All Forum Posts by: David S.

According to the IRS (and not someone's opinion), carpet is depreciated over 5 years:

https://www.irs.gov/pub/irs-pdf/p527.pdf

Look on p9 in the box.

Therefore, I would counter them at the 5 year depreciation calculation and GET IT IN WRITING as terms of the settlement so they don't come back on you.

Pet smells have a way of coming back no matter how the carpet was cleaned, so I can understand the replacement. However, they must depreciate it right to be legal.

That is why I NEVER put carpet in my rentals.  One tenant can ruin it in a matter of days.

Originally posted by @Johann Jells:

Is having a job "worth it"? I mean,  you have to get up, deal with bosses, idiot workmates, commuting, etc. My point is nothing worthwhile is all upside. My wife and I rolled a $60k downpayment 21 years ago into current equity around $4m today. Hell yes, it was worth it! We could never have done that just by working.

The first sentence is absolutely one of the best I have seen on BP and is a great comeback for all of the BS people give you about being a LL.

It is absolutely worth it.  I can guarantee that the average LL has a higher net worth than the average person.

What happens if you become unemployed, disabled, or otherwise unable to work?  For most people it is a road to losing everything and poverty.  Should this happen if you own several rental properties, you are better able to handle these situations. Hell, a bunch of LL's on here don't even need the J-O-B but just work because they love it or any other personal reason.

For the "emergency expenses," you should have 6 months of reserves for that.  Banks usually require this anyway when they underwrite the loan.

@Shannon Cannon

Perhaps the accountants/CPA's can chime in, but you must pay yourself a "reasonable salary."  For example, if you did 100 hours of carpentry work on your flip and you found out that a carpenter makes on average of $25/hour in your area, then your salary for that aspect would be $2500.  Maybe you have below average skills in carpentry, so you elect to pay yourself $20/hour instead. You may have project manager hours to calculate as well.  In summary, you can't pay yourself $5000 a year if the average salary for that particular function is $50,000 a year.  Since you only did this work (flipping) for part (i.e. part-time) of the year, I would use the number of hours put in and what your research tells you is acceptable for a salary translated into an hourly wage.

I have been on both sides of this issue.  As a buyer, my lender flaked out 2 weeks before the closing date so I scrambled to find another lender. I notified the seller immediately and asked for an extension.  He wanted $800 just to extend even one day.  I said fine and went to another lender and told them about it and we actually closed one day early.

As a seller, I was dealing with a crooked, incompetent mortgage broker. I ended up extending twice. I did not extend a third time. The lender and buyer were extremely angry, but they held the property hostage for almost 2 months. I got an offer within days of relisting and we closed 3 weeks later with a real lender. I literally had about 5 deals daisy chained to this sale so the first lender really caused me a lot of headaches. I still closed all of the other deals within the contract date. To save my reputation, I ended up taking a HML on one of my properties. And I must add that I did tell my sellers that their transaction was daisy chained to my other one when I signed the PA's. You just don't want to get the reputation that you can't close or can't close on time.

So I can advise you with a neutral attitude since I was on both sides.

MY ADVICE: Close on time or walk away and move on to the next deal.  Losing a deal sucks, but do you really want to jeopardize your reputation by suing?  Word gets around in small circles and a lot of people won't want to do business with a litigious or messy person.  If you really want the deal, offer the seller more money and put up a larger NON-REFUNDABLE deposit.  I really think there should be non-refundable deposits by the buyer and the lender.  If either one flakes out, then there are penalties.

@Misty James

Tread carefully. What do your state laws say?  In my state, absent a will, the children inherit half and the spouse the other half.  Best check with an attorney as to the proper way to handle this, which probably wil be the probate process.  I could definitely see a possible lawsuit as so and so did not get that antique buffet that has been in the family for 200 years.

It is a shame that the death of a family member is often seen as a cash grab.

I have saved tens of thousands on Lowe's QSP program.  The key is to have large quotes, so put all you need for your project in it.  Typically, I would get various amounts off of each type of item, from a very small amount, like a few percent, to over 50% off.  As you use it, you may elect to not put the low percentage items in the QSP. On average, I get 15 to 25% off. The larger the quote or the more per item number, you get a bigger discount.  I have gotten over 50% on some items.  Sometimes there are sales like you saw and QSP can't touch it.  That is a rare case, but in that case, go for the sale.

I would strongly suggest that you go to a DIFFERENT Lowes.  I pass up 2 of them to get to my Lowesof choice. Lowes is starting to shut down underperforming stores, so well, the one's who are LAZY (or incompetent like the one you are using) like one of them I pass up, probably will shut down as I and other investors or contractor's go 20 miles down the road.

Next prepay all of your materials in batches since the list expires quickly.  Like split it up into thirds.

Then, if you charge on the Lowe's Business account (there are several accounts that qualify), you will get $20 deliveries. So you get set those batches up for delivery.

DISCLAIMER I do not work for Lowes or get compensation.  In fact, my opinion, because of issues with a particular store, is that LOWES SUCKS, but I must use them as Home Depot and my other sources don't have everything I need and QSP deals are just too hard to pass up.

Penny wise and pound foolish... Do you want to sell the house or not? Turning away potential buyers never helps. Make nice with the realtors and tow the line when it comes to offers with thousands off of list and buyers wanting 6k in closing costs and 10k in repairs. Not sure of your market, but that is a list of things sellers deal with in my market.

They are busy being deal makers.... I have noticed the same thing as well. I do think we should show more respect on this forum. All of the big players I know are not going to put up with receiving a hard time on an Internet forum. Although that has gotten much better with a ton of mods on here now. I also noticed the self promotion of businesses as well. I think we are morphing more into a message board for professionals to round up clients and a place to get referrals.

Angelo, riding the neighborhood at different times of the day, for example, will give you a great idea of what is going on. If you ride by at 8am and see no one around, it may seem like a great neighborhood. However, closer to noon, that same innocent neighborhood will morph into a mass hangout as unemployed tenants make their way outside to hang out and loiter. Potential tenants do drivebys at different times, why shouldn't the potential owner? Did the photographer/real estate agent take the pictures at 8am when no one was around or at noon when the drug dealing and fights start? Also, you get a feel of not just the neighborhood but how the area is doing. Is the area on a decline? No App, or computer program is a substitute for this.

As far as guarantees that a neighborhood won't slip, there are none. It is a part of investing. It is the risk. However, to mitigate it it, you can invest in the suburbs in newer developments. Also, you would like the neighborhoods all around it to be in the same asset class. A high income for that zip code  is also a good thing to have. I didn't exactly say a Class A will morph into a Class D overnight. I said there are class A neighborhoods attached to and one street away from Class D neighborhoods. The slide is usually insidious and takes some time. 

Sometimes you can hit the jackpot by targeting neighborhoods that have the potential for gentrification. This is when an area starts to go up in asset class over a period of time. This has nothing to do with your situation,  but I thought to mention it as an example at how assets classes can move. They can move up and down. 

Angelo, great post.

One thing I would totally disagree with you is that you don't need to fly there to check it out. In Louisiana (in probably several other places), we have a history of selling to CA investors who do not come see the property and lose $$. I, myself, sold 2 properties to a CA investor, only for the CA investor to get foreclosed on a few years later. A local investor snatched one of the properties at 42 percent what the CA investor paid.

The deep South has its challenges in that neighborhoods "turn" from nice to bad. Also, we have Class A properties one street away from Class D properties. In order to get a feel for this type of situation, you need to ride the neighborhoods and look for signs that the neighborhood is on an upswing or downswing. No Google street view or Trulia map will be a substitute.  Neither will a commission based realtor. You may, however,  have a trusted source perform this due diligence for you. Like a close friend or family member. This is someone with a neutral point of view. 

Again, great post. A ton of useful information.