All Forum Posts by: Ralph S.

Thanks, guys, but I do understand the difference between book and tax. But, what you're saying is that the FIN47 assets are book only assets, and have no tax asset associated with it and that's what I wasn't considering. I've dealt with tax only assets in the past, just hadn't heard of, and didn't consider a book only asset.

FAS 143 and FIN 47, from the Financial Accounting Standards Board (FASB) implemented a provision in 2005 that requires companies to recognize the future expenses of environmental cleanup of facilities (even if leased). As I read it, this would also apply to Residential properties owned if they contain LBP and/or asbestos. It applies whether or not those facilities are later sold and the liability is passed on.
So, why wouldn’t every owner of pre-78 residential property (LBP) or those with asbestos siding, or vermiculite insulation, be using this to increase their depreciation expense?
In essence, estimate the future environmental expense of disposing of the hazardous waste as an asset that depreciates. That’s the jist.
Here is the link to FIN 47
http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175820929855&blobheader=application%2Fpdf
And other discussions on the topic
http://www.advancedenvironmentaldimensions.com/documents/EEA_FASBInterpretationNo47_4_24_07[1].pdf
http://www.cfo.com/article.cfm/5467027
http://www.pace.edu/finance-planning/sites/pace.edu.finance-planning/files/Policies_Procedures/Fixed_assests/FIN%2047%20Policy%20%26%20Procedure.pdf

There are times when you have to be "the new Sheriff in town" and sometimes "if it aint broken, don't fix it."

Seems your uncle has done well for all these years. You're 90 miles away. An elderly long term tenant. The only fixing IMO is for you to find out how he's done it, and do the same.

Sure, she probably pays below market rents. Sure, there is likely a fair amount of deferred maintenance (fix that). But, I wouldn't try to maximize your zero investment here. It is a gift. There will come a day when dealing with a house 90 miles away will become a PITA, don't hurry it into the present by thinking you could do so much better.

Whatever agreement your uncle has should be fine, just amend it to replace him with your LLC.
Find out how your uncle handles maintenance issues.
Find out how your uncle gets the rent.

In a more normal situation, managing rental property is a matter of maximizing return and managing risk. If you can keep this tenant, 90% of risk (tenant damage, vacancy, etc) goes away. Doing the LLC thing is good risk management in protecting yourself. Doing anything else to upset the apple cart, are you really able to deal with that?

I would say a managment co is not needed. Just a trusted local handyman - perhaps the same one your uncle uses. Don't over think this.

Just my two cents.

First, this person is used to being denied, think? You won't be the first. If he asks, just tell him the truth. If you have any concerns about your safety, do it on the phone.
Second, with the exception of denial based upon credit, or any state local law that may require you to disclose if asked, you are not required to give specifics.
I made a call to an applicant's mother once, who was listed as a reference. I asked mom if it were her apartment, whether she would rent to her daughter. There was just a long silence. Was I going to give up mom as a reason for denial? No. I tell everyone I call their answers are confidential and will not be reported back to the applicant. It is the only way to get the reference to speak honestly, although it is no guarantee.

My policy is simple: When I have a vacancy to fill, I get too many applications to respond to each one personally. If I have questions, or need more information, I'll call them. If they wonder about their status, they can call me. If I deny, and they don't call, case closed. If I deny, and they call, I say sorry. If the reason is criminal, as in yours, I just say my policy is to not accept those with felonies, evictions, drugs or a known history of violence. Case closed. If the reason for denial is based upon mom or other sources, I just explain that something came up in the background investigation and that I have to respect the confidential nature that the information was given.
Most have skeletons in their closet anyway, and just go away. If I get challenged, I just repeat what I already said.

Matt

Pay me now, or pay me later. Isn't later always the higher cost?

ARMs are currently driving the foreclosure rate as those 5 & 7 year ARMS are resetting and people are finding themselves underwater, unable to refi or sell.

Why am I against them, ask your neighbors in this situation.

Even worse, you are contemplating a 97% LTV. You will have little skin in the game, as they say. Since selling costs are 6-10%, you can't sell from day one. You think prices are going up enough in 5 years to cover your selling costs? The option to refi also relies on appreciation. Pretty sure no bank will refi at such an LTV, and am not sure what HUD programs are available for refi's at such a high LTV. So, I don't think either option is doable.

With a 5/1 ARM and a high LTV, you are screwed. It just doesn't happen for 5 years.

On first blush I’d say no, don’t do it.
$370K for effectively a 3 unit, or $123K/unit. That’s a lot. For $38,400 in annual gross scheduled rents, the 2% rule would value this at $160K (but, it doesn’t sound like war zone or low income, so the 2% rule is not a very good guide here).

On second blush, applying the 50% rule, this 3 unit is essentially break even.
Scheduled Gross Income (SGI or Rents) $38,400
Operating Expenses (@50% of Rents) ($19,200)
Debt Service (PI) ($19,843)
Annual Cash Flow ($643)

But there is still that pesky fourth unit, and the operating expenses it will consume. So, it is far from free rent.

From a different perspective, the analysis of renting all four units, assuming for example purposes, that fourth unit would rent for $1,200 per month:
Scheduled Gross Income (SGI or Rents) $52,800
Operating Expenses (@50% of Rents) ($26,400)
Debt Service (PI) ($19,843)
Cash Flow $6,557 ($137/month/unit)

So, there is your rent charge (opportunity cost). $6K/year NOT in your pocket.

If you can really get a 3.75% loan with a LTV of 96.5%, good deal. I'd work on that sales price, though, and get it down as much as possible.
My opinion is you’re accepting a high price, and it only appears to work (with all units rented) because it is offset by a low interest rate.
If the interest rate you mention is an ARM, forget it.

Check your states LL/Tenant law. In WI, this is a forbidden clause, and would not hold up in court. Even if it turned out to be the case in your situation, not sure it's worth the hassle. In most cases, carpets are cleaned between tenants anyway, and it always comes out of the last tenant's deposit.

I'm not from Michigan or Maryland, but Bird-dogging doesn't involve those things that are required by law to be licensed.

Most states use terms like "Provide Real Estate Services."

Real Estate Services do have specific definitions, and usually involve those things required to effect the sale of the property, not just bringing buyer and seller together.

If, as a bird dog, you are simply finding a property and bringing it to the attention of someone else, and not involved with negotiations, or "performing real estate services," that are needed to actually transfer property from seller to buyer, there are no laws against that.

If I'm wrong, here, I'd love to read the statute that requires a license to say "Hey, Joe Investor, there's a vacant house on 13th Street. I looked up the owner at the courthouse and here is his name, address and phone number. I talked with him and he is interested in selling."

Bienes

Not a lawyer, but in most cases, when you rent to multiple parties it is treated as if they are one, each responsible for the full amount of the rent each month. So, if one doesn't pay and two do, and you are short any portion of the rent, they are all responsible for being short.
The other way is to treat them as if living in a boarding house, where each has a rental agreement, each pays a separate depo, pays a smaller rent, and where each is only responsible for their portion individually. Doesn't sound like that is the case here.

So, I don't think anything has happened (the apartment is still occupied) to trigger the need for a any letter or refund of deposit. They are not separate tenants. The tenant that left should simply try to coax his deposit from the other two, or the one moving in. You have the full deposit, the apartment is still rented, and you are in the drivers seat as to letting the one out of the lease and putting the other person on the lease. Make sure the new tenant passes your screening.

I think all you need is a lease amendment removing one and adding the other, and get all four tenant signatures.

Ralph

LMAO!

Ryan, after making out a QCD in an attempt to defraud the city out of a utility lien, you wonder if it's ethical for the PM to do this to you? Really?

I imagine this thread is already posted on a wall somewhere in Detroit's city hall.

I haven't laughed this hard in a long time. Thanks for sharing, Ryan.