All Forum Posts by: Jack Hildinger

We don't need or want our tenant's deposit for us to make money. It is not a profit center.   We prefer to be able to refund the entire deposit.  

But if you broke it, you bought it.  You are making too much out of your failure of 'missing' the damage at walk-thru.  we do a property condition report at lease inception.  The tenant has the opportunity to note any damage or excess wear to anything in the property.  We accept relatively late additions to the list through out the first month.  If it wasn't noted as damaged in the condition report and it is damaged at move out, they own it.

However, there is a reason that you don't refund the deposit at the walk-thru:  hidden damage.  This was certainly hidden damage.  We have 30 days to return a deposit in Texas.  During that thirty days some hidden damage frequently shows up.  Sometimes it's nickel and dime.  Sometimes it's a little more. We consider under $100 TOTAL hidden damage inconsequential.   BTW, we seldom have an exit walk-thru.  The tenants schedule often doesn't fit with our availability or vice versa.  We do our best, the tenants often don't. We send a detailed move out document called 'How to get ALL your Deposit Back!' We also offer a pre-walk thru for the tenant to get a punch list of things to correct to avoid charges.  Seldom do they take action on any of the items. 

That all said, have we been threatened?  Yes.  Do we worry?  No.  We send an email notice upon move out that states the date that the reconciliation of damage and refund will be provided.  We stick to it and deduct the charges fairly.  I have received some strongly worded, often personally insulting emails after the reconciliation is received.  We never respond after the reconciliation is sent.   However, the tenant receiving the adjusted refund ($1500-200=$1300 in this case) will usually end it.

Jack

No wonder new investors get confused. I tend to use COC vs is ROI is an evaluation tool.

All of these types of metrics are tools, used for specific analytic purposes.  There is no 'one is better than the other'.  That's like saying, "I only use 1-1/2" nails.  All other nails are wrong, so I never use those other nails. Or screws. Or rivets."

I personally use all of the following:

COC Cash on Cash

ROI Return on Investment

ROE Return on Equity (specific investment)

RONW Return on Net Worth (am I growing my wealth?)

NOI Net Operating Income

DSCR Debt Service Coverage Ratio

DE Ratio Debt to Equity Ratio.

Scenario comparing use of COC vs ROI to evaluate performance of a potential investment:

100,000 property purchased using Cash

100,000 cash purchase.

$12k per year in cash-flow

COC 12000/100,000=12% COC

ROI 12000/100,000=12% ROI

100,000 property purchased using leverage (debt).  

20,000 down, 80,000 financed. (400/mo payment)

$7200 per year in cash-flow 

ROI 7200/100,000= 7.2% ROI

COC 7,200/20,000=36% COC/CCR

Why does this matter?  If I have $100,000 to invest,  I can buy one property for cash and make $12,000 of cash flow per year.

Or I can buy 5 properties using debt making 5 x $7200 per property.  That is $36,000 per year on the same $100,000.

This example shows why we get greater COC returns when we leverage a property, while ROI tends to decline, due to carrying costs (interest). We also increase certain risks.

I hope this helps!

There is only one lease.  All parties are jointly and severally bound by the terms of the lease.  One roommate wants out?  The rent stays the same.  Deposit is only refunded at the termination of the lease, less any reasonable charges for damage.  If Johnny wants to drop out of school, or move in with his girlfriend somewhere else, he is going to have to negotiate with the remaining tenants to get his share of the deposit. We do not do a lease addendum.  We charge $250 as a lease change fee, removing the old tenant and if applicable, adding the new tenant.  Want to add a new tenant to replace Johnny?  He has to pass the same screening process that the original tenants passed.  This includes fees. That lease change fee is specified in the original lease regarding all changes to the lease made at the tenants request.  All tenants (and guarantors, if applicable) sign the new lease.  We use docusign, so it is easy.  

Tenants will ask you to solve *all* their personal problems and conflicts.  Do not take the bait.  You are not their Den Mother.  Grown-ups eventually work things out, but if you intervene, you will own the conflict and be responsible for resolving those conflicts and the subsequent failures.  

Memo to All Tenants: 

I have been asked questions regarding the laundry facility use guidelines.  The guidelines as follows:  Be courteous to the other tenants.   I am not your Den Mother, I am not the Laundry Judge Judy.  Please do not contact me regarding your personal conflicts. 

Best Regards,

Management

The very best time to invest in Real Estate?  20 years ago.

The second best time to invest in Real Estate?  Right Now.

No.  You must take the remodel and depreciate it appropriately per the tax code.  Do not lump it together, because you will have everything on a 27 yr depreciation curve.

Cost segregation is important.  Structural improvements-tile, laminate, new walls, new roof, shower remodel, toilets, kitchen, electrical etc will depreciate at the 27 year, schedule just like the original structure. A/C heating will be 27 years.  Carpet, appliances (that plug in to the wall) will be 5 years.   Fences- 15 years,   Paint that is part of the remodel will be 27 yrs.   Paint that is maintenance is expensable in the current year-it's a repair.  Don't just depreciate the total-if you do, everything is set at 27 yrs. 

Example: I did an ADU on a house in 2018. Actual numbers from my 2018 tax return:

If I depreciate $43,041for 27 yrs, I will take $1594per year for 27yrs. 

 *OR*

I depreciate $2592 of appliances over 5 years-but with bonus depreciation I can take the entire amount first year. 

I take $625 for a fence over 15 yrs. $78 this yr.

So my 2018 depreciation is $1498+$2592+$78=$4168 of depreciation in 2018. 

Depreciation for subsequent yrs=$1576 for 15 yrs, then $1498 for the remaining 12 years.

If I just lumped it together  $43,041/27= $ 1594 of depreciation. 

Welcome Cristopher! I'm a retired small 14-door SFR investor in DFW. I have a great mentor and several friends in SFR's in my area. I also have some RE friends in Houston. Feel free to ask me any questions.