All Forum Posts by: Sylvia B.

@Jesse Whitmore has it exactly right. There are a lot of people on BP who love to say, "the tenant pays the mortgage." Constant repetition doesn't make it true, however. 

If you use your W2 income to make the payments on your home loan, do you say, "My boss pays my mortgage"? 

If the mortgage on your rental isn't paid and the bank forecloses, whose credit is harmed, yours or the tenant's?

Does the tenant pay you or the lender?

If there is no mortgage, who keeps the money that would have gone to the lender, you or the tenant?

There are many good reasons to take out a mortgage on a rental property. "The tenant makes the payments" is not one of them.

 If you have four 9-watt led bulbs in the laundry room on 24 hours/day, they would use 25.92 kilowatt hours per month. At the average cost of electricity (13.75 cents/Kwh) that would be $3.56 per month. I would round it to $5 and call it good.

Thank you for your kind response. Since we only invest in our small town (pop <2500) bulk mail would be unlikely to be useful for us. We aren't looking to build an empire, just improving our little piece of the world while making some money. :-) 

Perhaps some clarification is in order.

"Do these goofy letters actually work?" was somewhat rhetorical. Yes, I know it's a direct mail campaign, and yes, I know that they do have to have some success, or people wouldn't use them. I suppose it was just my way of expressing my feelings of consternation, disgust, and amusement.

My choice of the word "goofy" was in lieu of a more derogatory term. Perhaps @Joe Splitrock's "predatory" would have been more accurate.

@Justin Sliva if I had intended to discredit you, the image I posted would have included your name and website. However, I did find it interesting that your reply to this thread was your first post. Welcome to BP, by the way. Your letter was simply the latest in the parade of such missives to arrive in our mailbox. We have received many, from many different companies and individuals. If you don't mind, could you explain how you arrived at the interesting amounts in the offer?
And thank you for this explanation: "As for assuming we picked your property, because you recently purchased and regretted, we mailed vacant land in southern Missouri and northern Arkansas to non corporate owners 20 - 200 acres." That makes a bit more sense than what I thought.

In 2011 we bought a piece of land between our house and the paved road so that we could put in a driveway and avoid using the (terrible) county road. It came with a house, so we started our landlord adventure. That parcel was put in an LLC with other rentals and all was good.

About 2 years ago we decided that it would be best if the land that the driveway is on was owned by our trust, just like our house, so we split off the part with the rental house and deeded the rest of the land to our trust. Again, all was good. If we ever decide to sell, the driveway goes with the house, or if we decide to sell the rental, we retain ownership of the driveway and the woods that screen our house from the paved road.

So for the past year we have been getting letters like this once or twice a month:

They obviously got the information from tax records - "recently" sold properties. I guess they assumed we bought the property and are now regretting that purchase and looking for someone to give it to. The market value of that land is $2000-2500/acre - about $48,000 to $60,000.

What idiot would fall for such a scam, especially in this this red hot market? And how do they arrive at those ridiculous numbers?

Hence the title, Do these goofy letters actually work?

Quote from @Rebecca Pantschyschak:

Quote from @Sylvia B.:

Here is our LLC structure:

All real estate is owned by one of the 3 RE LLCs. They have no other assets.
The Management LLC acts as the public face of the company. It acts as Landlord, collects rents, screens potential tenants, hires and pays contractors, pays all bills, etc. It has no assets.
The Partnership LLC is the sole member of the other 4.

Thank you Sylvia! So how do you categorize expenses for the properties when you file taxes? Do they go in the Management LLC and if so how do you count them as expenses towards the property if the property is owned by RE LLC? Which entity gets the depreciation for the property and if it's in the RE LLC (because that one owns the property) then RE LLC has no income to offset the depreciation?

All income and expenses (including depreciation) are recorded by unit. Each of the RE LLCs owns multiple houses, but the income and expenses are not just lumped together. The LLCs are considered pass through entities. They do not file returns. 

The profit/loss for each unit is recorded on the appropriate form and filed with our partnership return. (I don't remember the particular form number, my accountant takes care of that.) On the partnership return all the numbers are totaled, giving a total profit/loss for the investments of the partnership. Each partner receives a K-1 from the partnership return, which details that partner's share of that profit/loss. The numbers from the K-1 are entered on the appropriate lines on the partner's return. 

I use QuickBooks to track my income and expenses. The "class" function makes it easy to keep everything sorted out properly.

One other thing -- Depreciation is not something that an entity "gets". Instead, think of it as an expense. Each investment (house/apartment/unit) subtracts all expenses related to that investment from its gross income to determine net (taxable) income.

Here is our LLC structure:

All real estate is owned by one of the 3 RE LLCs. They have no other assets.
The Management LLC acts as the public face of the company. It acts as Landlord, collects rents, screens potential tenants, hires and pays contractors, pays all bills, etc. It has no assets.
The Partnership LLC is the sole member of the other 4.

Theresa's last post has some good advice. The trouble is, you don't know what you don't know. I can't even imagine contemplating buying and rehabbing a house, but not knowing what sheetrock is. It's somewhat like me saying that I want to get into the NBA because the players make a lot of money. I've never held a basketball, and don't know what a three point shot is, so what would you recommend? Oh, and I'm also 5 feet tall, 60 years old, and female. 

No. Don't start by buying a house that doesn't need much work. Start by learning about houses. Learn what breaks, what can go wrong, what goes into making a house solid and secure. Learn about neighborhoods, how to recognize desirable/undesirable areas. 

I don't want to be nosy, but how old are you, and have you ever owned a home?

@Matthew Chen It sounds like you need a bit more experience before you plunge headlong into this business. You need to look at distressed houses. Lots of them. Notice I said, "look". Not make an offer, not even think about buying, just look. 

From the time you step onto the property until you leave, you should be making mental notes of what should be changed. Is it dirty? Worn out? Old looking? What is broken? What is ugly? If you were going to live there, what would you change?

Some houses will look (and smell) like only a bulldozer will help. You're not ready for those yet. Just look at some that are relatively cheap for the area. Go in with the thought, "What's wrong?" There is a reason the house is cheap.

** I should have read more carefully.**
I see now that you are looking out of state. I highly recommend that at least until you have done a few successful deals, do NOT consider making an offer based only on the pictures in a real estate listing! All houses look better than they really are in a listing photo. Visit the place you will be investing in person, and definitely look at any houses yourself before making offers. Newbies get their butts kicked more often than not on OOS purchases.

There is no way I would consider doing that extensive of a remodel job with tenants in the house. Did it once, and learned my lesson. It was a nightmare. If you do decide to add a bath, wait until you are between tenants.