All Forum Posts by: Joe Splitrock

@Sheryl Sitman you missed the most important step, which is verifying financials. People can hide behind a well crafted social media persona or they can easily find several "happy customers" to give testimonials. What you can't fake is financial records. Well you can, but it is a crime. If you are verifying an individual, run a credit check, ask for bank statements and tax returns. If you are verifying a business, ask the company to provide financial statements or even tax returns for the entity. You want the financial statements to be signed by an independent accounting firm. This is no different than what a bank would request to protect their money. A bank would never waste time looking at social media. The problem is many investors think emotionally rather than financially like a bank.

 Yes you can deduct that expense because it is considered an improvement. Just make sure you have invoice/receipt, proof of payment (paid by check) and 1099 sent to the contractor if required. If the company that removed it has an "Inc." after their name, the 1099 is not required.

This is why your rent needs to increase EVERY year for EVERY tenant. At a minimum you should be keeping up with expenses. My guess is that your rents are significantly under market. When you send the letter to your tenants, let them know their increase is due to the city/county property tax increase. Give them the phone number to complain. Landlords need to stop eating costs or taking the blame for rent increases. We are forced into it when taxes, insurance or service costs go up.

This story floated around BP when it was written last September. Given where we are at with the pandemic, both scientifically and emotionally as a nation, I think enforcing a vaccination policy would be horrible for your business. It could even be deemed illegal or unconstitutional. A landlord with controversial policies makes themselves a target for litigation. All it takes is someone who wants to either "prove a point" or "make some money". I support COVID vaccination., like I support seat belts and wearing a helmet on your motorcycle. Taking scientifically proven safety measures to prolong your life is generally a good idea, but no I wouldn't mandate it.

https://www.biggerpockets.com/...

 This is the key point. ^^ Even if you bill the tenants for water, the cost just comes off rent. If your place is $1075 and includes water, the competition would be $1000 if the tenant pays water. The only thing that billing does to tenants is makes them more conscious of water usage. If you are able to pass water on to tenants and keep rent the same, that just means you can raise rent $75 and it is the same thing  which is just easier. The problem is you may not be able to fairly sub-meter due to shared utilities like hot water or a laundry room. Unless you have four completely separate water lines, 4 hot water heaters, etc. then your best bet for sub billing is splitting based based on unit sizes or number of occupants. This isn't accurate and could leave one tenant paying for another tenants water usage. This is why water is normally not split in quads or higher count complex. 

Also be aware that charging tenants for laundry and billing them for the water it consumes may not be legal in some places. You can't profit from reselling utilities because utilities are a regulated industry. That is why you want to make sure the sub metering is accurate an only charges them for what they use.

As far as ideas to reduce usage, here are a couple:

1. Make sure all fixtures are low flow. Any modern faucet has low flow aerator. Make sure the shower heads are low flow. Toiles should be no more than 1.6 gallons per flush and make sure the flappers are not leaking. Maybe consider proactively replacing the flappers just in case. 

2. If you have outside water spigots, put a locking valve on it so people don't use it to wash cars or fill kiddie pools.

3. You could remove laundry if he unit has it. That is one of the biggest uses of water. Or increase the cost per load. Most of these old properties have outdated billing rates on laundry. 

4. Educate tenants on water conservation. Let them know that if you pay more, the cost gets passed on to them through rent increases. 

@Seth Borman you are saying a four unit property should cost $31 per month? That seems ridiculously low. My family of three is more than that every month and my state is one of the cheaper ones. According to this website the average household bill for water in CA is $65 which would be $260 for a fourplex.

https://worldpopulationreview....

 You also want to make sure this doesn't present problems selling the property. If the buyer does inspection or even just to bind coverage for a loan, it could create problems for the buyer that makes it hard for them to close. A cash buyer may not be a problem or may not realize there is a problem until after they close. 

 Try to find a local agent that brokers multiple companies. They can usually shop around. Sorry I don't have any recommendations. 

 This could be tough. Every policy I have written on older properties, they want to know when electrical was updated. They are looking for knob and tube and aluminum specifically because both are fire hazards. I had an old property dropped by Allstate and Auto Owners was the only one I could get to cover it. That wasn't wiring related, but you may try them. 

I assume you already did this, but if not, ask the seller who they have insuring the property. It could be nobody if they own it free and clear, but if there is a policy, I would try that company. 

I would definitely solve this issue before finalizing your price. Get quotes on rewiring and ask for concession. Plaster isn't the end of the world to deal with if the walls are hollow, they can snake wires.

Also be aware that someone may write a policy and cancel it later. That is what happened to me with Allstate. I disclosed everything and they wrote the policy, then someone got around to reviewing it and cancelled me a month later. 

 That 5-10 limit must only be certain insurance companies. I have well over that in personal policies, plus a blanket liability policy riding on top of it.

Everyone who is saying it may be "grandfathered in" that may work for conversions done in the 1900's, but is sounds like this was new construction by the last owner. You can't just build whatever you want without permits, then expect it to be grandfathered in. In fact zoning often looks very unkindly on these type of things. There was a house rebuild done in a historic district in my city. The permits and plans were approved, but the owner decided to build the property taller. They failed to seek approval from the planning office. The structure was final inspected, but the neighbor sued them for violating height requirements. The structure created a safety hazard for the neighbors fireplace chimney. After three years tied up in court, there was a court order issued to tear the $850K home down. The judge ordered it done within one week and it was torn down. Lesson learned, people who think they will just skip permits and do what they want, there can be steep consequences. 

In this case, the previous owner is the one who constructed illegally. You may have a case against them for the financial harm, but it may be less expensive to just default on the loan and let the seller foreclose. If you do sue the seller for damages, you would need to sue for the entire value of the structure and tear down costs. 

The problem with tearing down and rebuilding is you still have the seller financing to deal with. They have a lien on the property, so they can foreclose. Even if you build an 8 unit townhouse, they can foreclose on that brand new townhouse. Nobody is going to lend you money to build with the current outstanding lien on the property. Not unless you can show the new 8 unit structure is worth more than $1.06M plus rebuild costs. I really doubt that lot is worth $1.06M and with skyrocketing construction costs, who knows what it would even cost to rebuild. Probably more than $1M.

Talk to a local real estate attorney ASAP. You will probably need to open a retainer for a few thousand, but it is worth it in this situation.

Have you talked to the seller about the situation yet? Just curious what they had to say...