All Forum Posts by: Frank Chin

I use the desktop version of Quickbooks. I thought the online version was expensive, but if your RE business is profitable, and you travel a lot, it's worth it, and you don't have to worry about backup and loss of data and doing backups. You use the "class" function to segregate properties and track P&L The class function consists of 3 levels, and for my operation, the top level is for the "state", then the "property", and finally for MF for the "units". This way I can track P&L by state and satisfy any state tax issues, know how much I make on each property, and finally how much for each tenant. So NO, you don't need a separate QuickBooks for each property.

Discuss the land/building ratio with my CPA as land is not depreciated.

I owned duplexes in NYC with additional with units with no CO. I also looked into 4plexes and 5plexes so constructed, with an additional basement unit with no CO. All of them have an additional meter to run the building, i.e. the furnace, hallway lights, laundry rooms if any. The illegal units are all attached to this additional landlord meter.

When I started REI, I had licensed electricians tell me that to obtain an additional meter, the unit would have to have a legitimate CO, the building department has to come by to take a look. Up till now it is impossible to obtain additional CO's for these buildings. But given the housing shortage, things might change, though it's unlikely.

I looked into submetering, but it's not cost effective due to wiring issues. Most of the time, owners just add $30 to the rent, but not much more, since collecting rents from these units are illegal. The other issue if another tenant is behind on the rent, you try to evict, a legal aid lawyer would insist that the illegal tenant in the illegal unit must be evicted first, due to landlord having unclean hands, and the court would usually agree. That's to punish greedy landlords and imagine if you spent a ton of money submetering and wiring and the legal aid lawyer would get a nice kick out of your double misfortune.

 I included a clause in my lease some years ago that the tenant is responsible for the first $50.00 of all repairs since increased to $100.00. The downside of this is some tenants won't call you on some repairs, in my case, drips under the sink where the U at the drain pipe comes loose. I had a plumber some 30 years ago charge his minimum of $85.00 to tighten the joints to $150 to replace the pipes there. When my tenant complained about the problem, I pointed out the $50 minimum charge and he said forget about it. What happened. When he vacated, I found he placed a pail under the sink, and empty it. How do I know this? The cabinet is still a little moist, and the wood starting to rot, and I figured he forgot to empty the pail sometimes. 

I found the solution is in tenant selection. I choose an older blue collar worker over a young mama's boy who just left home. I got one of these mama's boy who called about a loose doorknob, and I told him there's two screws that he has to tighten. His answer? I can do that if you bring me the right screwdriver as I don't own any, and I don't know the right one to use. I could say to him "I'll have to send my handyman over and you'll have to pay him the first $50 dollars". Back then tenants pay their rent placing their checks into the rent box in the foyer and I told him he has to wait till I come by with a screwdriver set at the beginning of the month. I since kept a set since in the furnace room in case other tenants come up with the excuse that they don't own any screw drivers. A friend of mine, a landlord, sometimes charge his tenants for minor repairs, or write up a repair bill, have his tenant signs it, and deduct on his taxes.

Talking about blue collar tenants. I once saw the gutters all crooked at a SFR rental and was going to call a gutter guy to take a look, and maybe repair it. I got busy, then I did another drive by a month later and found the gutters all straightened out. Out of curiosity I rang the doorbell and the tenant was home and asked if he fixed the gutters. His wife spoke out. She explained he was laid off and sitting on the couch all day. His wife got tired of him complaining about everything and yelled at him one day "if you got nothing to do, get off your butt and straighten out the gutters you're constantly complaining about". He did. I offered to reimburse him for any money he spent. He showed me a box of nails he used, and explained the gutters got loose from the wooden frame, so he took them off and re-nailed it with longer nails. His wife, the boss, shook her head and said it's not necessary joking he needs the exercise. The job took two days. He's a member of the sheet metal workers union and gets laid of when things are slow.

Your choice. Mama's boy or someone in the Sheet Metal Workers union?

I've done foreclosures and bought a few, living in one since 1993 that I got at a foreclosure auction for $208K compared to ARV for $325K back then. I've gone to courthouse step auctions as well as on site auctions where no one showed up. I was the winner bidder at some, then I got a letter later that my bid did not meet the reserve price and rejected.

In the process, I met quite a few people into bank REO auctions, including a discussion with the banker at my winning auction where they processed my information for a mortgage after I won my bid and was approved for a $180K mortgage walking out of the auction. I'm told many banks engaged in this keep quiet about who at the bank is in charge of REO's to prevent corruption, including the banker at the auction approving my mortgage who obviously is involved in his bank's REO auctions.

Back in 1993, there's auctions every week and I worked with a realtor involved in this, working with REO bankers. He mentioned some clients would meet bankers for lunch at a fancy restaurant, the banker would leave his jacket at the back of his chair, walk to the bathroom, his client would slip an envelope with a bribe into the banker's jacket, and the banker would go back and arrange a deal with his colleagues to make the REO deal available. The public auctions I go to, there's an announcement that a certain number of properties would be sold "absolute", in the beginning, the lowest bid wins. Usually, a bank would reject an offer if it is below the mortgage. My home that I got at auction had a $300K mortgage. I got it for $208K, and the banker processing my mortgage said my bid or offer directly to the bank would normally be rejected for this reason. The developer who built the property took out a $300K mortgage and then tried to sell it for $399K right before the market collapse.

Later on, I rented out an apartment in the duplex I now live in, a realtor bought over a client and asked if I was the winning bidder since he was at the auction with a client. He told his client not to bid over $150K as he had another way of doing it. The developer had four duplexes built, all in foreclosure, but mortgages held by different banks. Six months later, I found out the one 2 doors away was sold for $150K, to a flipper, who's putting it on the market for $230K. The flipper sold it near market at $310K months later, and I found out about it one night when the buyer rang my doorbell, said he put an offer in for $310K, and asks does it sound right. Told him the market price was $325K when I last looked, and he got a good deal. He did. Got it in 1993 for $310K and sold it in 2006 for $800k. In the crazy market here, the properties currently run around $1.3m. I still have it, and one of my tenants commented it's great to make a million while you sleep. 

To complete the story, my next-door neighbor bought his house directly from the foreclosing bank by calling the bank directly. He got it for $250K and had to pay back taxes, about $15K. I got mine free and clear. So, my neighbor was here since 1992 and he also make a million.

Freeman, when I was searching for properties to purchase, I actually ran across rentals that make no sense for the landlords to rent out if it's under rent control, and later rent stabilization. See Vacant Apartment

The best example I ran across was some 30 years back when 2BR apartments rent for $600/month, currently $2,500/month, a 2BR apartment was rented to an old lady, then 92 years old and there for over 30 years, for $90/month. I asked why so low, and I was advised that all controlled apartment rent increases require board approval, every other year or so, and it runs about 3%, with lots of paperwork. So why spend all that time and effort for at most $3.00/month so they never bothered. And tenants cannot be evicted. Yes, water and heat included in rent ran more than the rent. The owner had the property for over 10 years, figure the tenant will die soon, or move to a nursing home, but had no luck. The main selling point is the 92-year-old will die soon, so they hope, and the unit would go under rent stabilization. It's a mixed-use property, but the commercial rents was not the best due to it's location.

While what I saw was a extreme example, owners found it more cost effective to leave apartments vacant, as the article points out if the rent cannot cover expenses. A friend of mine who bought a 32 unit building chose to only rent to illegal immigrants, who doesn't understand their rights, and tells them he would report them to immigration if they gave him any trouble. Investors putting money into these properties hope for changes to rent stabilization laws so it will be profitable.

 I've had several MF rentals and had followed 1099 requirements for the last 20-30 years. Here's a link on current requirements: 1099 Requirement for Landlords

The article mentioned examples in particular, and I quote:

Getting multiple 1099s as a property owner

Let’s say you own a two-story building. Your tenants are:

• A bakery renting the commercial space on the ground floor
• A grandmother and her granddaughter renting the apartment above it

They both want new A/C installed, so you pick up the units and get them running. You charge $600 for each of the units, plus another $600 apiece to install them. They pay you through direct deposit.

In this situation you’d get:

• ✓ 2 1099-NECs for A/C installation services — one from the bakery and one from the grandmother
• ✓ 1 1099-MISC for commercial rent from the bakery
• ✘ No 1099-MISC for residential rent from the grandma
• ✘ No 1099s of any kind for selling the A/C units themselves

I had CPA over the years doing my taxes and he advised me 1099 are not required on rent payments to me for the last 20 years.

Interestingly enough, I had a Software Consulting business years ago in an S-Corp, filed the Corp Tax return and got a letter from the IRS that they have records of a 1099 filed from one of my clients, and in reviewing my filing, I omitted a significant amount of income. I in fact looked into 1099's back then and I found that:

1. Being a S-Corp, there is no need for clients to file 1099 on me though there's no law against it.

2. Since I assumed my client would not be filing a 1099 on me, I issued him one invoice combining my software consulting fees and sale of computer equipment that does not go onto a 1099. The equipment costs nearly $30,000.

Apparently the book keeper at my client did not understand 1099's, what goes into it, and I heard the controller whom I gave the invoice told his book keeper, "don't issue a 1099 on this", but he did it anyway. I replied to the IRS that the 1099 combined goods and services and thus in error, providing the IRS details behind the invoice. The IRS agreed with me and advised me my client should issue a revised 1099. The IRS also advised my client of the error.

At the time, my business involved purchasing and installing accounting software, and one thing is the preparation of the software to issue 1099's, W9's, where to get the blank forms, and how to print them. 

Having gone through an IRS 1099 audit, preparing clients to do 1099's, and following up on 1099 requirements for nearly 30 years for landlords, checking with my CPA, I confident there's no need for tenants issuing 1099's to me.

One more point. if the grandma in the example paid a PM, the PM in turn pays the landlord, the PM is required to issue a 1099 to the landlord. No so if grandma paid rents directly to the landlord. That's also discussed in the article. I noticed you mentioned PM software which may have caused the confusion. I get rents directly from my tenants, no PM's. Got it??

 Usually, an owner can have you make checks payable to someone acting as the "property manager". And NO, property owners are not usually issued 1099's though I believe it's not illegal to issue one. Some years back, there was congressional actions to have such 1099's issued to property owners but was reversed.

Hire a professional.

I rented out properties' absentee, had no pest issues till certain tenants, slobs, move in. When I tried doing pest control, they'll complain I didn't get the right stuff, neighboring tenants caused it, etc. And if I accused them of being slobs, they'll become confrontational, and threaten to sue.

I had none of these problems when I hire pest professionals and put them on annual contracts. Tenants call up, I just call the pest control guy and say there's still a problem. One time I had a big problem; the tenants call about every other week. Finally, I asked the pest control guy what's wrong and he tells me when he got there, there's dirty dishes on the dining table, dirty dishes in the sink, and when he lifted up a mat next to the sink, about 50 roaches scattered. Roached crawled out of cracks in molding in the living room. So, I called the tenant and told him what the pest control people reported, and he admitted he had an argument with his roommate, it was his roommates' turn to do the dishes, his roommate said it was his turn, so no one did the dishes for several weeks. And it's not the first time it happened.

Fortunately, I rehabbed the triplex, made sure I plastered the areas around pipes in the apartments where water pipes come in, areas where insects travel between apartments, and the pest control people was surprised none of the other tenants experienced the problem which is normally the case. I was surprised to hear about the problem and the guy downstairs said he didn't even see one roach all this time. I can imagine going to the unit every week myself to fix the problem and the tenants would accuse me of having the nerve to rent them such a place.

 Dirk:

For your further information, I heard for a long time many rental units are held vacant by landlords in NYC since stabilized rents set by the city would cause them to lose money renting them out. See: Vacant rental units

According to the article:

"There’s a one-bedroom in Jackson Heights that looks like it’s absolutely falling apart. On TikTok, you can see the bathroom sink sitting uselessly in the tub, wires hanging crooked from the walls, and debris littering the floors. A place in Greenwich Village has torn-up boards and what appears to be the remains of a stand-up shower in the kitchen. In Harlem, closet doors lean off their hinges in a darkened one-bedroom. These sad little apartments are the victims of rent stabilization, according to the Community Housing Improvement Program (CHIP), which represents rent-stabilized landlords across New York City and the force behind the TikTok campaign. Too costly to renovate and too cheap to rent — a one-bedroom in Chinatown for $570? — owners say they have no choice but to leave them empty. No use to anyone.

CHIP says there are at least 20,000 apartments like these all across the city — dramatically below market rate, basically disaster scenes — all “forced vacant” because they can’t reset rents after doing necessary repairs. (A problem they have asked the Supreme Court to solve for them.) But the city, specifically the Department of Housing Preservation and Development (HPD), says that number is closer to 2,500. This is kind of how it goes. There is dizzyingly little consensus on the matter of our rent-stabilized housing stock — nearly a million apartments, and 28 percent of our housing — and even the basics have been contentious: the condition of these apartments, the money required to make them habitable (even nice), or how many of them are actually empty in the first place. Try to figure it out and you’re sent down a rabbit hole that leads to only more questions. So are these landlords bluffing? And why is it so hard to tell?"

I also don't have a problem disagreeing with a disagreeing post, but the evidence is out there that many landlords rather keep their rental unit vacant instead of losing money renting them out. That's been going on and reported for a number of years. 

So yes, many landlords do the opposite of my friend, they keep the apartments vacant instead of renting them out illegally charging more rent than allowed. Twenty thousand vacant apartments are no joke. I'm glad I'm not one of those owners.