All Forum Posts by: Michael G.

Painful thread Sean. Sorry to read about this. Really hope it works out. Please keep us updated.

Here folks, is a valuable lesson about why we need to do all of our question-asking (from strangers online, no less)  before sinking $200 large into a risky (2nd Lien!) deal run by a guy you barely know...  

A wise real-estate mentor of mine once told me about closing on a property:  If you look around the real-estate closing-table and you can't figure out who the patsy is,  it's you. 

I've been a fan of Ally Bank - High Yield Checking Accounts,  "Raise your Rate CDs," (raises your % if rates rise after you purchase) and my personal favorite: "High-Yield No-Penalty CDs" which is technically an 11-Month CD but imposes NO penalty if you cash it in early. Even if you only keep it in for 25 days, you still keep ALL your earned-interest.  

(To any paranoid, crazed posters out here - you know who you are : NO. I am not an employee or "shill" for AllyBank.)

If you don't mind tying up cash for longer (~ 9 to 24 months) any of the older more-established top-name Real-Estate Crowdfunding Debt Lenders (1st Lien Debt, not Equity)  providers have worked well for me earning very high yields (~9 - 11%).  Good Luck.  

This thread was painful to read.  Hoping it all works out!  

Recommend (to any other starters) that for your first venture into RE investment -  if you can't invest close to where you live -  then at least invest within 90 -120 mins drive of where you live.   This allows one to become familiar with the process, and the pitfalls to expect. After success here, then one can branch out into other areas. 

Until then, there's always real-estate crowdfunding to get exposure to the asset class and earn a very respectable return. 

@Randy Rogers

Well articulated.  Thanks for your informative post. I can confirm that I've had similar experiences with other  RE Crowdfunding portals, including those with yields 300-400 basis points higher than PeerStreet with similar risk profiles. Time & patience is the essence with these types of investments.

@Russ Draper

That is not the premise of sending a 1099. It is meant to more formally declare the larger expenses for which you are expecting a deduction, and to alert the IRS that, as a result of this expense to you, someone else has earned income - upon which they expect taxes to be paid.  Their systems match-up the expenses you claim with the income your payees report. 

Pretty simple. 

@Linda Weygant

Why can't filers simply put the above-mentioned landlording & property-management expenses under Box 21 on Sched C "Repairs & Maintenance" or even 27a "Other expenses"  or,   Sched E Line 7 "Cleaning & Maintenance" or Line 14 "Repairs," or even Line 19 "Other?"

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

https://www.irs.gov/pub/irs-pdf/f1040se.pdf

My experience is that while, yes, the IRS  prefers that 1099s be issued (and yes it certainly is tighter & cleaner to do so), you can STILL take the deduction without it,  

If pressed, you can always show the IRS the canceled checks, to prove that you indeed did incur the expenses, and paid them.

This is a no brainer.    What's the issue?

@Matthew Olszak  - Could be.  In our experience, it comes down to how well the tenants' expectations are managed. If we allow them to act petty, they might. But we don't, so they don't.   The questions tend to come only at the beginning immediately after implementation. After the 1st month or 2, they get used to it and the questions stop completely. 

We once had a tenant in a 4-Family Building ask us a few questions ... not complain.. just 'ask.'   We told her 4 things:   (The tenants were all relatively close and respectful to one another)

1. "RUBS  isn't unlike Cable TV.... You get billed each month no matter how much TV you watch - or even if you don't watch any TV at all! But it's better, because you still get the benefit all month long"
2. "You guys are all neighbors and need to realize that you're in this together. The less everyone uses, the less everyone pays. It works best when the building works as a team and everyone is mindful of their usage."
3. Regardless,  the Utility bill (in this case Water) was significantly lower than prior months and way less (over 40%) than it used to be before RUBS so it was in-fact working and saving them all significant money. 
4. We then explained that without RUBS, we'd have to much more significantly raise rents to cover the costs and so they'd end up paying much, much, much more at the end of the day. 

#4 shut 'em up really good as they couldn't rebut that one. We never got any questions ever again after that one discussion.

I don't want to get too technical (or risk scaring other Landlords away from RUBS) but either way, don't forget that you needn't implement RUBS based only on the no. of occupants.  You can easily also do it based on, for example: 

• A.) Each unit's % of total square-footage  
• B.) Each unit's % of total water-faucets or water-apparatuses (in the case of water)  
• C.) Each unit's % share of total bedrooms
• D.) Some other measure.... or some combo of the above or any other fair & equitable method appropriate for your situation.

As long as it's easy, clear and well-explained in writing - and plainly laid out in the Tenants' leases - it will be fine! 

The "added Rent" is simply what ever each tenant's portion of that month's bill is. Since the Utility Bill will change each month, each tenant's portion will also change each month....

Easy Example: Say we manage a 2 family with 6 tenants/residents in total: 4 people living upstairs in Unit 2,  and 2 people living downstairs in Unit 1:  

If January's water bill for the whole building is $100, then 

• February's Rent for Top Floor Unit 2 would have an extra $100 x 4/6th (or 2/3 rds) added on = $66.66
• February's Rent for Bottom Floor Unit 1 would have an extra $100 x 2/6th (or 1/3 rds) added on = $33.33

I always send each Tenant a copy of the entire building's Water bill, plus a cover page with a detailed explanation of the billing-breakdown.

Make sense?

I'd like to add to the above by saying that RUBS billing is the single smartest, most intelligent improvement we've ever made as Property Managers.   It's a win-win all around.  

First we directly pay all the duly owed utility bills, but then we re-bill to the Tenants on a % of square footage basis as a "recoverable." (To borrow from a Commercial Real-Estate Term)

• It keeps our rents a wee-bit lower and thus makes our units easier to rent & more competitive for our rental-brokers
• Also, since rents are lower, it's a win for our Tenants who get to pay less in rent.
• Obviously, our running property costs have gone way, way down. This adds to our bottom line
• The environment gains - and by extension, ALL OF US - since waste & excess literally drop off of a cliff. Clients now only use what they need & not much more.

We have it duly written into all of our Leases, so it's fully disclosed and we engage all prospective Tenants in an honest conversation about paying all of their bills before they move in.  All their bills are transparent and include the Utility Bill for the entire building with an easy to understand breakdown of the pro-rata charges.

These 'recoverables' or 'reimbursements' are simply added to the Tenants' monthly rent bill as "Added Rent" which our Tenants have been happily paying for years.

I can't say we've ever had even a single problem implementing this.  Tenants are the ones using these services, why shouldn't they pay for it?  What's the problem?

This is a no-brainer!