E Pluribus Unum

This Latin phrase is on most(/all?) of the coins made by the U.S. Mint. I never took Latin (only two semesters of Spanish in college), so I never really knew what it meant. I took a stab at it long ago and thought it always mean 'A People United' - but, alas, I was wrong. The correct translation is 'from many, one' (or 'out of many, one'), which sounds a lot better than my guess. :-P

Anyway, this phrase came to my head as I was brainstorming the other day. I am really starting to get interested in larger multi-family properties. I figure my snail's pace of buying 1-2 SFR's per year (and I didn't even buy one this year) will mean I'll probably be able to retire when I'm about 65 (IOW, I'll just retire still being slaved to my JOB.) I have to speed-up my plan - a LOT.

So, I've been throwing around the idea of buying larger multi-family properties, like small-to-medium sized apartment buildings. Nothing too big at the beginning, of course, but something in the 10-15 or 10-20 unit range. Now at these sizes, one could be looking at doling our some big bucks just for a down payment. I know a year or so ago, I was looking at a 24-unit in town that had a list price of about $1.2M. Even IF I could get a loan for the property, I'd still have to fork over 20% (or $240,000) just for the down payment. Even if I HAD $240,000 in liquidity, I'd still be apprehensive about buying the property as I'd then be sweating about having all my eggs in the one basket.

Then I read some success stories from individuals who decided to think really BIG and started partnering with other investors on deals. Instead of going it alone and hoping a deal in a lifetime would come knocking, why not partner with others and become 'from many, one'. Either find a group of RE investors who already have such a partnership, or develop one myself.

I guess the first question would be, "But you don't have any experience in such a thing, what makes you think you can succeed with this?" And, as is the answer to most questions that ask me to extend my comfort zone - 'because I can.' So now comes the next chapter in my REI venture where I educate myself on how to partner with others to purchase larger multi-family properties. I will still be looking at 1-4 unit residential properties, but my focus now will be on larger properties. For those that have been following my blog for some time, you may remember when I was mulling the 21-unit for $75,000 that needed a major rehab. If you guess I am kicking myself now for not buying it myself or, better yet, through a partnership agreement, you're correct. That was one of those "deals of a lifetime" and due to my novice experience at what to do, I let it slip through my fingers. I can bet that it won't happen again.

BTW, for those investors that have been with me from the beginning (or anyone else, for that matter) who feel interested in going down this same path, send me an private email and let's talk more about it.

Deposit Refunded and Tenant

Deposit

My wife called me earlier to tell me we received the EM deposit for the 4-plex. I had this nagging feeling the past week that we wouldn't get it and it'd be hell trying to get back (such is my luck). But I actually had some good news for a change. We are still out the $600 for the inspection, but in the end I'm thankful I got it done as it would have been a very bad lesson learned if I went ahead with the purchase blindly and gotten sued later. ALWAYS get an inspection - ALWAYS.

Tenant

I can't remember if I mentioned this already, but we canceled the sewer account for House #1. This means the tenant will HAVE to set up sewer service herself, or go without sewer AND water. Texas Law has provisions in place to protect the tenant if they are behind on rent, but that's only if the tenant pays the landlord for utilities. In this case, all the utilities for the property are to be managed by the tenant, therefore, I am covered in that aspect. Actually, according to the lady at the sewer office, we should have canceled the service each time we got a new tenant. However, I kept getting mixed signals from them about what to do. Now I know.

I tried calling the sewer office this morning to ask if the tenant ever started service, but never got a response. Last I heard, the sewer office sends the water company their delinquent list today and the water company will then proceed to turn the water off.

I wanted to just go ahead and start the eviction, but my wife wanted to wait. However, I've convinced her that it is in our best interest to go forward. In the interim, I sent the tenant a certified/return-receipt letter explaining her being delinquent on both the late charges and the sewer fees. I've given her until Dec 3rd to bring everything up to date. I didn't tell her the consequences if she doesn't due mainly because Texas Law has some quirkiness as far as the language to use for certain instances. Even when I post a "Notice to Vacate" (the first "official" start of the eviction), I cannot use the word 'eviction' in the notice.

4-Plex: Dead Deal

I finally received an email from the agent, regarding the 4-plex. It was basically a cut-n-paste email she received from the Seller in response to our request made earlier this week. In it, the Seller basically says the items the inspector recommended needing repaired were not major and are things he could - and would - do himself. Additionally, he said the heating units and water heaters the inspector recommended were old and were nearing the end of their usefulness would not be replaced. He said that a lot of the work we requested to be done was already done - by him. And, get this, he said due to the work he has and will do, he will be raising the sale price.

I called my wife the instant I finished reading the email - we both laughed (well, I did anyway - she was fuming mad).

I told her I would send the agent an email and try to follow-up with a phone call. So, after getting off the phone, I hurredly wrote the following email response to the agent:

Hi {Agent},

Based on the email from the Seller, we would like to void the deal and have our ${xxx} deposit returned. We are not comfortable AT ALL with the Seller making these repairs himself as we will ultimately be held liable if something occurs later with a tenant and/or visitor to the property. The Seller may assume some of the inspector's recommendations are not accurate, but we feel a LOT more comfortable with a licensed inspector's recommendations than with the Seller's. We had asked that the major repairs be made by a licensed professional and not the Seller himself due in whole to the liability issue. Based on the inspector's own observation that the Seller had tampered with the electrical system illegally in the past further solidifies our concern with the Seller's repair work. Additionally, the property was originally listed for $30,000, but later changed to $32,000, which we wrote the contract for. If the Seller wants to raise the price again, he is all but welcome to do so, however, we will not be purchasing the property based on a new, higher price, nor will we be pursuing the deal further since the repair work was not adequately completed by a licensed professional as outlined above.

Please relay this information to the Seller and send us our deposit as
soon as possible.

Thank you for your patience and understanding.

Regards,
{Our Names}

I'm pretty sure based on the way things have gone, we should have no problem getting our deposit refunded, but the way our luck has gone this year ...

Tenant's Lease

Back in 2005, when I purchased House #1, I used a RE agent to find a tenant for the property. During that process, the agent had sent me several different forms that Realtors in the state of Texas use, including a Lease. Therefore, it has been combed over repeatedly by lawyers and is rock solid. Ever since then, I've been using the same lease for tenants I get on my own.

Last night, I decided to go through each clause to see exactly what remedies I have with this current tenant. One clause in particular stood out:

APPLICATION OF FUNDS: Regardless of any notation on a check, Landlord may apply funds received from Tenant first to any non-rent obligations of Tenant, including but not limited to, late charges, returned check charges, repairs, brokerage fees, periodic utilities, pet charges, and then to rent.

So, basically, since the tenant has not paid us late charges for November's rent AND not paid the sewer bill for October, her next rent check (if there is one or even if she is still living there) will be applied to those two charges first.

Additionally, under the DEFAULT section of the lease, it says:

B. If Tenant fails to timely pay all amounts under this lease or otherwise fails to comply with this lease, Tenant will be in default and:
(1)Landlord may terminate Tenant's right to occupy the Property by providing Tenant with at least one day written notice to vacate;
(2)all unpaid rents which are payable during the remainder of the lease or any renewable period will be accelerated without notice or demand;

I especially like (B)(2), and verified this with the Texas Property Code. Basically, it says that if the Tenant fails to pay rent and they are given notice and eventually evicted, they are liable to pay the Landlord for ALL future rent during the term of the lease as well. The tenant signed a 12-month lease and has only been there for three months, so technically that means they will owe me for all unpaid bills PLUS nine months of accelerated rent. Of course, I doubt I'd ever see any of the money, but it's nice to know I have some rights.

I called the sewer office late yesterday afternoon and canceled the sewer account, so the tenant should be receiving a nasty-gram from them soon. My wife wants to wait and see if this gets the tenant to smarten-up and pay, but I want to just file a Notice to Vacate now. What I think we'll end up doing is giving the tenant until the day the rent is due for December, and if she is even one minute late with rent AND all unpaid charges, I'll send her the Notice to Vacate and start the eviction process.

Last Straw With Tenant

Well the tenant finally pushed the final button with us this morning. She was already on thin ice due to not paying the late rent charges yet, and now the sewer bill fiasco is the latest (and LAST) thing.

When she first moved in, I gave her a list of utilities that she had to turn over to her name - one of which was the sewer. In this city, the sewer and water are billed by two different entities, however, they have an agreement whereby if one of the utilities is terminated then BOTH are terminated. The way the water company works is that the account is always in my name, but is temporarily transferred to the tenant when they move in and I fax over the request to the water company (which I did). However, the sewer was always confusing to me and I could never get a straight answer. For the last two tenants, they would open an account which would then put my account on "standby". This was always my understanding, and I found out it was correct - but with some caveats.

So, back to this tenant. We received a bill from the sewer office for service in September, so obviously the tenant never set up service. I stopped by to talk to her about it, along with picking up the October rent, on Oct 3rd. She paid me for the rent and reimbursing me for the sewer bill. I also gave her the form she needed to submit to the sewer office to open an account in her name. On October 27th, I had the chimney sweep go out to the house to clean the chimney. I was there to meet him, and asked the tenant about the sewer account. She said that she did it. I mentioned in a recent blog entry what occurred next - we received ANOTHER sewer bill, which turned out to be because she STILL hadn't set up sewer service. My wife called her and said she had until today (Thursday) to set up the account and pay the current bill, or we would cancel our account. IOW, she would HAVE to set up service if she wanted water, since the sewer and water companies have the agreement. Which leads us to today.

We hadn't heard from the tenant, so my wife calls the sewer office, and lo-and-behold, it is STILL in our name. However, she said the tenant left a them a message, which she still needs to return. The lady said that when she calls the tenant, she's going to tell her that service will be terminated tomorrow (including the water) and that she will have to come in and start the service in order to avoid that from happening. She said this occurs a lot with tenants and usually this will be enough to get them to come in, but I kind of doubt it with this one. She said I would have to come in tomorrow before 4pm to terminate the account in order for service to be disconnected on Friday, or else it will have to wait until Monday.

Fun fun.
Update: - Well it seems I'm confused for a reason regarding the sewer people as my wife has been on the phone with them and the water company, and neither seem to be on the same page. I'll spare the details, but suffice it to say that this will not be resolved anytime soon. It appears the water company can't just shut off the water due to Texas law, since the tenant is paid up with them. What they can do is have us terminate our account with the sewer people, and then the sewer office will send the water company (and tenant) a formal letter of default. They must give the tenant some time to come in and open an account, though, so it looks like the tenant will have until after Thanksgiving to open an account.

Tenant and 4plex (what else?)

Tenant

My wife and I have had about all we can take from this tenant. She was two days late with her rent check, so my wife called and talked to her. The tenant said she would send the check out that day, along with the late charges. A couple of days later, we get two money orders that total the amount of the rent - IOW, no check for the late charges. So, my wife calls her again, and the tenant plays forgetful. She says she'll drop the check in the mail that day. This is last Wednesday. It only takes mail about two days to get to us from anywhere around Austin - max. Saturday, we check the mail, and no check. Yesterday is a holiday, so the mail didn't run, however, my wife noticed in the mail Saturday that we got a bill from the city for sewer services. The bill is noticeably different, and has a different account number, so we believe at first that it's a courtesy copy to us and the tenant got the actual bill (especially, since it has a different account number). The city offices were closed Monday for Veteran's day, so we had to wait until today to call the city and confirm. Well, we were wrong. The city changed the billing (without any notice to us, mind you), which included changing the account numbers. The lady there confirmed that we were still the account holders, and the tenant has never switched it over. Of course, my wife was fuming (as was I, since the tenant told me twice she had done it). The lady at the city said what we should do is just cancel the account. That way the tenant would HAVE to open an account or the water would be disconnected since the city and water company have an agreement as such. The only downside is that we would have to pay some reconnect charges in the future to have it turned back on in our names, which I think I'm willing to do at this point. So, my wife called the tenant and told her the news to which the tenant again plead dumb. My wife told her that she was going to call the city back this Thursday afternoon, and if the account is still in our name that we would go in Friday, pay the outstanding charges, have the account disconnected, and that the tenant would owe us the amount for the bill. We'll see what happens.

4-plex

This deal seems to be dragging, and dragging, and ... I got an email from the agent last week saying she would forward my options to the Seller. Yesterday, she sends me another email saying she met with the Seller and gave him my email, specifying my options and that he requested a few days to ponder his choices. She also reminded me that the property was being sold "as is" "where is", and I was made aware of this beforehand. I wrote her back today saying I realized it was "as is"/"where is", but based on the information I was given beforehand, including a copy of the Selelr's Disclosure, it was in worse shape than not only I was led to believe, but probably even worse than the Seller realized. I told her I was fine with giving the Seller a few days to ponder the decision, and to get back with me ASAP once he made up his mind.

4-Plex: Options Sent

I just sent the agent an email, detailing what options we have available based on the contractor's estimate, etc. Those were:

1. Seller makes all repairs prior to closing. These not only include all the items in the contractor's estimate, but also those things that were left out and we thought were major, including a new gutter system. If the Seller agrees, we also request proof the repairs were completed by a professional prior to closing.

2. We buy the property "as is" and make all the repairs ourself. I told her if the Seller agrees to this option, we would definitely have to renegotiate on the list purchase price.

3. Neither party makes the repairs. The contract is voided, we get our deposit back, and both parties walk away.

An earlier email from the agent's assistant said the Seller was willing to make the repairs, but this conflicts with his earlier statement about having no money left for repairs, so I'm not sure which face is correct. I specifically put the clause about having proof the repairs were completed by a professional prior to closing as I didn't want the Seller to contract out some of the work that he couldn't do himself, and do the remaining stuff himself. If he's going to do the repairs, I'm going to make sure they are done correctly.

At this point, I'm not really sure which option he'll pursue.

4-Plex Estimate Update

Last night, I had a few minutes to look over the estimate some more. I knew there were a couple of items not on the estimate that were on the inspection report, and I wanted to see exactly what they were leaving out. It turns out they didn't include the following in the estimate:

* Replace gutters
* Wood rot (due to existing, terrible gutters)
* Replace two screen doors
* Replace two crawl doors
* Install heating system in one unit

Also, the inspector noted the following items he recommended needed replaced due to their age:

* Unit #1, #2, and #4 heating units
* Unit #3 and #4 water heaters

There were also some minor things like patching a pot hole in the driveway, which I can live without. My wife is still hell-bent on just getting our deposit back and moving on, but if I am going to try and see what kind of leverage this brings us first.

4-Plex Estimate

I got the estimate today from the contractor regarding the 4-plex. It actually came in a LOT lower than I had thought it would. I won't go into detail of the amounts right now as I still need to discuss it with my wife and arrive at a decision. I seriously doubt the Seller follows this blog, but just on the outside chance he does, I don't want to give out the information just yet. I will say this, though, if we DO accept this estimate and use this person (we may likely get another bid, just to be sure), I will definitely tell the Seller he will either have to make the repairs himself or reduce the sale price by AT LEAST the same amount. I'm opting for the latter, as I want to be in full control of the situation. IOW, I don't want the Seller to control the repairs and I get 'snowballed' because they weren't done adequately (or at all).

BTW, my tenant is late with the rent check (no surprise there!), but I don;t mind the extra late fees. :-)