All Forum Posts by: Kyle Kipka

During the recent period of low interest rates I acquired some rentals with a 15% down payment in order to stretch my cash further toward down payments on additional properties.

This helped with the down payments and my math showed that even with a little higher interest rate compared with 20% down and the PMI until I was able to remove that this would still be the wiser choice.

Due to the market appreciation during the last few years of regular payments I was able to remove the PMI from all loans except for one. It was admittedly somewhat of a frustrating process and I got the impression that lenders purposefully make it challenging to remove and do the bare minimum to meet the federal guidelines for removal (very slow responses to PMI removal inquiries requiring multiple follow ups, incomplete or missing information on the process of removal or borrower rights, calculating LTV incorrectly, etc, etc). This was not unique to a specific lender but some made the process easier then others for sure.

Anyway, I am now approaching 75% LTV (based on initial purchase price) for the last investment property with PMI so I reached out to start the process and was denied with no explanation. When I followed up and asked for a specific reason (thinking it might require an additional payment towards principle to put me under the threshold) they wrote back informing me that investment properties do not qualify for automatic termination and that PMI will remain for the life of the loan and if I want to remove it I can look into refinancing.

This is a conventional loan so my understanding was that I could request the removal of PMI once I got to 75% LTV (as opposed to 80% with a primary residence) as this was the case with the other properties. If I'd know that I'd be paying it for the life of the loan I would have been better off paying the extra 5% down payment and enjoyed the lower interest rate but I don't recall ever being informed of that or reading it anywhere in my documents. Refinancing doesn't make sense as I'd effectively double the current interest rate and have additional closing costs surpassing the PMI.

Am I stuck paying PMI like the lender says or are they somehow mistaken? This is not a multi-family unit and was purchased in the last several years if that makes any difference.

I was recently notified by my tenants that they have bedbugs in their unit and they've obtained 3 bids from exterminators for removal. In all 3 cases it was the opinion of the professional that infestation was related to recent travel and the tenants have been in the unit for 6 months. 

The unit was vacant for a month or so prior to their move-in and had been professionally cleaned. They also admitted that the bedbugs weren't there until recently and that they likely brought them in but they still feel that I should be financially responsible for removal costs (averaging about $2500). 

I declined and suggested they move forward with the bid they felt most comfortable with at their own expense but they then seemed to threaten legal action in a veiled manner citing their understanding of Minnesota state law which they feel puts the duty for pest removal on the landlord. This property is located in Minnesota. 

I do not have a specific pest clause in my lease but I struggle to see how someone bringing bedbugs into my property after 6 months without them, admitting that they likely brought them in and having a professional opinion stating as much would then require me as the landlord to be on the hook financially for removal? Do I need to be worried? Property is not located in St. Paul or Minneapolis proper so I don't think this city has specific regulations for that but I will confirm. 

I worry you might be right regarding the situation and best course of action. Should I call and ask if her son will be acting as the executor or is there another way to find out? And who do I make the notice for payment too? 

Is this something that's relatively easy for a first timer to figure out and navigate the process or is this a situation where it could make sense to hire an attorney? I'm just worried about it dragging on much longer or if the son (whom I assume is the executor) doesn't respond or take care of financials, property, etc..

A few weeks ago I'd received a call from a man informing me that my tenant (his mother) had just passed away unexpectedly. I confirmed this with the local police department as well. The tenant was an older woman who lived alone but had children and grandchildren living nearby. Apparently they have access to the property and were the ones to discover her deceased when they went to visit. The son did not say whether he was the executor of the estate or anything like that but did promise to remove all of her things and clean the unit within a month. I did not grant explicit permission of entry but as stated it did sound like she had provided a key to her family and I was hopeful that everything would be taken out without me needed to get involved much. 

I had not heard anything so I visited the property to ensure the heat was on now that it's getting cold and whether her items had been removed and it didn't appear that anything had really been removed or changed since other then some documents laid out on the bed. I was also worried about items in the fridge, etc. 

She was a good tenant who always paid on time and it is an unfortunate situation all around but I'm wondering how I can best deal with this situation to ensure that I'm following the legal guidelines of my state (Minnesota) while also minimizing financial losses. I did not receive November rent of course and even if the unit was completely emptied and cleaned so that I could start trying to re-rent today I'd miss out on at least 1 additional month and most likely 2 additional months to re-rent and find a qualified tenant. This is thankfully the first time I've had a situation like this but not one I'd really planned for so I'm asking for advice on the best path forward as I can see this adding up to a substantial amount for me and I have a feeling there may be a lot more work involved to clean out the unit and the remaining property. 

Reading the MN state law it does appear that the fixed term lease is still in effect even if the tenant passes but I would be satisfied with covering my expenses for cleaning, utilities, any storing of property, and the months it takes to re-rent the unit. How would you proceed? 

I appreciate all the insights and agree that I will likely meet them in the middle as planned (they cover 1 month). As James mentioned, I could see how an argument could be made either way based on the specific written wording in my lease and the need to strengthen the verbiage for future instances but even then it would be 1 month due according to the date I was notified in this case. 

Rod, I agree that I shouldn't have much trouble finding a qualified tenant at this time of year and have already started marketing it once more. I try to be reasonable as well and have made a number of concessions to tenants in the past when I could have been more strict according to the law although I do get the impression that I've considered things that would have been outright rejected by any type of corporate landlord. I suppose that's a balance we all have to figure out for ourselves if we self manage. 

I typically always do 1 year leases but I had recently agreed to rent my unit on a month-to-month basis to someone starting 6-1 while they had a new home constructed estimating that it would close sometime later this year. The only condition which I thought I'd made crystal clear both in up-front discussions with them ahead of time and in the language of the lease that I needed 60 days/2-rental periods notice to end the month-to-month lease. 

This would allow me time to prepare and re-rent the unit without vacancy and allow them flexibility based on variances in timetable for the construction of their new home and the closing. They also agreed to an above market rental rate for this flexibility. 

Additionally my existing tenant's lease is up the end of April and they weren't scheduled to move in until 6-1 meaning I'd suffer a month of vacancy until they moved in. I made the decision to accept this cost as it'd give me ample time to clean up the unit and have it 100% for their move-in and because the estimated timeframe of around 4-5 months at above market rates would make up for it. At the very least I'd have 2 months of higher rent which would also be fine. 

Sure enough 2 weeks after signing the lease and getting their 1st month and security deposit (equal to 1 month) they reached out and said they've decided to buy a new home that was already constructed in the same neighborhood instead of waiting for one that they've designed and originally planned and therefor don't need to rent. The obvious next question was about getting their sizable deposit back since they don't see paying for something they won't even use. 

I explained that there is a 2-month notice required to end the lease and that as a result that although I sympathize I'll already be suffering 1 month vacancy because of our agreement and likely a 2nd month as well. Now I have to relist the property and start doing showings again as well as taking a lower rent for a longer term tenant even if I do fill it in a timely manner meaning no matter what I have to do more work and lose money based on our agreement. 

They listened and seemed to understand my position and offered to agree to let me keep 1 month's rent with the understanding that they'd be on the hook if I can't re-rent it for the 2nd month either. They're argument was that they're technically giving me over 2 months notice in this scenario even though one month would be prior to the lease. 

What would you do? My understanding of the law (property located in Minnesota) is that I could technically tell them to kick rocks and keep both months rent but I'm inclined to meet them in the middle and refund the 2nd month's lease as I'm confident in my ability to find a qualified tenant by then. Perhaps minus the difference between what we'd agreed on and what the new tenant is paying which is several hundred dollars. 

What would you do in this scenario?  

 I appreciate the insight and followed your method as suggested. 

 Thanks Michael, I had continued to research and it seems as if this is certainly the best way. I grouped all the random stuff I bought throughout the year for the rentals (everything from garage door track lubricant to disposable work gloves, etc, etc) into general materials and split equally between the 6 units. If I bought something for a specific reason on one of the units I put those materials toward that one where possible even if it could be argued that it was a general expense (like buying 5 gallons of paint for one project and using 2 gallons left over to paint a single room later at another property). 

As for the shed I was recommended to allocate it the same way split between the properties therefor making it fall under the De Minimis Safe Harbor amount of $2500 allowing me to expense the cost rather then carry it as an asset for depreciation. The total cost of the shed equaled something like $575 per unit and I put that amount under each property under other expenses. 

To me it seems like it'd be the same result as depreciating in full via bonus depreciation but more accurately describes the usage (storing tools used for all the properties). Any issues you can see with that method or is it just a matter of preference in this case? 

I self manage a portfolio of 6 units and am wondering about the correct way to account for general expenses that span multiple properties as tax deductions. For example, things like tools or building materials that I buy specifically for repairs on these units. What is the proper way to account for such expenses? To date I've been able to account for smaller expenses by tying them to a specific property if for example I'd purchased an inexpensive hand tool for a specific project on that property but I don't think that would be the proper way to account for more expensive tools that I bought for the overall business like a new lawn mower or something. 

Additionally I've also purchased a shed at my own home in the past year with which to store these tools and materials which I believe is also a legitimate deduction. This shed was over $2500 so I'm thinking it would have to be amortized as opposed to a deduction in one year.  What is the proper way to account for that? 

And yes, I look forward to hiring this out in the future but at the present time I'm using TurboTax Pro edition to complete my taxes and I'm not seeing an obvious place for things like this. 

Agreed, no point in acting hasty and trying to force something that you might regret later. I'll keep looking, running the #s and thinking through new strategies. Thanks for your response.