All Forum Posts by: Joe Hines

Absolutely insure it so that you are covered at closing.  You never know what could happen that could destroy the property or even an unauthorized person trespassing and getting injured could still leave you liable.  You will definitely want to have it during construction as well.  

A standard landlord policy should do the trick, since I assume you are talking about a SFH.

Tip: I would recommend getting the property in an LLC as well.

Joe

Hi Frank!

I used Numbers for a few years when I was starting out (that is Apple’s spreadsheet application).  It worked well enough with a few properties, but beyond 3 or so the expenses and accounting get to be so much that it is better to go with a full scale accounting package.  I use QuickBooks online and it works great for accounting and property performance reports, but it isn’t made to manage properties.  There are a lot of other applications for that and I would suggest you search here in the forums for them.  

For the spreadsheet, I had a different page for each property.  Each page (property) had details of expenditures and a summary ‘property scorecard’ that summarized performance and expense categories.  You get all this and much more with QuickBooks.

If you go with QuickBooks, definitely spend some time with your accountant to get it set up.  It is great for generating financial documents, reports, tracking depreciation, travel exoenses, etc.  The key is getting it set up right in the beginning.  

Take care!

Joe

Agree with @Neal Collins.  Calculating a new cost baseline and factoring in your updated costs would be a solid start.  I’d also look at rental sites and see what comparable properties are renting at to get another data point.  You can then decide if you want to give them a discount and what would be fair.  I would also use this as an opportunity to get a new lease for two years if they are indeed good tentants.  In your next lease, consider automatic increases of perhaps 2% to help avoid the rents falling behind again.  

Good luck!  

Hey Matt

I’m one of those guys that had hangups when someone mentioned vinyl flooring because it raised images of that cheap, peeling laminate that was easily cut and invariably began pulling up, flaking and cracking.  Then I got educated on newer vinyls.  

I’ve used LVP in 4 rentals with the oldest floor coming in at 6 years.  It all still looks great.    The better quality ones are extremely durable and sometimes difficult to distinguish from wood.  I still refinish wood flora if a rental has them, but if I am replacing carpet or another covering, I go with LVP.  

I could imagine a commercial level LVP could handle a few keg parties.  That stuff is bulletproof.

I have a few rentals, like my personal vacation home and another home which I bought before I had an LLC, both of which have utilities and one has a mortgage in my personal name. They are used for rental purposes, so I pay all expenses and deposit all rents into my business account. The accounting is clean and I don't think the mortgage company or the utility company cares whose name is on the check.

Making the payments directly from your LLC accounts to creditors, vendors and utilities is exactly the right way to go. You shouldn't even considering doing it any other way, really. If your audited by the IRS or your state, you'll want clean a clean accounting trail showing your income and expenses. The only money leaving your LLC for your personal accounts should be a salary or some owner's compensation being paid to you.

@Jim Morris

Hey Jim!  

Without knowing your original investment or cost of improvements to look at the cash-on-cash return, it sounds like your ARV and net profit are healthy. I share your longer-term concern about anything even near a beach as ocean levels are rising and there is evidence that hurricanes are strengthening. That is going to push the 'danger zone' of hurricane damage further inland and leave beachfront even more vulnerable. It's this that would make me worry. I'm really glad to hear the area is improving and I hope that's true of Daytona in general.

You'll have to decide if you can tolerate the broader environmental risks, but I think $1,500 per month is totally worth it.  

I'm sorry to hear you are having so much trouble.  QB can be frustrating, but once you get the hang of it, it is quite useful.  The big take away here is that it will greatly help you get a handle on your business by allowing you to see the big picture and zooming into the details.    

Here are some learnings I've picked up over the 3 years I've used it.  Keep in mind, I have little bookkeeping or accounting experience other than what I've learned through my real estate business.  

• Meet with your accountant and get their help to set up QB.  This was the first thing I did and I would be in your shoes exactly if I didn't do this.  My accountant does have some experience with it and they basically set up the Chart of Accounts and transaction classes for me.  For each property, the accountant will help you set up general ledger accounts for buildings, furnishings & equipment, land, depreciation and other things that might be specific to your situation.  This might cost you a couple hundred bucks for the time with the accountant, but it will pay dividends when you do your taxes  
• Connect QB to your bank and download the transactions.  This makes things super simple.  I'm going to assume you have separate accounts for your business so you aren't co-mingle funds with your personal accounts.  Every day (or on demand), QB will connect to your bank and download the transactions.  
• Set aside time on a regular basis (like daily) to review the transactions.  This helps you keep control of your business and your accounts.  When QB downloads the transactions, you just need to choose the vendor, the type of transaction (rent received, expense, etc) and the class (the best way to set them up is to have a separate class for each property).  
• Put the expenses paid by your PM into QB.  With the frustration you've been having, you're going to think this is insane.  Trust me, it is worth it.  I go through my PMs statements each month and input the expenses and income that my PM handles.  Yes, it is some work, but that is the only way you can really get a solid financial picture of what's going on in your business.  Essentially, I have a 'wash account' where the income and expenses paid by the property manager are registered.  
• Store the receipts with the transactions.  See that "Upload attachment" feature in QB when you have a transaction?  That is an excellent place to put your receipts.  That way, the documentation is right there with the transaction.  It helps the accountant verify you've coded things correctly and it will be a life saver if you are audited.  Be warned:  It is what will make QB 'sticky' as we say in the web industry.  If you've got your receipts scanned and attached to transactions in your bookkeeping system, you ain't going nowhere.  :-)
• The reports are the awesome sauce. When the transactions are coded correctly, the QB reports add a lot of value. I have 2 LLCs (one for my farm and one for about 15 rentals) and I can see the financial performance of each of these entities very easily. For each property within each LLC, I know exactly how much income and expenses they've generated for any given period of time (YTD is best for me). I can also see the % of income each type of expense and this lets me know where I need to focus to bring expenses in line. It is great for strategic planning. For example, my rentals are in Florida and when it rains, the grass grows like crazy. I spend a lot of money on lawn maintenance. Using these reports, I know exactly how much, when and for each property as well as the % of rent it consumes. That's a great help when negotiating with a lawn maintenance company.
• Back to your accountant.  I think one reason you're not finding a lot of value is that your accountant doesn't use QB.  For me, my accountant is a big fan and they encourage all of their business clients to use it.  When they prepare my taxes each year, they verify my transactions (there are several hundred) and update depreciation for all buildings, equipment and rentals.  
• Looking back at cash-on-cash ROI. QB Reports doesn't generate this for you, but you can easily download their reports into a spreadsheet and add a single line for the initial investment and generate your cash-on-cash return any time. It's quite helpful!

Sorry for the long post.  I hopes this helps!

Joe

I agree with Dave and from the sound of your follow-up reply, you've got things clear with your partner.  For your future consideration and for any others reading this post later, I cannot stress enough the importance of deciding an exit strategy for a real estate partnership while you are forming it, especially how you value the property and how you structure payments.   

If you won't accumulate any more properties or you aren't sure, you're probably fine keeping the property in your own name directly. If this is your first step on a longer journey to accumulate more properties, I'd go ahead and form an LLC.

Also, as a solid next step, go ahead and start thinking about bank accounts. Don't co-mingle funds from your personal accounts in your business accounts. This is important whether you use an LLC or not. You'll need a checking account and I'd recommend a Capital Improvements savings account. If you have the funds available when you close, try contributing 3% of the purchase price into the Capital Improvements account and 10% of rent. This probably sounds a little steep, but if you can be disciplined and hold to this practice it will greatly reduce cash flow headaches down the road.

Welcome Robert!

You've landed in the right place.  There is unimaginable information and resources on this site along with the collective wisdom of thousands of people who participate every area of real estate from flipping, buy-and-hold, wholesaling - you name it. 

I'm going to assume you are starting from zero.  Here are some steps to get you started:

(1) Listen to the podcast every week.  You'll begin to learn the terms and concepts you need to know to start real estate investing.

(2) Subscribe to the forums. Look around this site and subscribe to forums that might interest you. Are you looking to buy-and-hold properties and rent them? Will you be a landlord of these properties? Are you looking for single family homes (SFH) or apartment buildings? Subscribe and read the questions and the responses as they come in. You might find after reading some of the questions that being a landlord isn't for you and you'll look for a property manager. In my case, I'm too busy with my day job, so I factor in the cost of a property manager into the financial analysis. You can learn a lot from other's questions.

(3) Know your target market.  Not everyone will agree with this recommendation, but I physically go visit the neighborhoods where I invest.  Walk the streets, especially at night.  What kind of cars are there?  How do you feel about it?  Look on rental sites to see what the rents are in the area.  When you use the tools on this site to analyze deals, knowing the rents is crucial.  Go look at income levels and distributions and see if the market is solid to support the rent levels your seeking and see if the area is growing.  

(4) Familiarize yourself with the tools on this site (or build your own). There are some decent tools here for RE investors. Check them out and know what they are calculating and how they help you analyze a deal. Then start looking through your target market on the MLS for your target market to see what you can find.

(5) Build out a network.  When you've started getting properties in an area, build relationships with your PM, your suppliers (electricians, plumbers, lawn companies, bankers, etc).   I recommend getting to be known around the tax office of your target county.  This network be be invaluable as you continue to invest and they'll also become a good source of off-market deals, which is where things can really start cooking.  

There's a lot more I'd recommend, but starting down this path will help you start learning and help you become certain you want to get into RE.  

Good luck!