Posted by Garrett-BC on July 25, 2007 at 15:19:20:
As much as I hate it… I absolutey agree with Tony
THe secret is deffinately in the loss mitigation;
-if a buyer is 1 day late on their payment I send them a legal eviction notice that states, “Pay within 5 days, or vacate within 10 days”. This usually lets the buyers know the severity of missing a payment and that I mean business.
anyone else have good methods of loss mitigation??
Rental by the week? - Posted by suzanne fl
Posted by suzanne fl on July 24, 2007 at 07:27:27:
I was just wondering if anybody could give me some feedback on the advantages and disadvantages of charging rent by the week instead of by the month? Thank you so much for your imput!!
Re: Rental by the week? - Posted by Marc Faulkner
Posted by Marc Faulkner on July 25, 2007 at 15:22:39:
I didn’t realize this was a land/home package and made the wrong assumption that we were talking about a tin can in a park. I also see your question only revolves around weekly vs. monthly rentals and has nothing to do with doing a contract sale what so ever. Since I have absolutely no expeerience with weekly rentals, I can’t speak with authority on the subject. Hey my neighbor gets over a thousand a week for a 2 br. vacation cottage and that’s 4k a month cash flow as long as nobody wrecks the place! I am sure that’s more than he could get doing it monthly and I don’t think he minds the extra work…
Re: Rental by the week? - Posted by Ryan (NC)
Posted by Ryan (NC) on July 24, 2007 at 07:44:57:
Advantages:
Higher total rent.
Easier to evict in some states.
Easier to fill in slow markets.
Lower move in cost for tenants if high deposits etc.
Disadvantages:
More collections.
Tenants tend to be more transient in some cases.
Weekly ads appeal to the worst of the worst and more screening is needed.
Biggest thing with weekly rentals is to have a collection system in place to handle the weekly contact or it can drive you nuts. Drop boxes or savings account payment deposit accounts are a must IMHO when doing weekly rentals. And stay on top of non-payer’s!
Best wishes,
Ryan Needler
Re: Rental by the week? - Posted by Marc Faulkner
Posted by Marc Faulkner on July 24, 2007 at 20:32:52:
Buyers have a stake in the game because you require for them to have a down payment. Buyers mow the loan, un plug the drains and fix the leaky roofs! I would rather be the bank than a land lord. I can’t call my bank when my roof leaks. Just my 2 cents…
Re: Rental by the week? - Posted by Tony Colella
Posted by Tony Colella on July 25, 2007 at 05:27:56:
“Buyers mow the loan, un plug the drains and fix the leaky roofs!”
What fairy tale are you living in?
Low income, Lonnie type buyers are nothing more than the same tenants we are renting to. You can try and screen and try and convince yourself otherwise but we are marketing to the same crowd.
Paper has its merits and keeps money moving, owning land has been the original source of wealth for most people in our game, in my experience. Many, like Lonnie start with land to become wealthy then use paper to keep their money moving and making more money.
Tony
Re: Rental by the week? - Posted by Gary
Posted by Gary on July 25, 2007 at 02:11:04:
I always ask my prospective RTOs if any one from the finance company they have their auto loan with came out in a three piece suit to fix their car. They usually get it then. Sometimes I have to say READ YOUR CONTRACT!
Re:Skin Wins - Posted by Marc Faulkner
Posted by Marc Faulkner on July 25, 2007 at 07:02:28:
I hate to disagree but, a little more underwriting goes into doing an installment sale rather than a lease. When a buyer puts down 10% they are more apt to take care of the place vs. a renter who came into the deal w/just first and security. I see Lonnie type buyers as a step up from renters because they have something to loose.
Re: Rental by the week? - Posted by Marc Faulkner
Posted by Marc Faulkner on July 25, 2007 at 07:12:28:
With all of that said, I personally wouldn’t do and, don’t have the time to mess with weekly rentals. I am, however, starting to become a believer in lease options as long as they are written right. The key is getting enough money out of the buyer that they have something real to loose should they fail to perform.
Re:Skin Wins - Posted by TeddyB_SC
Posted by TeddyB_SC on July 25, 2007 at 17:17:12:
Based on my experience I would tend to disagree. Buyers tend to cause more damage then renters because they generally fail to do repairs in a timely fashion and/or won’t do preventive maintenance.
Take a leaking faucet for example. A tenant is more likely to call the landlord, than a LD buyer is going to fix the leak in a timely fashion.
Another example is buying MH’s or SFH. The ones I buy that were owner occupied are in far worst shape then the ones I buy that were previous rentals.
I generally stay with rentals but I have sold two homes owner financed. One I got back after the lady walked away from a $5,000 down payment and 18 months of payments. And it was in worst condition then any rental I have gotten back.
The other is 3 years into a 15 year note and won’t repair a leak in the roof. He told me 6 months ago the roof is leaking and the sheetrock is falling down. Still leaking to this day and nothing I can do except hope he pays all the way through. If he doesn’t I am sure I’ll have more damage than his $3,000 down payment.
So that has been my experience with “skin”, $5,000 and $3,000 downs and property in worst shape than my rentals.
Buyers at this level are no more than glorified renters as has been stated by others already and sometimes they are worst.
Hope this helps.
TeddyB_SC
Slow down there Marc… - Posted by Ryan (NC)
Posted by Ryan (NC) on July 25, 2007 at 07:51:28:
Unfortunately from my experience most of our LD buyers are long term renters! A lot of them lack the owner mentality which is part of why how much down how much a month works so well. Don’t get me wrong, I love our buyers and truly hope that everyone of them complete’s their contract… it just don’t happen 100% of the time in the real world!
From your last couple post I get the distinct impression that you’ve never had any rental units for any real amount of time. The reality is that I’ve had fewer rental units damaged than I have LD units over the same amount of time!
LD buyers from my experience have a nasty tendency to paint homes in really odd colors, pink living rooms come to mind, take critical items that they have upgraded, (water heaters & light fixtures) and take break ups out on the home cause the other half ain’t getting the home…
Rental tenants biggest faults are they destroy LR carpet FAST and normally don’t give notice just skipping in the middle of the night or wait for you to evict. (Which happens with LD’s too)
I don’t wanna scare newbies just getting started, trash outs are VERY rare in both types of investment if you treat people with respect! I’ve only had 3 units that I consider really trashed when I got them back… 2 LD’s and 1 rental unit, 2 of the 3 took less than $500 to get back in shape, one of the LD’s I woulda been better ditching to another investor and took $2500ish to fix. I almost always have to go back in to LD’s and repaint to get rid of the pink, robins egg blue, neon yellow, and freaking black and blue bath rooms… On the rental units I normally have to clean the unit and put the rent sign back up (laminate in the LR helps recovery time)
The reality is if one can handle the tenant calls and not go running every time someone calls rentals are wonderful, I’ll be the first to admit that rentals ain’t for everyone but I don’t thing anyone should base their future investments on story’s that have been retold from person to person to the point that no one really knows who it happened to. Personal experience is so much more reliable!
I don’t know you on a personal level and you may have ran hundred’s of rental units and become burned out but blanket statements affect newbies on this board and may keep them from trying a deal when less than 5% of them cause nearly 100% of the “horror stories”.
Best wishes,
Ryan Needler
Lonnie Buyer vs. Weekly Renter? - Posted by Marc Faulkner
Posted by Marc Faulkner on July 25, 2007 at 07:35:42:
I am sory but, a weekly renter and a Lonnie Buyer are not the same. We may advertise to the same folks (at least in the same areas)but only the ones that answer the down payment questions the right way, get to see the place. The rest usually hang up…
“How much down payment do you require?”
ME “we try to keep it reasonable and affordable, the more down you have, the lower your monthly payments will be, how much do you have to work with?”
“I aint got nothing right now but, I cans come up with something in a week or two”.
ME “No Problem! Call me when you are ready to go and I will show you what we have available.”
That’s the world I live in. I look for the money down when looking for my buyers. I can make the monthly payment almost whatever I want. In my world, I have found that the more they put into the deal the better they perform. Renters typically don’t have much down and that’s why they stay renters. I think Lonnie would agree.
Re:Skin Wins - Posted by Tony Colella
Posted by Tony Colella on July 25, 2007 at 07:28:15:
Sounds like the misguided assumptions of a note broker to me.
Not sure how many Lonnie buyers you have met in person but guess where they are living now? You got it, renting trailers.
Talk yourself into it, I don’t care but the reality of the street is that that we are all working the same market whether or not we are selling them a home on a lonnie note or renting them one we own.
10% down on a Lonnie deal is little (or no) more than the security deposit plus firt months rent.
Let’s say that we sell the Lonnie deal for $9k (about what my standard lonnie deal was). 10% down would be $900 and they would owe their first payment of $250 in 30 days.
Compare to my tenant who rents the exact same home for $500 per month (real numbers here). He pays me up front $500 for the first month’s rent and another $500 security deposit. So my guy is $1,000 into it for me.
Same guy, same general amount of money down, same life circumstances and financial issues. Same guy won’t necessarily cut the grass because he is buying it. Most look at this like a rental until and unless (the minority) actually pay it off.
My guy has something to lose, that $500 security deposit. Yours wrote off that $900 down payment and does not expect to get it back. My guy knows he gets it back if he is current on rent and home is in good condition. Most of my tenants do leave the homes in decent shape in order to get some of “their money” back.
Yes some do trash it but no more than (and I would argue less than) my lonnie deals did.
Just because we sell on a note or collect lease payments does not mean we change the character of the tenant/buyer.
We can theorize why it should but the reality of life is that the person remains the same.
Sounds good as a sales pitch if you are brokering the note to someone else who will later realize that what the really have is a tenant and not a homeowner on that note.
If you are holding these yourself instead of brokering and taking a bite out of the deal before you pass it on, you will know the reality is that regardless of what the documents says, you have yourself the same guy.
Tony
Re: Rental by the week? - Posted by Gary
Posted by Gary on July 26, 2007 at 18:39:40:
Just about all my deals are RTOs and all deals are on my land. Calculated yearly,75 to 85% of my tenants stick with the deal.
Re:Weekly rentals - Posted by Marc Faulkner
Posted by Marc Faulkner on July 25, 2007 at 08:22:17:
In Michigan we pay 6% state sales tax on top of the purchase price for most everything we buy. So when a buyer pays 10% down(I always try to work for more or take a trade of some sort as well) to me, they also have to pay 6% for tax, $90 for a title AND the first and security to the park. Would you want to lose all of this? I look to work with folks that are trying to improve thier current situation and the typical renter certainly doesn’t qualify. It takes a little longer to fill vacancies but it is well worth it.
We create the note from the ground up with the full intention of collecting every dime and holding for the long run. With this in mind it has to be a win situation (improvement)for the buyer so that they feel the need to stick to the agreements they have made. Our best deals come from current buyers calling up and telling saying they want to move up to a bigger and better house. You’ll never get that call unless you made them happy to begin with.
You are misleading yourself - Posted by Tony Colella
Posted by Tony Colella on July 25, 2007 at 11:51:08:
First let me clarify that my responses have nothing to do with the weekly rental vs monthly rental. My responses to Marc have everything to do with the reality of lease vs note.
You are seriously misleading yourself if you actually believe what you wrote, “We create the note from the ground up with the full intention of collecting every dime and holding for the long run.”
You are a heart attack waiting to happen. In no way should you Expect in either renting or selling via a lonnie note, to collect every dime that is owed to you.
You should endeavor to do so but to believe you will without fail receive it is lying to yourself and stressful disappointment will follow. Our business is more about loss mitigation than it is about total collection. We chase that goal but it simply will not happen. It might some months but it won’t happen on each home, each month.
I cannot believe you have done this much and still believe in a no loss scenario. I don’t care how careful you screen. Banks make folks with great credit, good jobs, legit appraisals, money down, owner occupied, stick built buyers jump through hoops. Do you think they have absolutely no foreclosures? We are dealing with almost none of that credibility and yet you expect better???
I am not going to convince you and don’t care to try but before you get others to fall for the note broker type hype, this is a people business not a paper business and people unfortunately (either by design, by accident or by neglect) will fail to honor their word.
Tony