All Forum Posts by: Ben Parr

I have never used any official property management software (22 units in 2 different entities). What I do use however, is accounting software. I set up each property as it's own class and each tenant a customer. It makes the financial reports super easy, keeps all of the money organized, and makes taxes a breeze. I find that is sufficient for my purposes.

Other than that I keep a spreadsheet with tenant names, lease ending dates, security deposit amounts etc.

When I first started out I did everything with spreadsheets, but I found the accounting software to be well worth it and wish I had gotten it when I bought my first property.

That said, it is much easier to use the software if you have a basic knowledge of business bookeeping.

@Ann Bellamy That's rough, any idea if you're allowed to take the security deposit in chunks? ie. Take a full first month's rent and security deposit and then discount the second month but take a second payment on the deposit up to the allowable max?

I don't think I'd want to operate that way, but I understand wanting to give the tenants an incentive to leave the property in good shape. That said, I also wouldn't want to give away a month of rent if I didn't have to.

@Andraise Scott If you can't mitigate that risk enough through tenant screening and you think a bigger financial incentive would help, maybe you could offer your tenants a bonus if they leave the house with less than $x amount of damage? I've never heard of that before though, so I'd definitely get a good legal opinion on that one.

I'm not so sure about that. I'm no lawyer, so I would double check with one, but you should be able to offer a one-time discount on rent in the first month and still have the rent be $1,000 per month and thus be able to collect the maximum security deposit allowed by the state based on the normal monthly rate.

At least in Michigan I've seen many first month free specials, and I doubt they are going without a security deposit.

Word of caution though, these laws vary from state to state so double check with a local real estate lawyer.

Kevin, sorry I'm a bit late to reply, but I have a number of houses in the area, most South of Lincoln but I have a couple in the Lamphere district too.

If you are still looking in that area my experience with taxes have been closer to $1,500 per year, and insurance at $400-500 per year (though I only insure to purchase price and not replacement cost and carry a higher deductible ($5,000). On the flip side though, south of 11 rents seem to be more in the $950 area for a 3 bedroom.

I've been talking to a bank lately about refinancing some of my properties. One strategy I have thought of goes like this:

Partner pledges $130k in securities (instead of 100k cash) to secure a $100k loan. This would allow the cash partner to essentially keep all of their capital and continue growing it (though they would give up the ability to liquidate it or otherwise use it during the term of the loan). Since it is a secured loan the terms are pretty good 3-4% if I recall, but are not fixed-rate long term loans so there is risk in rising rates and having a baloon. Also if the account value goes below 100k they would have to put more money up. Doing it this way at a larger scale would also let us re-fi many properties at a good rate, and pull our cash out of them to redeploy into new buy and holds.

What am I missing? I haven't heard much about this strategy so I'm either missing something big or so few investors have the resources for this that it just doesn't get discussed.

@Roy N. That sounds like a no brainer to me too. Unfortunately my insurance isn't that cheap or good.

@John Thedford Full self insurance wouldn't make sense until you had many, many, houses. Also, in an area like the gulf I'm not sure I'd ever go insurance free, but maybe eventually you could find an insurer to only insure against hurricane related damage?

@Elizabeth Colegrove I agree, you'd need a sizable risk pool (aka many properties) before even considering self-insurance.

As I think and discuss this more I'm thinking it may make more sense to just find an insurer willing to do a more customized policy covering multiple properties. I'd be willing to risk much more than my current 5k deductible for the right price, but I'd still want to insure against more catastrophic losses.

I think we are mostly on the same page here. Even though it may not be "official" I would say your investment account acts as your reserve fund then, even if you don't call it that. Do you carry any liability coverage? Or do you self insure that too?

When you have one house that's hard to beat, but when you have 100 houses your insurance bill would be $50,000. At some point you can start using the law of large numbers in your own favor to decrease your cost, though not being an actuary I have no idea at what number that is.

@John Rooster If you don't pay for any insurance on your rentals and don't have a reserve fund how do you manage the risk of major damage? I'm very interested in cutting my insurance expense and hassle, but with one catastrophic event I could lose $70-80k. Could you go a little more in depth on your thought process and method? Thanks!

@Donald Stevens Well, seeing as you wouldn't even have that 30k if you hadn't self insured then you aren't really losing anything. You just have to be disciplined enough to set the money aside and keep it there until you hit a certain target $ amount.

Maybe there are insurers out there who will let you set a high (50k-100k) annual deductible across a portfolio.

I'm not really sure, it just seems once you hit a certain number of properties you could realize significant savings by self-insuring more and more of the risk.