just DGAF. I pay them to do my dirty work and get the rent paid on time.

A good property manager will pay for themselves 1000x over. A bad property manager will kill your investment. Make sure that they are doing the things that are in your agreement. If they agree to inspect hte property and change HVAC filters every x Months, expect to see time stamped photos of them performing the work. Make sure you go to visit your properties on a regular basis too.

$0.02.
Gigem_94
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With rental houses, many banks won't do a loan under an LLC (esp if there are not sufficient tangible assets and history) and force the loan to be with the individual. You may be able to find one if you look hard enough but obviously you have to provide a personal guarantee. At least that has been my experience in Texas. Also, if available in Georgia, use a series LLC over traditional LLC - gives you more options for future acquisitions.
FrontPorchAg
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I wouldn't use a lease longer than a year. On my rental property, I find that it's not hard to get people to resign a new lease but bad tenants I want any excuse to get them gone. Also, it makes it easier to raise the rent to match the market.
All animals are equal, but some animals are more equal than others
Jay@AgsReward.com
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AG
Understand that you cannot get a conventional loan in a LLC. That does not matter who the lender is as Fannie Mean/Freddie Mac will not allow it.

You CAN get a loan in a LLC, but it will have to be a portfolio loan that typically have higher rates/worse terms. But, it can be done.
Red Rover
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What are the going compensation terms for a property manager- like 10% of the rent paid by tenants occupying the unit? What range of terms have you seen or do you have now?
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