All Forum Posts by: David Krulac

Matt M.

Unless you are done investing and are not buying any more property, I would not pay off a mortgage early today.

Interest rates are all time historic lows. Just got a fixed 2.75% for 15 years.

I think interst rates are going to be higher in the future, How can they go much lower?

And I've always said to borrow soundly, but to borrow as much as you can for as long as you can, as long as the property can support the payments.

Michelle Santiago

There are a lot of factors which go into the financing term, including, your age, your tolerance for risk, where you are in your invetsment career, whether the property can carry the financing.

But I general I have always thought to borrow the most money for the longest term possible, like 30 years, fixed interest rate.

Exceptions to that might be you're retiring soon, planning on selling the property soon, in which case I probably would go to the expense of re-fi at all.

On the other hand I do like the 15 year terms, and the interest rate is lower. Just settled one for 2.75% fixed for 15 years. The monthly payments are higher on the shorter term, and I would only do that if the property can support the higher mortgage payment associated with the 15 year term.

Jennifer Lee

I've done over 700 flips and have never turned a flip into a rental. I do rentals and flips differently. some flips, I do nothing, except maybe de-trash, leaving the heavy work for the buyer. Sometimes I rehab flips, but the level of rehab and the materials used are different from the rehabs for rentals.

Florian N. & Ibrahim S

I'm not aware of any state that has procedures like PA. Florian, your post is a little confusing since you say Tax Sale, then say Judicial Sale. In PA, a tax sale is an Upset Sale, and that is not a Judicial Sale, it is a non-Judicial Sale.

And of course the procedures are entirely different for an "Upset Sale" and a "Judicial Sale".

IF the sale you're talking about is a Judicial Sale and not an Upset Sale, and IF the bank has received notice of the sale and has failed to act; then the mortgage would be wiped out. BUT those are TWO GIGANTIC IFs.

With banks selling mortgages, banks merging, banks going out of business, etc. notice is often faulty or non-existent. Unless the notice is without fault, then the mortgage is NOT wiped out. Which makes perfect sense. If you were the lien holder on a property, you would not want your interest wiped out without being notified.

I have seen other properties on these two separate default tracks simultaneously, one for mortgage default and one for tax default. Usually the two tracks, which are totally independent, are on complete different time schedules, so sometimes the tax default will happen first and sometimes the the mortgage default will happen first.

HTH

David Krulac

Will Barnard

I've been doing 1031 since 1986 and think that they are one of only three real benefits in the IRC.

In most cases I would strongly recommend that a 1031 be used, though there are situations that may argue against a 1031.

There are lots of options, more than here.

1. Borrow to the hilt on the relinquished property, so that the cash involved is as little as possible.

2. Acquire multiple properties, diversifying the profits, by investment class, geography etc.

3. Use some of the gain to acquire a future personal residence, to be rented out as investment and eventually be your home, then get up to $500,000 tax free capital gains. (MFJ)

4. Acquire vacant land that has growing commercial possibilities. When that materializes, lease the land and let somebody else build "it" and collect NNN rents until your retirement and beyond.

5. Don't sell 100% of the relinquished property, retain an ownership position, therefore reducing the amount needed to roll over and reducing your capital gains.

6. Don't sell any of the relinquished property, but sell an option to purchase with a hefty option fee. Option fees are NOT taxable until exercised or extinguished. In the meantime that money is yours to use how ever you please, invest or not.

Just scratching the surface.....

I've always used professional to do tub-reglazing. We've done steel/iron tubs, ceramic tile, countertops, sinks, etc. The jobs have held up well. Tenants and owners need to know that abrasive cleaners can't be used, only soft scrub types, and that mats need to be lifted so as not to trap water against the reglazed surface.

Some of the big complexes use this method, its a lot cheaper than replacing tubs, ceramic walls and countertops.

We've used it primarly on properties that we're selling were there are out of date colors like pink tubs, green tubs, etc. typically from the 1950 to 1970. Also works good with those yellow, green, and orange countertops.

Once I bought a multi-unit filled with existing tenants and no vacancy. One of the units, shortly after I purchased came up for lease renewal. It was a 3br. unit renting for $550. The rent was woefully low for the size, condition and location of the unit. I told the tenant that the rent would be going up $200 per month. Obviously a sizable increase. The tenant was section 8 and even at $750 the rent was still below the section 8 maximum thresholds. The tenant b*tched, p*ssed and moaned asking me to reconsider. She complained to the housing authority, implying that i was doing something wrong, as if raising rent to LESS than market rent was a crime. The head of the county housing authority called me and asked me to lower the proposed increase.

I said that the rent is still considerably less than your maximum section 8 allowance and the fact that the former owner didn't charge enough rent was irrelevent. I would not budge, since I knew that section 8 would pay up to $950 and that was market rent for this unit. the former owner had owned the place for about 5 years and never raised rent.

I prevaled, section 8 paid the rent, the tenant paid their share, I raised the rent every year there after and the tenant stayed for 5 more years.

The moral of the story is that you can only charge what rent the market will bear, and even though these rents were way too low, that's no reason to keep them there.

On the other hand:

I, myself have been guilty of not raising rents as aggressively as I should, the above story not with standing. I have a tenant that has rented the same place from me for almost 30 years. I think I raised the rent twice in 30 years. The rent is way too low. I'm good at raising rents between tenants, but the longer a tenant stays, particularly after decades, their rents get behind.

I've seen other LL lease with automatic rent escalators of as much as 7 or 10% per year. If I were a tenant with that kind of escalator, I'd probably move.

Brian Burke

Thanks for sharing your great story and congrats on your success. I also used the Baseball analogy in my book. "Babe Ruth and Hank Aaron struck out 1.8 times more than they hit homeruns. Barry bonds struck out 2.1 times more than he hit homeruns. Real estate gurus and authors would have you believe that they never or very rarely struck out."

Here's to your continued success.

Somebody asked me just yesterday, "Why are you replacing furnaces in properties where you don't pay the heat?" Fair question. Almost all of our properties including both single family houses and apartments have their own individual heat which the tenant directly pays the utility company.

I've been replacing oil heat mostly with natural gas. the oil prices fluctuate with the gasoline prices and have been as high as $4 a gallon here. When I have a property for rent or for sale, one of the first questions people ask is what kind of heat. If the answer is oil, the conversation often ends there. They don't care how nice the property is, how much remodeling has been done or what other great amenities there are. Oil heat is a deal killer, for renting or selling.

One property that had oil heat was a large single family detached home, about 160 years old. The oil boiler with domestic hot water was probably 60 years old or more. When it ran, which was 365 days a year, due to the domestic hot water, it burned 1 gallon of oil an hour. The heat bill was $4,500. Needless to say, something had to be done. There was no gas in the house but there was gas in the street. The gas company dug up the street, got all the necessary permits, had 2 flagmen directing traffic, and had a policeman at a nearby disabled traffic light directing cars around the street construction. The gas co. did all that for FREE. The new installation of a gas boiler and a gas hot water heater both with side wall venting cost $6,250. The heat/hot water bills went from $4,500 to $1,500, a savings of $3,000 a year.

The gas co. here hasn't had a price increase since 1994, and in Dec. 2012 got another rate DEcrease granted from the state.

At another two unit property there was a single oil steam boiler that generated the heat for both units. Oil Heat bill was $6,500 per year. Gas co. again did their thing for FREE, and I added 1 gas hot air furnace, central air, all the duct work, and a gas hot water heater for $6,500. The existing oil steam boiler now only supplied the first floor tenant and they now paid the oil. Now the tenants both pay for their own heat and hot water. I did lower the rents $50 per month each, but after a couple years the rents were back up to previous levels. So spent $6,500 saved $5,300 the first year, $5,300 the second year, $6,500 the third year, etc. etc. etc.

At yet another 2 unit, there was an oil hot water boiler with domestic hot water. I was paying the oil bill of $3,600 per year. The boiler was probably 60+ years old. I installed two new gas hot water boilers and two gas hot water heaters. There was already separate gas meters for the 2 apartments but only supplied the range. so the tenants were already paying a gas bill albeit small.
Installation costs $6,800. again lowered rents by $50 a unit per month for two years. First year savings $2,400, second year $2,400, third year $3,600, etc. etc. etc.

The tenants like having lower heat bills, in some cases we added central air, which tenants like and when you go to sell the building a great selling point to both owner occupants and investor owners is that the heat and hot water equipment has been updated to high efficiency gas.

I've 17 new gas furnaces/boilers and have another one in process.

Vaishal Patel

How about ZERO vacancy rate? When I first started and had SFH and apts, I was all over them. When a tenant decided to move I'd advertise immediately and be showing the place before the tenant even left. for about the first 3 or 4 years I never had a day of vacancy.

No more of course, but long term tenants do help to reduce your vacancy. i have one tenant since 1984 and several others more than 10 or 15 years. Keep the good tenants they are GOLD.