All Forum Posts by: Michael Klinger

Cincinnati is in a re-assessment cycle.

How is everyone feeling out their re-assessments in that market.

I have two complexes that are up substantially One is up 20 percent from last year. Another is up 10 percent. A third is basically unchanged.

Anyone have any experience challenging these, Board of Revision, etc.?

Thanks all and @Steve Morris The conversation with Appfolio when pretty much exactly how I imagined. Since the Appfolio account is with the management company (not me), my management company is their customer. And so they cannot help me in any way.

@Dexter Harris -not gonna go there at this time.

@Joe Splitrock Admittedly my "EQ" is not naturally off the charts, but I have evolved to understand that being nice in difficult cases sometimes serves certain situations. Having said that, if one is to step back and look at that picture, it is rather absurd that one viable answer is to be nice to people that only know how to mismanage a couple million dollars +  worth of property.

Thanks everyone. Thanks @Edward Liu  Please know this has been a journey that has gone on for 2.5 years. I have tried every approach in the spectrum from "too nice" to the other end. In terms of reporting issues, I ask them when they wanted to get feedback from me and it was their call to get input as soon as I saw anything, So I would usually see something every time I looked at a new few days and would gather up about a weeks worth before sending notes. It was only towards the end that my exasperation led me calling things out, sometimes 2 days in a row. I was also conscientious that it's easier for them to fix before reports, than after -- so I tried batching the fix notes with that in mind and into bullet pointed emails, which seemed humane. But it was impossible for them to ever get the fixes ever checked off 100 percent. And along the way they would break more stuff. So broken stuff would still linger. Before I was fired last week, there were things that go back to March that were still unresolved, even after 5+ mentions of it. And plenty of things I gave up on, from earlier than that since the beginning.

Thanks @Steve Morris  It is Appfolio. I am not clear on what account manager you are speaking of? Account manager at Appfolio? Or Account manager at management company? If at Appfolio, I am not Appfolio's direct customer, the management company is. If management company, the guy that fired me is the best proxy for account manager and he's the one that informed me that 30 days notice with them includes me being locked out of the system.

Thanks @Todd Dexheimer I have sent a note to my contact who resigned and asking/suggesting they give me access for 1 day to pluck out anything I would find useful and the clues I am looking for. If the communication is typical, I will never hear back on that, or It will one of my many emails that randomly landed in his junk folder as so many have. I can pick up the phone and will, but I have this feeling they are punishing me for being unhappy with them and I think it is less likely that I will get what I want if past actions are predictive.

A few days ago one of my management companies resigned with 30 days notice. However they also immediately locked me out of the "live" information on the Appfolio account  at the time of emailing me their intent to resign with no fair warning on the lockout on the system. I have access to Monthly statements but not current info or historical stuff or attached items of interest, like utility bills showing usage, clues on which units had their appliances or air conditioners replaced. Stuff like that -- that is cloudy in their reports.

The reason for their resignation is that they were making endless mistakes in basic entry on the books and they got sick of me complaining about all of it. Charges applied to wrong properties, both cross billing my two properties with them and also other customer's properties. Also terribly inaccurate categories, and not tagging costs to units, when that is just a click of a button, on and on and on. I was getting increasingly exasperated with the literally DAILY mistakes that I would report back to then and they we went into a negative feedback loop and ultimately a death spiral where the fixes to the mistakes added new mistakes. So they gave up. Which is for the best.

My only issue in pursing a new manager is that they have locked me out of my accounting with no warning. I'd like to have the opportunity to pull what I want from that system before we part ways.  I'm really irritated that they have taken this stance. What do others think?

Thanks for the replies so far. I am aware that there is a lot to consider in whether there is any merit in this move. To simplify the conversation here, I'd like to ignore if this is a good or bad idea. I'd just like to get clear on the maneuver from a business/tax point of view. To clarify, the borrowed money is secured with apartments that are ultimately owned by an LLC that is structured as a partnership. The two members are me and my wife.

To answer the other question, It is my hunch that the house would sell somewhere between break even and a loss of up to 50K in the open market. But again, I am more interested in how I would structure it, if we decided (for better or worse) to sell our house and live in this one.

I wonder which BP forum this question is best suited for? Suggestions appreciated. I think it's mostly a tax question?

Here's the sitch...

We took on a significant single-family rehab that for lack of a better term, "hasn't gone great," first intended as a buy-and-hold rehab. When it became a bigger project than we expected, so we decided instead to sell it off after done. Then there were complications, and setbacks, and town/permit issues, and contractor issues and Covid and so on. We've been at this since December of 2018. Yikes. We literally have made no progress from mid December until about 2 weeks ago (mid May). Things are finally back in motion I think it will be done with the last of it in a few weeks. So 1.5 years so far.

The purchase and the rehab is 100 percent borrowed money, mostly off a business credit line we have secured by apartments we own. We are now being "forced" to convert the line to a loan that terms out on a 3 year/balloon with no prepayment penalty, instead of what we were hoping would be just a 3 to 6 month extension on the original credit line. This is how the bank wants to do it, due to their fears in the current economic climate. The subject house does not secure the loan, our apartments do. I am not worried about maintaining the payment indefinitely, but it is an expense that is burning resources as every month goes by. I don't expect the project house to be profitable at this point, if sold.

In considering all options, one thought is to sell the house we are living in and pay this and other stuff off with that money and then (so to speak) buy the rehab house from our LLC and then live in that. I just wonder from a tax point of view if anyone has taken on a house intended as a flip and then went through whatever motions it would take to convert the deal instead into a primary residence?

From an accounting and tax point-of-view, can I buy the house from my LLC and make it my residence instead of selling it off to third party? With an above the board/legit paper trail and legit transaction to myself, without causing some kind of tax audit or other ugly problems?

Backstory... Not quite 2.5 years ago, I 1031 exchanged out of a (mostly) owner occupied office building in Southern California, to (three) C class multi-family properties in the same Midwest city. In doing so, I went from 1 business tenant, to 64 apartment tenants overnight. A very steep learning curve, but I had the help of 2 property management companies to take all worries away (not).

When it all lacked the performance I expected, I tormented my management companies and started getting very hands on. I dove into the trouble areas to identify the cause of under-performance. And during that process I experimented and eventually learned a lot about whatever sweet spot there might be between compassion and a pure business stance, especially related to late rent collections. This (of course), was NOT in response to a global pandemic, but just the everyday survival on a set of investments intended to be cash-flow centric. Money I had hoped to live off from.

Mine are in a landlord friendly county where if you are diligent, stick to the agreed upon lease terms and hold a strict stance, you can have a non-paying tenant out in about a month from when they are late, which starts in the first few days of the month. This also in a increasingly strong rental market, increasingly favorable this, favorable that, etc. Nevertheless, there are/were sad stories when the first (fifth) of the month came around. And between all that a few really-really sad stories. 

Nevertheless (and remembering that all bets are off until how we are in the Covid 19 era and need a month or two to see how if plays out further)... I experimented with the whole spectrum of responses to the sad stories, ranging from total benevolence to non-negotiable evictions.

Contrary to the acts of kindness that the world probably needs now, the benevolent approach did not prove to serve my properties well. Except once in over maybe 20 situations. And that one took well over a year to work itself to a cleared balance, while simultaneously occupying a unit with a legacy rent of $200+ under market. My units pay in the rent ranges of $500 to $950 a month. What I came to learn was that once my tenants got behind by even a couple of weeks, the likely-hood was almost zero that they would ever catch up fully in any reasonable time-frame. Furthermore once they were behind, it would also possibly lead to a promise to pay with a "say anything" level of desperation. Then the next month would roll up with no payment or just $200 when they swore on a stack of bibles that would have $800. And then soon after, either an eviction or a hasty middle-of-the-night move-out with not nearly enough security to cover both damages and back rent. Then often rushing into some other apartment secured by another landlord, before the issue was on their record and the new unsuspecting landlord on the hook.

It's a good reminder that eviction, though often absolutely necessary (and not currently even an option) is an unpleasant result. Not only a sad way to displace a tenant, it is also inevitably expensive with court costs, set-out expenses and a premature turnover of a unit, sometimes left by an angry tenant and so are often damaged more than normal.

One thing that I do see is that a non-paying tenant puts both a literal and cosmic strain on the property. Even if I make certain that that the property is full funded and taken care of, no matter what.

I have come to believe that having a firm stance is the right answer. Also a consistent message that applies to all. This seems right in regards to fair-housing, which, is a on my mind as well. So whatever stance you are prepared to take, you have to hold that stance for everyone.

Is there room for side-bar conversations in particularly difficult circumstances? Yes, no, maybe.

Maybe It's all the smashing? Have you tried clicking instead?

Let's say your intentions are generally buy and hold, medium to long term and you aren't refinancing every 5 minutes to churn new deals...

What's would be your personal way of doing a broad stroke view of your performance and establishing a quick benchmark?

Do you tend to reference back to your original equity-in and cap rate at that time and use it in present time?
Or do you consider your equity's market value and calculate with current cap rates benchmarks?

Hypothetically, say the equity in 2017 it was in at a million and you were expecting 8 percent, so 80K.
But a few years later benchmark in your area and asset class is now more of a 7 cap and with no other big changes, you estimate your equity is worth 1.25 million, also for about a result of about 80K.

Now same question but fast forward year after year.

I suppose it's more interesting one way or another depending on whats on someone's mind, cash flow or appreciation.

But my hypothetical dismisses the leverage and strategy of cash-out re-fi.

Thoughts?