All Forum Posts by: Joe Splitrock

 The simple answer is buy in an A or B class property neighborhood and have high screening standards. If you are renting to people with high incomes and 800 credit scores, you won't have bug infestation. You can also proactively hire bug control to treat your property. I am going to guess that your wife has other concerns and the biggest is probably "fear of the unknown". Often the reason people give for saying no isn't the real reason. Even if you solve her bug issue, she is likely to throw up other objections. 

What brand of lock are you using and what brand/model of wireless router? It could be the lock itself or it could be the wifi signal. If the lock doesn't have good wifi connection, it could be dropping connection for that reason. 

My lock rarely looses connection. It has happened when someone unplugs wifi. 

One pro tip. Proactively program in several extra access codes. These are helpful in a pinch to give out to someone. That way it is never an emergency.

I agree you should hire a professional for your taxes. An LLC is generally a pass through entity for taxes. Since you have no income on this property, you most likely can't claim expenses. You will pay taxes in the year that it is "put in service" as a rental or sold as a flip. The rehab expenses add to your basis cost. That means either higher basis for depreciation or higher basis for sale. Double check with a tax professional, which you should always do when you run a business. I am a firm believer that business taxes are not DIY. If for no other reason, you want two sets of eyes on your taxes. They prepare them and you check their work.

The worst thing a landlord can do is not raise rent. I am not saying gouge people, but at lease push some small increase every year. It always ends the same way. The tenant stays forever and the unit has no updates for 10, 20 or 30 years. After going years without raising rent, the landlord is paralyzed by fear of raising rent. The property gets run down and the tenant gets "comfortable" paying a low rate. They know the unit will take thousands of dollars to update. Finally they just decide to sell the property to avoid raising rent and they want top dollar. The realtor says "rents are under market" and use that as a selling pitch. The new owner has no choice but to raise rents or ask the tenant to leave. Had the old owner just gradually raised rents, the tenant would have had time to adjust. By not raising rents, they screw the tenant and by selling at todays market value, they force the buyer to raise rents. The "bad guy" in this scenario is the old landlord, not the new landlord who is just trying to make ends meet at the inflated purchase price.

Simply tell the tenant, "You were paying hundreds under market value for the last 20+ years. You saved over $25,000 in rents during that time. I realize the increase seems large, but given how much you have benefitted, it is more than fair. I could rerent the unit at $1000 if you moved out, so even the $750 is a low price. I am trying to work with you, but I totally understand if you choose to move out. Just let me know your decision by the end of the month. Either move you by April 30th or start paying the new rate on May 1st. Also be aware there is now a no smoking policy in the property. New York banned smoking in restaurants 20 years ago and every other apartment hasn't allowed this for years. Times change, sorry."

You will be able to hear anything your neighbor is doing. Even outside quiet hours, you can't stop someone from making some noise. For example if they are watching TV or entertaining someone of the opposite sex, you will hear it all. Of course they will also hear you. 

 Is the insurance typically left in the name of the mortgage holder? In that case, when you pay off the mortgage, are you then getting a policy in your name? We had a situation where taxes didn't get paid after we paid off mortgage. We have learned whether it is insurance, taxes or utilities, be aware of bills you should be paying. 

 I have not dealt with this situation, but I have paid off or refinanced many mortgages. I believe they calculate the escrow into the payoff. I have gotten checks after closing, but generally small amounts of money that were the result of a miscalculated pay off. As far as getting the pay off amount, when refinancing my lender has called to get that. I don't believe we had to give any special authorization. They just sent the pay off to the old mortgage company to settle it, without my involvement. @Bill B. any thing to add based on your experience?

 That is not normally how it works. The sales price would include any consideration like this. The new owner gets any prepaid rents transferred to them. If nothing was negotiated in the contract, then you are under no obligation to give them anything. 

That being said, they are under no obligation to transfer future reservations to you, unless the contract says they would. So in that case, there could be room for you both to negotiate. I would probably tell them that future reservations are not guaranteed. Guests can cancel. Pandemic, war, natural disaster, who knows what can change things. That future rent is not theirs or yours until you fulfill the reservation. I would also tell them you have operational costs so that $6000 is not profit. Your expenses will be higher than theirs most likely due to payment being higher. I would offer some additional fee to transfer reservations, like a 10% booking fee. This is to compensate them for their time lining up the bookings. 

What does your realtor have to say about it?

There are investors who buy portfolios, but of course there is a discount compared to individual sales. Based on your numbers, it is indicating $400K per property. The value of the portfolio is going to be driven by rents. If you are targeting $400K value per property, I would expect $48K per year rent per property. That is monthly rents at 1% of selling price. It is hard to say if a hedge fund would be interested. It probably depends on the market. They seem to have only certain markets they are interested in.

There is also the question of why not just hold the portfolio? An even more basic question is why are you worried about selling a $10-20M portfolio that you have not even acquired yet?

Yes you need permits for this. You also need to make sure that a licensed electrician replaced the electrical panel. The additional bedrooms are added square feet and if used as bedrooms will need to meet certain requirements. There are code requirements around outlet placement, outlet circuit protection, possibly ceiling height and most importantly egress (fire escape). If the bedrooms are not legal, they can't be used to sleep in them. That can affect appraisal, sales price and ability to rent. Be careful here because insurance doesn't have to protect you from a claim if the work was done unpermitted and unsafe.

The fact that your general contractor says permits are not required for this level of substantial work tells me they are dishonest or incompetent. That makes me question the quality of the work. Get your permits and get this inspected. 

Also make sure your contactor completes a W9 before you issue them payment. That is required so you can send them a 1099. I have a suspicion that the type of contractor who skips permits will also skip paying taxes. 

https://www.clevelandohio.gov/...