The Landlord Suicide Squeeze

dennisfassett.comThe suicide squeeze is one of the most exciting plays in baseball.

It happens when there’s a runner on third who takes off toward home when the pitcher starts his motion, expecting the batter to make some sort of contact with the ball and put it in play, thus scoring a run.

Except for trying to steal home outright it’s also the riskiest play in baseball.

I was with a couple of buddies this afternoon smoking cigars and talking shop. We got on the subject of rental houses, and since one of them is a lawyer, we talked at length about how many LLCs I use with my rentals and how I learned to use them properly.

He then told me about a couple of his colleagues that have free-and-clear rental houses. They’re building up portfolios, and his understanding is that neither of them use LLCs at all, as they were simply holding the properties in their own names.

That’s just about the riskiest play in landlording.

Which is why I call doing that it the Landlord Suicide Squeeze.

Why? Because when you do that you’re betting your entire personal balance sheet on black.

Every single day.

All it takes is one slip and fall or one “accident” at one of your properties and you could be committing personal financial Hara-Kiri.

Now I know the folks he was referring to, and they’re both really smart people. Which reinforces to me the fact that proper use of entities isn’t common knowledge.

So I want to use this space to review the reasons why using entities is important when you have rentals.

One caveat – my friend is a lawyer, I’m not. So I’m not giving you legal advice. If you have questions, talk to a local attorney with real estate entity experience.

Here are three items to keep in mind:

Stock Market is Now DOWN for the Year. What’s in YOUR Wallet?

dennisfassett.comIt has been a pretty good ride, hasn’t it?

I mean, since the dark days of the “great recession” when the DOW bottomed out at 6443.27 on March 6, 2009, the market has gone pretty much straight up.

Remember those guys in the office that spent all day with a browser window open to their E-Trade accounts so they could “trade” their mutual funds?

They were all over the place before the DOW tanked. They got killed during the crash. And now that they’ve built their 401ks back up a little, they’re back with a vengeance and they’ve all been partying.

Which is all cool. I don’t ever begrudge anyone their success.

But the funny thing I’m noticing is that people have really short memories. One of those trader-guys even told me that the same thing can’t happen again “because the government won’t let it”.

Wow.

The other thing I’ve noticed recently is that those guys are a bit less euphoric. The reason is pretty easy to determine.

The DOW closed at 16,576 on December 31, 2013. Last Friday it closed at 16,544.

So those clowns day trading their index funds are now negative for the year.

Beware of Professional Tenants!

DennisFassett.comI have to say that one of my biggest fears about being a rental property owner is running into a “Professional Tenant”.

A “Professional Tenant” is a someone who knows the rental laws cold, knows the system, and therefore knows how to work the system” by taking advantage of pieces of the law to live rent free. Sometimes indefinitely.

They can cost you several months of rent and thousands of dollars in legal fees before you win. And they’re generally not collectable so while you’ll eventually get your house back the judgment will be worthless.

I’ve mitigated that risk somewhat by buying and owning properties in the best school districts, so I generally have no less than ten good quality applicants to choose from when I have a vacancy. So I can reject an applicant that doesn’t look right on paper.

And to date I haven’t ever rented to one. But my fear is still there.

I bring this up because I just read a great piece on the topic and I wanted to share it with you.

It’s called ‘Professional Tenants’ and How Not to Fall Victim to Them, and it was written by Richard D. Vetstein, Esq.. A link to the article is below.

Landlord Friendly Financing? Seriously?

dennisfassett.comThis is pretty amazing.

I was looking around for some new ideas on how to finance additional rental properties, and I happened to find something that was pretty surprising…..

…… that a monster-sized hedge fund – BLACKSTONE no less – has started offering financing specifically focused on rental property owners.

Yeah. To say I was shocked was an understatement.

I mean, Blackstone has been the bad guy as they hoovered up all the good deals in many areas over the last several years.

But that has apparently changed.

I have never been very fond of conventional lenders. They don’t like rental properties, and back before and during the crash they kept making it more and more difficult to get their approval.

In fact, the process to get my 10th conforming mortgage took SIX MONTHS to accomplish. Partially due to the broker’s incompetence, but most of it was due to the lender changing he rules of the game as the game was being played.

So the fact that an organization is now landlord friendly is a great thing.

I’ve included the text from the press release below, and there’s a link to their lending site as well if you’d like to get more information.

Let me know how it goes if you decide to reach out to them.

Here’s the press release from Blackstone….

Rational Thought from the Fed?

dennisfassett.comShocking I know. That hasn’t happened since Paul Volcker.

But it’s about time.

I just saw a piece in the New York Times titled “Fed Dissenters Increasingly Vocal About Inflation Fears”.

I was both happy and frightened to see that headline. Happy because the Fed needs to face up to the fact that interest rates can’t stay at zero forever, and frightened by what’s going to happen to the economy when (if) interest rates ever get back to anything resembling a market rate.

And then there’s inflation.

I’m an econ major. I’ve been following this stuff since 2006 and 2007. I’m confounded but the fact that we haven’t seen any inflation yet. It’s out there. But if or when it will ever hit is anyone’s guess.

The first paragraph of the piece is what gives me a glimmer of hope:

“An increasingly vocal minority of Federal Reserve officials want the central bank to retreat more quickly from its stimulus campaign, arguing that the bank has largely exhausted its ability to improve economic conditions.”

I’ve included the piece below without further comment. Let me know what you think.

Another Zillow Fail – Being a Landlord Is Most Profitable in These 10 Areas

DennisFassett.comThis is nutso. Plain crazy nutso. Call it Zillow in Wonderland instead of Alice in Wonderland.

Zillow – who you know has a sterling reputation for accuracy <cough cough> has struck again.

In this installment of Zillow-Does-Real Estate, they give their opinion as to what the best rental markets in the country are. (I’ve included the entire article below in case you’re curious.)

I call bullsh*t on their “analysis”. Because there isn’t any analysis. And because they demonstrated in black and white in the article that they are completely clueless when it comes to single family rentals.

Yet they feel qualified to determine the best markets.

Pretty funny actually.

The first issue with the piece is that for the #1 Market, Oklahoma City, they give it their #1 ranking because, and I quote “at $650 per month, it rents for about $250 a month more than a mortgage payment”.

That statement is a typical rookie mistake.