Investors with Tenants loosing money!

**REbuyersgroup** · 03-05-2007, 11:21 AM

Do you have a condo that is not cash flowing? Your not alone. Many South Florida investors bought property with neg cashflow with the hopes of an appreciating market to compensate for the loss. We all know how that worked out.

OK, here is your way out, and EVERYONE need to follow.

Airlines owners cannot sit at a table and discuss cross the board rate increases withought going to jail, so everyone is on their own here.

Residential Real Estate with tenants needs to be treated like a commercial lease. Due to rising costs of insurance, maintenance fees, and property tax, owners can no longer afford to carry property at a loss.

Tripple net leases are the most common form of commercial lease today, and the tenant is required to bear the cost of increases in expenses not controlled by the owner.

All NEW leases from today on, should be tripple net for residential Real Estate. If you feel your unit will never be rented, think again. Advertise $600 month for your property instead of $1200 month. You get the idea.

Collectively owners of investment residential Real Estate need to raise rates at least 20% or go to tripple net leases.

When was the last time you saw 1 airline raise prices and not see the others follow shortly. Or one airline institutes a fee that the others jump on. This happens in EVERY industry (telecommunications as well). Real Estate is old school and the average age of an Agent, or Investor is in their 50's. Very change adverse.

These expense increases HAVE to be passed along to the tenants. I know a homeowner who was renting their homes for $2,000 month. (even cashflow). Then get hit with new taxbill and 100% increase on insurance. An additional $5,000 per year. Owner can no longer hold the property and has to sell at below market pricing. Maybe not the perfect example, but this is typical.

I am sympathetic to tenants, but landlords can no longer bear the responsibility of subsidizing society.

Lets hear from tenants/landlords! Keep the conversation civil.

**TJ2007** · 03-05-2007, 02:20 PM

Great Point, I see a lot of new investors and 1st timers not taking into account some of those increasing factors, especially those thinking of lease optioning the home to someone else....

**KJCStrategyInv** · 03-07-2007, 10:56 AM

You lost me on this one a little bit. In your example of advertising rent at $600 per month instead of $1200, does that mean the rent rate immediately increases after the rental agreement is signed? I apologize, but I am not real familiar with this form of lease, so can you please explain? I understand what you are getting at in costs continue to rise but rent rates seem to stay relatively constant despite rising costs...but unless you get the big companies with lots of rental units to play along, you will continue on without tenants and even greater negative cash flow.

Thanks,
Kevin

**REbuyersgroup** · 03-07-2007, 05:33 PM

There is the situation. Yes, if people continue to lower their rents to get tenants and can afford to loose money every month GOD bless them. I'm not in the business of loosing money and neither should they.

Again, if EVERYONE who has a rental unit changes to a tripple net lease for residential, the bleeding will slow or stop as income increases.

Here is a good rule of thumb 8%-9% to ensure you are not trapped in your rental property.

Take the annual rent, multiply by 12 and divide by the purchase price of the property. If the rate is less than 8%, it is not a good investment.

Another way to calclulate is the rent X 12/.08 or .09 to get a projected purchase price.

Although this does not take into consideration all aspects of tnenacy, the more you can offload factors you do not have control over the better.

Do gas stations keep their prices the same no matter what price they pay? NO, they pass the increase in costs along to the consumer.

Being a landlord is a business, and rents have to increased to compensate for increases in expenses that are unable to be absorbed within reason.

Tenants are are NOT paying their fair share of costs today. Leases go up 3% but expenses increase 50% or more in may areas of the country.

I'm not going to change the world overnight, but I hope people look at this as an alternative to the traditional methods of charging tenants.

The process has to begin sometime.

**Cash Home Buyers _ com** · 03-11-2007, 12:29 PM

Unfortunately, you have it backwards. Rents are based on market prices based on supply and demand. If renter does not care what the owners costs are, that is the owners responsibility to figure out if a particular property is suitable for an investment.

Single Families are valued on how much homeowner occupant will pay, they are not valued from an "investment" perspective. If someone chooses to have a property to become an investment, it is up to them to determine whether or not a property makes sense to them. Some investors are ok with negative cash flow, because they can afford it and believe that they will make it up in appreciation.

The problem with a triple net lease for residential is that the first time something major goes wrong, the tenant will vacate, and the owner will have suffered with cheap rent and have to replace the hvac.

Most investors are not aware that the average cost of a single family rental is 40% of the gross market rent. Condos are usually worse as there are association fees that are piled on top.

The trick to real estate investing is knowing what the real costs are associated with every type of transaction as well as understanding the cycles and patterns.

thanks

Scott