Landlord Shmandlord

Looks like Prlinkbiz and Kimber over at No Limts Ladies tagged Shmandlord this week. Thanks a lot! Time to continue the very, very, long line of taggers.

I too am not sure how it started, but the idea is to list 5 “secrets” about yourself that your readers don’t already know.

So, here it goes:

1. I grew up on a farm, raising sheep, chickens, horses, and goats. It was a lot of fun.
2. In my spare time I enjoy playing the guitar and recording songs. I love listening to the resulting music much more than anybody else.
3. I live in Philadelphia now. There is construction going on outside my window. They jackhammer in the middle of the night.
4. I have three computers at my desk: one running linux, one running OSX, one running windows.
5. My girlfriend and I are in the process of watching Arrested Development on DVD. Very funny.

Ok, so now I get to pass it off.

1. Building an Empire
2. I will teach you to be rich
3. Do-It-Yourself Landlord

4. The Landlord Blog

5. i bought a duplex
   

Here is an overview for the new readers…

The reason why I started this blog was to cover a dog situation that arose. It turned out that some of my tenants were the owners of two trained attack dogs. When I sent them the Notice to Cease, they promptly stopped paying rent. The game was on…

After several weeks of dealing with the slow government, we finally had our day in court, where I got a judgment..

Oh, but that wasn’t the end of it. After I filed the Warrant of Removal, my tenant tried to pull a quick one by filing an Order to Show Cause, which was denied.

Finally, I went with the court officer to lock out the tenants, only to find that they completely trashed the place. They ripped up the carpets, broke the windows, left holes in the wall, and left an insane amount of garbage. It took a long time to clean.

Now, I am in the process of tracking these guys down, since I am still not sure where they went. They owe me a lot of money, and I fully intend to collect. Stay tuned to see what happens…

Thanks charlietyack for the image.

There is a situation unfolding that has me very nervous.

The tenants who helped with the renovations are hitting some hard times. The father had an incident in early 2006 where he fell while working as a contractor, seriously hurting his wrist. He had a cast for a while and then seemed fine when it was removed, but apparently over the past few months it has become very painful. To make a long story short, he just had surgery a few weeks ago, and will be in a cast for the next four months. This presents the problem of how will they pay rent.

To flesh out the history, they own their own power-washing company. Power washing, I’ve learned, is a very seasonal business. Over the winter, they both do odd jobs to pay the bills. When the incident first occurred in January, he was unable to get another contract position and it was too cold to power wash. They stopped paying rent. I filed for eviction, and a week before our court date they explained to me that they were really in financial trouble. I let them slide on the rent for several weeks until power washing season. I was concerned that I would not collect, but they really were down on their luck and had no other options (if I evicted them, it would be unlikely they’d find another place to rent). Either way, I believed that they would pay me back and they did. Once the summer came they started giving me a check after every job, and were able to catch up within a few hundred dollars by September/October. They paid off the next two months by helping with the renovations (on which they did an amazing job).

This brings us to mid-November, whose rent they’ve only paid half. Again, the surgery was in the last week of November. Since then, they’ve been waiting for their worker’s comp checks to come in the mail, and of course it hasn’t. So I’ve been waiting, unsure how to proceed. As of today, they have still not received it, and I am basically at the end of my patience.

So what do I do?

Well, today I called the workers comp office to find out what’s really happening. The woman wouldn’t go into detail because I wasn’t authorized (I made it clear I was the landlord, to avoid any legal complications). But after speaking with her, it seems to have prompted my tenants to get in touch with her (they said they were trying, but for some reason couldn’t get in touch with her). Anyway, it looks like the first check is coming tomorrow to cover the past few weeks — since the surgery. From this point forward, checks will arrive every week. With the first check, they’re going to pay rent through the end of November. After that, they’re going to give me a quarter of the month’s rent each week from their checks.

I will still be a little behind, which I will collect when the wife gets her winter job (she couldn’t get it earlier because “she needed to take care of her husband”). Overall, I am cautiously trying to help them through. I certainly don’t want to get burned, and will protect myself. On the other hand, I would like to keep them as tenants (assuming they don’t get more behind. Enough is enough). They keep the place very neat, they fix things when needed, and they’re very nice.

We’ll see…

Check out this great list of “Most Unusual Buidlings”. It’s amazing what people come up with.

I love the innovativeness of Zillow, and especially their new features (mainly Make Me Move).

It will be interesting to see how far they can take this. Can Zillow become a one-stop shop for buying/selling real estate, almost like what ebay did to the used-item market?

IE,

1. I put up a house on Make Me Move.

2. Joe is interested and responds to my offer through Zillow.

3. For a flat fee (a few hundred dollars?) Zillow acts as the coordinator of the sale, similar to what a real estate agent does now. They would verify Joe’s pre-approval and financial eligibility, schedule the inspections and closing, work with the title agent on the title search, etc. Ideally, there would be a very mechanical process that would have build-in provisions to handle the inevitable problems that would arise (ie, house doesn’t pass inspection, buyer can’t get mortgage, house blows up before closing, etc). Again, this is similar to ebay in some ways, in that ebay can handle deal-breaking issues that arise like buyers who don’t pay, items that don’t meet description, etc.

4. The sale goes through. No percentage would be paid, just a flat fee. (Also, Zillow wouldn’t collect their fee until the deal goes through)

I think one of the additional keys will be to open up their listings to other systems. There needs to be an open MLS-type site where I can go, see everything that is available, and initiate a purchase. This listing system must be comprehensive, which is why existing closed systems like MLS must be incorporated.

Obviously there are a lot of logistical issues, but it seems to me that this type of system is doable and that both the buyer and seller would really benefit (cheaper costs, comprehensive listings, standardized process).

The other night (before December 1st) he called to ask when and how he should pay December’s rent. Rarely does a tenant have this type of initiative, and when they do they’re keepers! The tricky part is to keep this enthusiasm. It will be imperative that he knows I expect the rent on or near the first of the month.

I’ve found that as soon as you let a tenant slip, they will slip more in the future.

The Carnival of Real Estate turns 21 this week over at the Property Monger. Go check it out! One of Shmandlord’s posts even made the top 10 = )

Hi all, welcome to the Carnival of Real Estate Investing #3. Thank you to everybody who participated in this week’s Carnival.

The pick of the week goes to:

• Paul’s Tips has a great recommendation on How to deal with information overload. This is obviously exceptionally important in today’s world because, and Paul offers a great way to think about it.

The remaining posts in no particular order:

• Stock Market Beat discusses Blackstone Groups’ acquisition of Sam Zell’s Equity Office Properties Trust, “the nation’s largest office-building owner and manager” in When Zell Sells, We Listen
• SharpBrains has a post about emotional self-regulation and biofeeback. I feel that as a real estate investor, it is very important to keep in control of your emotions. When looking at a property to purchase, you need to remain calm and logical. It is too easy to get emotionally swept into a purchase, which will most-likely result in a bad investment.
• Michael Emilio gives us Five Reasons Why Real Estate is the Ultimate Investment.
• Musings about Money gives us Don’t Invest in Texas… But Consider Moving There
• Rob Thomas Blog gives us Property prices and low cost airlines which discusses how cheap airline tickets will effect real estate prices in Europe.
• Debt Free gives us Different Real Estate Retirement Strategies - Pros and Cons which is a good overview of three different ways to invest for retirement using real estate.
• Mortgage Lowdown gives us the very thorough 43 Must-Know Tips (and Resources) for Every First-time Home Buyer. This is a must read for any would-be or soon to be first time home buyers.
• The Landlord Blog gives us Working With an Out of State Property Manager which details a few tips about working and coordinating with remote property managers.
• Worldwide Success gives us The Truth About Rich Dad Poor Dad - What Robert Kiyosaki Does Not Want You To Know

Thanks again to everybody who participated

The Carnival of Real Estate Investing is a much needed Carnival because of the many people who can benefit from the REI knowledge that exists in the blogosphere. Look for the Carnival next week on BiggerPockets. Make sure to submit your post by December 12th at noon.

Thanks chris_starscream for the image.

I was reading this post on Blueprint for Financial Prosperity and it brought up several thoughts which I’d like to share.

The article is about paying a mortgage bi-weekly rather than monthly, so you end up making one extra mortgage payment a year. The thought behind this is that the extra payment will drastically cut the life of the mortgage.

Consider a 30-year $200k fixed 7.00% mortgage starting in December of 2006. If you make one extra payments every December, then instead of the mortgage ending in December 2036, it will end in December of 2030 (if you make two extra payments a year, it will end in March 2027).

Now, this is obviously a tremendous savings, in the case cited above the savings is almost $100k. In the case of a primary residence, people like the notion of freeing up their cashflow early, so that they can use it in other ways, like a personal safety-net or to invest elsewhere. I think in this case, the peace of mind that people get from fully owning their house is certainly valuable.

However, how does this strategy work for investment properties?

Let’s say that I’m renting an apartment out for 2k a month, but my mortgage payment is only 1k. Is it better for me to use the extra money to pay down the mortgage, or is it better to take that money and invest it elsewhere? Surely if you highly doubt that you’re not going to be able to make anything near 7%, it is better to just pay off all of your mortgages.

The point of the investment property is that it’s an investment. What if instead of paying off the mortgage, you save the excess rent until you have enough money to buy another place on which you will also have a positive cash flow (by design, of course)? You’ll then be collecting positive cash flow from two properties, which you will then use to purchase another eventually. All the while, you’re paying off the mortgages of your existing properties. Instead of keeping all of your equity tied up in one place, you’re using it to grow your investment. In 30 years, your first property will still be completely paid off, but you’ll also have other properties that are almost paid off as well.

If you use the extra money of an investment property to pay down the mortgage, in 30 years you will have one house that is paid off, 100k, plus the rent collected over the last 6 year period, but I don’t think it compares.

In the second scenario where you buy other houses with the leftover rent, there are tax advantages plus you will benefit more from appreciation.

You’re certainly leveraging yourself more in the second scenario, but I believe that it can be done in a responsible way according to your tolerance for risk. Maybe you’ll want to wait 5 years before purchasing the second property because you want to have a large safety net before investing again. As I’ve said elsewhere on this blog, it is important to make sure that you have enough money to cover problems that will arise. If after you pay a mortgage and allot a percentage to maintenance and vacancies you still have rental profits left, I believe it would be wise to save that money and invest it elsewhere.

What do you guys think?

Thanks revdancatt for the pic.