All Forum Posts by: Diane Perry

Quote from @Bill B.:

You could have the “expenses” you paid to buy the property. Appraisal, transfer tax, etc etc. But not the actual purchase price. 

Unless you overpaid for “goodwill” or something like that, it’s still not an income or an expense. (Imagine buying The last property you need to own the block for $100,000 when it’s only worth $80,000. You spent $20,000. (Unless your combined properties are now worth $50k more.  Then you actually made $30k by overpaying $20k)

If you have $10,000 in cash and then buy exactly $10k in gold you have no income or expense. If it costs you 10% and you only get $9,000 in gold, you have a $1,000 expense. If you turn $10k in us cash in to gold, one month, and then in to crypto the next month and then in to British pounds the next month. You have no income or expense unless they charged a fee or the value rose or fell. 

As I mentioned before. They usually only care about income because you spend yourself to poor. 

Thank you, @Bill B.!

Quote from @David Vaughn:

Diane i've been at this game for over 20 years. What I have learned for the most part is 90% of my tenants have been ok until their situation changes. Then it tends to go downhill. I guess someone with a higher credit score might care a little more about hurting themselves credit wise but in the rental side i've never seen that so much. What i have noticed as just in most other businesses the customers that are more stable and reasonable tend to be the most relyable and easier to deal with. There isn't one total magic combination to picking the best tenants. We have processes and minimum standards and still at the end of the day there is some luck involved. 

I get that one wants a tenant with provable positive history of paying. But I am also thinking it is a very local issue; in NYC, a LOT of people rent, even some that could certainly afford to buy. In some areas, renters are generally more fly-by-night, and most people own their own homes. In certain professions where one might have to move a lot, renting is the norm.

I can tell you that when I went to rent my Nashville home, on the outskirts of Davidson county but near Percy Priest Lake, most who can, own, and there wasn’t a single renter who had a decent score for me to choose from. Even when I used a property manager, the scores were unbelievably low. I remember saying to a friend, “I didn’t even know was possible to have a score in the TWO’S!”

Quote from @Bill B.:

If you need a P&L for last 3 months and this happened 5 months ago, obviously it  don’t go anywhere on the P&L. Plus, A “P”rofit “&” “L”oss statement doesn’t include assets, only income and expenses. 

If I have 1 million in the banks and It pays me $1,200/yr in interest. I live at home and don’t pay for anything but pizza and beer, and I spend $90/mo on pizza and beer my P&L is..

$300 interest income

-$270 pizza and beer

$30 net income. 

If I spent more I could have a negative P&L with a million in the bank, with $10 million in the banks. 

I have $100 million in gold and I spend $20,000 to live for 3 months

My P&L is…

Income 0

Expense

Rent $5,000

Food $5,000

Entertainment $5,000

Misc $5,000

Net income minus $20,000. 

You can spend yourself to “needy” no matter your income. Just gamble, donate, spend on whatever. But I assume there are income limits on assistance. They probably only care about incime. 

Bill, just to clarify, as I said, the cash came in five months ago, but the purchase happened within the three month period. 

Expenses to live are not asked, (ie pizza, rent, etc.) only business expenses against the business income. So is the purchase of the rental an expense in this case is my question, since other expenses arising from the rental, taxes, insurance, etc. are deducted from business income.

Quote from @Greg Scott:

No. Transforming one asset into another is not an expense, it is a balance sheet change. 

If a company buys stock in another company, they exchange cash for stock.  Both are assets and appear on the balance sheet in different areas.  Theoretically you can sell that stock later and convert it back to cash.  Nothing hits the P&L statement, so not an expense.

If instead the company spent that money on a party, that is an expense.  You can't sell the party that happened last year for cash next year.

The windfall was personal - a stock dividend - and not from being a landlord, so it was not an asset to me as a landlord initially. And this, as I said is for a P & L statement where I need to show that I qualify for financial help by having income below a certain amount. Since I received the dividend prior to the period they are asking for, I don’t know what to do with the purchase. Forgive me if I am not understanding… this is new to me. 

If I buy a property I hope to rent out, how do I account for it on my P&L?

Brent, I had several tenants over the last few years that did not have great credit scores. The younger ones were all right, but didn’t take such great care of the place They did not have long work histories, nor did they work great jobs.

My latest tenant in my Nashville house not only had low scores, but did not have the 4x rent income your prospect has, but they were an extended family that wanted to be under the same roof. I insisted on speaking to the two landlords, and also a visit to their homes, on short notice. Ultimately these were extremely valuable as the landlords were positive (one party had a few latenesses of a few days, the other was stellar) and their homes were immaculate, and children well-behaved. They are my favorite tenants and have taken better care of my house than anyone else ever did. I think they buy a lot of furniture and electronics on credit, and it’s easy I think for something to get missed. Their furniture is nicer than mine, and the have eight televisions for the house, one in each room, and one more than the number of people living there!!! Me, I have one old crappy tv, not even a smart one! But I own four properties now on a pauper’s income from music, with very little debt. Some people buy stuff, others invest.

If you are not certain about this tenant, why not propose a short-term lease of, say, a few months, and let them know that if it doesn’t work out, you don’t have to evict because she will have no lease. If it does, you may be very happy you gave a working person a break. And the tenant will be grateful you took the chance, and be on notice not to mess with you. Certainly, a conversation about her low credit seems in order.

My experience with furnished STR was it was an awful lot of extra work with a lot of extra expenses that for me, did not make up for the increase in daily rent. But that's just me. I know there are companies that will manage it for you, but they have no incentive to keep your costs down. Some people and companies love it, but it's not for me personally.

Let us know how it turns out!

I am putting together a P&L for an application for finance reasons. I work for myself, and for that reason and also as a landlord in addition to federal tax returns I am required to file a P&L statement. They asked for the last three months. Five months ago I received a one-time windfall of money I used to buy a cheap piece of RE for cash two months ago. Windfall was $60,000. Cash purchase was almost as much. Is the purchase an expenditure that goes on the P&L as an expense?

I think in this scenario, one has to ask several questions for there to be a meaningful answer: How long did it take for them to save $10k while making $50k? How expensive is it to buy in this person’s area? Are they able to move anywhere in the country, or do they have to stay in a certain area? Do they have any hands-on repair or renovation skills?

I think trying to partner with someone to put their credit and $100k on the line when you only have $10k to contribute is going to be extremely tough. You would really have nothing to offer them that they need.

My best advice, not knowing the answers to so many questions, is to find a small piece of unimproved land somewhere where it is cheap, un-restricted as to what you can build, and yet, near a populated area where such homes are common, and put a used single-wide on the property and get utilities hooked up out there. $10,000 probably isn’t enough, but if you can get the utilities connected, you may find a real bargain on a mobile home. There are places like this in rural Tennessee, and Kentucky, for example. (Where I live in the greater NYC region, even unimproved land is hundreds of thousands, and there is no such thing as an-restricted building, so that’s definitely out)

However, truthfully, I think it really would be wise for such a person to stay out until they have amassed a bit more funds, unless they have mad renovation skills, in which case they at least would have something valuable to offer a financial partner. It may suck to not get into real estate investing right now, but unless you are getting your own home and borrowing on programs with almost no money down that exist only for oowner-occupants, the risks are too great to get in over your head and lose the $10k too.

Quote from @Dave Van Horn:

If it were me, I would probably do these two strategies.

I would start looking for deals and purchase an option on a property then flip the contract (i.e. wholesaling).

Lease Options would be another strategy that makes sense here. This is where I'd rent a property with the option to buy it and then turn it around, lease it to someone else (giving them the option to buy from me). I did this once where I rented a property that included a $1000 deposit down, and the rent was $700. I turned around and got a $3,000 deposit on a 2 year rent-to-own and rented it for $950/month. So I was cashflowing $250 per month and made a couple grand off the bat, all without owning. I even had it put in the lease that any repairs over $300, the original owner covered it, and anything under $300 were covered by this rent-to-own tenant. Looking back, I wish I did this with more properties!

 You must have left something out… how can you give someone else a rent to own option if you yourself don’t own the property?

HELP! I have a situation and would love to know if you guys think I should walk away. My realtor is terrible, made a lot of mistakes, and doesn’t advise me well. She filled in the contract NOT as I requested, and it turns out I do not get to walk away if the property is uninsurable. (It was selected “NOT WAIVED” on initial offer, but it was a bidding war and I told her to remove the inspections, but instead she removed all contingencies and resent it.)  Turns out the home has a roof that is possibly asbestos, and my insurance company won’t cover it. 

I can get interim vacant home insurance for almost double the normal cost which gives very little coverage, and close on the house, then when it is rented try to get a renter’s policy with regular coverage that will accept that roof, but ins. broker is saying then the new company will want all the policies on all my properties (4) including my residence insured under their company, and I have no guarantee at this moment they will insure this property with this roof at this time, 

OR 

I could tear the roof off and pay tens of thousands to replace it so I can get it covered under my current company (State Farm) 

OR 

I can walk away from the deal and lose my $5K deposit. It is a 2240 sf brick home in dated but good condition except the valleys need to be replaced on roof, which was to be about 10 grand anyway, but I was going to put that off until next year. 

It was on market for $75K, and seller chose my offer (among many much higher ones when I dropped inspections) Cash price, quick close of $62K. Probably with a little update it might have been a $110-120K ARV except for this issue of insuring the roof.

Expect to rent it about $1200 I hope, (rentals in this area half the size get $925, and most are in abominable condition, this is dated but excellent) taxes about $2200/year. 

Other than the valleys, the very respectable slate roof company said the tiles themselves could last more than another 30 years. They are original to the home, which was built in 1926. 

Closing was supposed to be later today, but insurance called me back this morning after talking to underwriters, so I am deciding to delay maybe a couple days if the seller will allow it, but maybe I should cancel. Broker says I cannot sue under agent's E&O policy because it was supposed to be 15 days contingent even if she had not waived insurability without my permission. I think that's bogus. Kicking myself because I have to check everything she does twice and missed this, she is a terrible agent and I certainly will never use her again.

I think it’s an excellent investment property and I will get a great return on it, but need to get good insurance. So far only found one company that will accept it saying it is vacant, because insurance broker that is NOT my usual State Farm said that until a tenant is moving in, it is considered vacant. State Farm would have covered it as an investment property and would have given me 30 days grace period to get a tenant in there, but won’t cover this type of roof.

Advice?

When I told my realtor what I want to do, he tried to talk me out of it. He is used to owners slapping paint on everything and just doing the minimum on rentals. The cabinets are old, but good. It’s the layout that sucks. 

I am the paying customer, but the contractor my realtor suggested just shrugged, and basically said it’s his way or the highway, so I told him, there’s the door. He wanted to do a whole bunch of other stuff that isn’t needed, at very high prices, refused to take the wall down, and said it’s all or nothing. Is this because I’m a woman? Is it a Southern thing? Is it just beyond his abilities so he tried to make it about me? I was in the kitchen and bath business for years. I often made suggestions to the client, but ultimately what they chose was their decision. Their money. Their house. 

Now I’m the client. I don’t know too many tradespeople in the area. The one the realtor suggested didn’t work out, obviously. I need someone who will take direction, and knows their stuff, and can get it done in a reasonable amount of time. Someone with follow-through.