All Forum Posts by: Frank Adams

Joe Splitrock and Nicky Cao. I did send them 1099s which because it looked so official would cause them to cough up !y money.

I learned this idea when I was working s corporate gig at a company that had a highly compensated salesforce. When they signed for their sales gear they were acknowledging that our catalog was valued at $1,000 (1978 dollars) and if they didn't return it, or took it with them to a competitor they would be liable for that amount. Our attorney and CFO hatched that plan and only went to court once to enforce it that I can recall.

I always took the number and would warn them that any uncollected money for damages or past due rent would be reported to the IRS as "forgiven debt". I'd point out that I wouldn't take the time or trouble to get a WORTHLESS judgement against them. I'd just report the forgiven debt to the IRS, because unlike me the never sleep and they never forget. I always collected all my money from anyone who received that speech.

"Chuck in a truck" is cool. I knew a couple of Houston firemen when I lived there and a couple of them had some pretty good skills. I also had a neighbor that got whacked from his "Big Oil Company" job at 53 in one of the general downsizings in 89 or 90. He'd quote me $250 to paint the entire interior of a rental on turnovers. Then he'd call and tell me to pick up a few bags of mulch, 8 or 10 shrubs to plant and bring my weekwhacker, chainsaw and big ladder. He'd do all that great yard stuff (which I always hated doing) and really make the curb appeal pop. When he'd finish up I'd ask what the total was and he'd say, "I told you $250". Hard to find friends like that.

I've done about a dozen roofs, but not in the last 10 years because I'm 70 years old. A few things about roofers and roofing:

MOST roofers, and I've watched a lot of them, do the first course WRONG. They flip the shingle 180 degrees and then nail it down. This leaves about the first 7" of shingle exposed to the wind. If the wind blows heavily, I used to live in Houston and now in Colorado-both high wind areas, it can easily peel at least several courses off.

Low wage workers, and let's face it roofers are relatively low wage, are NOT CAREFUL in their work habits. They'll be standing with their feet planted when their buddy shouts from 20 feet away and they'll LEAVE THEIR FEET PLANTED AND "SPIN", which tears the composition right off. That can easily convert a 30 year shingle into a 5 year shingle.

A lot of what I learned about roofing I learned from an article in a property owner's magazine/newsletter that my brother subscribed to. The title was "Your roof, for heaven's sake" (The fourth word may not have been "heaven" it's been 25 years since I read it.) 

You can also read the fine print on the back of a bundle of shingles and it will spell everything out.

Roofing, like laying tile or painting can be mind numbingly BORING, at least as far as the FIELD WORK goes. But, like tiling or painting the devil is in the details-at the edges and at interruptions, which on roofing are penetrations. Get something wrong at the edge or at a stack and you can easily ruin an otherwise fine job by creating a leak. On tiling on painting it just makes for a sloppy looking job. On roofing it can create very expensive problems that might not be readily apparent.

Obviously I don't know the history of the ownership but why do you think there would be capital gains? There would be a step up in value at the time of death of the owner.

I spent a few years adding to my rental portfolio in the '80s and only added a lot of rentals when the Houston market heated back up between '87 and '91 or so. I always had a good cushion, positive cash flow however small plus my wife and I were both professionals with good paying jobs. We started slamming everything we could spare into paying off our loans, we're pretty conservative investors, and by '93 we owned 12 paid off rentals and 1/2 interests in 4 others with family members. 

My theory was that if I owned one rental and it was empty I had a 100% vacancy rate, but if I owned 2, 3 or 4 and one was empty my vacancy rate was 50%, 33%, 25%. All other things being equal. Of course if we owned 4 and 2 or 3 were empty that ratio goes out the window. By investing conservatively, in good middle class neighborhoods we never suffered much in losses and by not having loans our flexibility and ease of purchase (cash) and sales (seller financed) always went smoothly.

I'm going to echo what Anthony said; too often what people think is a golden goose turns out to be a turkey, but their "rose tinted glasses" prevented them from seeing the truth. I once had a neighbor who moved to Arizona and, against my advice-he knew I'd been an investor for 30+ years, decided to rent his house. IIRC he was getting about $1100/month for a place that was worth about $190K. I tried to point out that this was a bad investment even if he lived nearby but a terrible investment for someone 1,000 plus miles away. He insisted that he wanted to keep it because "his kids had grown up there" (not a good reason) and "there will be good tax advantages to ownership" (if you consider losing money a "tax advantage" you are a sucker, and tax advantages when his kids inherit. ?? No more so than any other investment. Also he would be leaving his 3 kids each an undivided interest in it.

He lost money for about 3 years, got lots of complaints from the HOA about lack of yard upkeep and 5 cars parked in the driveway/yard. Finally he got fed up and sold it. Having to decide between spending a couple of thousand to get the house ready to sell, clean up, fix up, paint up, he listed it without ever coming back to look the place over. Houses in this area have a typical DOM of less than 10 and sell at asking price. His sold in about 8 weeks and for $15K less than asking.

So much for preserving the family homestead!

Be wary of Texas property tax and insurance. I just read an article (TX Tribune IIRC) that due to a one line addition that the idiot Lt. Governor, Dan Patrick slipped into the recent revenue bill that all but guarantees that local tax rates will increase greatly over the coming years. I think TX already has the 5th or 6th highest property taxes in the country and the state continually cuts the amount they provide to local districts.

I just looked at the escrow account for a seller financed mortgage that we hold in TX. The house is about 860 Sq. Ft. 2 1 1/2 bath and would probably bring $70K in today's market. The property tax (owner occupied) is about $770/year and the homeowner's insurance is almost $1500. 

We live in a 2800 square foot patio home (zero lot line) in a city of 75,000 in northern Colorado. Our place would probably bring $375K today. Our property tax is about $1400 (I need to check into a senior discount on that) and our homeowner's insurance is perhaps $1,000/year.

Most places in TX, particularly in the major metro areas charge a high property tax base rate and then give generous HOMESTEAD (owner occupied) exemptions. 

You have an $800K plus investment throwing off less than $35K/year. Your positive cash flow is $840/month, a one month vacancy on tenant turnover combined with the need for interior paint and maybe a few other repairs/upgrades will wipe out more than one third of a year's income. 

I was in a similar, although smaller numbers, situation about 18 years ago. I had a fully paid for house about 40 miles east of San Francisco. It had been a rental for 22 years and had prior to Prop 13 taxes on it, about $900/year. I was getting $1,200/month in rent and I was self employed and had family in the area (with their own rentals) so small maintenance items were easily handled. 

Even though I was netting over $12K/year on it I didn't like that income on an investment worth $300K, even though I had paid $37K for it in 1976. I decided to sell it and 1031 into a retirement home in the TX Hill Country, where we knew we would move in a few years. I bought a house that WE wanted and flipped two places in the $50K range, owned each for less than 12 hours, and because we waited 2+ years before we moved into our house, and 5 years to sell it we paid no tax to either the feds of CA. Could I have made more money by waiting another year or two? Sure, but I was already converting my rental incomes to seller financed mortgage income and this was one of the last two we had rented.

Check with a mortgage lender about underwriting rules for "conforming" loans to be certain. I think the last time I took out a loan, 1995 they only considered 75% of rent. At the time we had 16 rentals and about half of them were free and clear, and we were buying way less house than our salaries would have dictated for a "normal" (read BROKE) couple so we qualified with no problem.