All Forum Posts by: Frank Chin

@Dan N.

No. They will sue you for damages you caused. If they got incapacitated for life, a judge or jury decides it's $1 million, then the judgement will be $1 million. Has nothing to do with you getting the property for $25K and you stuck it in an LLC.

I discussed the matter of an LLC shielding me from liability with several attorneys. The consensus it doesn't. One attorney says when he sues, it's both the owner and the LLC. I asked "why"? He explained "if you didn't shovel snow, someone falls and gets injured, it's YOU that didn't shovel, not the LLC". The only around it is having a PM take responsibility, have insurance, and he'll be sued.

Having umbrella insurance is good for another reason. I once had two customers in the waiting room chatting. I walked in and they had no idea I was the owner. One told the other how easy it was to stage a trip and fall, sue for $10K, and owners usually settle because it's such a pain. What happened? He staged a slip and fall a few weeks later, got an attorney who got after me. Called my insurance agent who convinced me to file a claim, and the insurance company will act as my attorney. I got back to the attorney, gave him the number for my insurance and they'll handle everything. The claim was for $10K. Nine month later, the customer came in, complained his attorney stopped taking his calls and could I help. I called the insurance company, they looked up their file, advised me the attorney called 3 times and sent 3 demand letters, and usually does no more, as they work on a contingency basis. When my customer got back to me, asked if my original offer to pay for a doctor visit is still good, told him no, because he went to a lawyer. Funny, he still patronizes my business but told him he has to be escorted to the waiting room from now on because he's so clumsy.

I would have to pay an attorney quite a few bucks or pay the scammer a few bucks to go away. The insurance company took care of it for free. 

@Dan N.

Liability coverage has nothing to do with the value of the asset. It has everything to do with what litigants can sue you for. If you owned a property with a broken stairwell where someone trips and falls, got incapacitated for life, why would their damages be restricted to $170K. I bought a business where the prior owner was sued for $3 million causing injuries to some customers. I was familiar with details of the case after I took over the business and his employees who has to take time off from work to attend depositions.

What happed in that lawsuit? The owner had $1 million liability insurance. The litigant attorney only learned the owner moved to Florida after selling the business and bought a home there. Because of the state's homestead laws, they cannot sue and take the million-dollar home. My employee was giggling when they told me the attorney taking testimony from them banged on the table, angry and yelling "we got screwed". They settled for the $1 million.

As to umbrella insurance being not relevant, I spoke to the owner a little later, he also thought the liability insurance was irrelevant little realizing that's what saved his hide. He knew nothing about Florida's homestead laws either as many in New York back then retire to Florida. He got away easy without realizing how lucky he was.

I owned several rentals back then and the business and my insurance agent thought $3 million umbrella coverage overall should be enough. Adding another million or two didn't cost that much back then. The $3 million number had nothing to do with the value of my rentals or business, but how large a lawsuit would be if something happens.

One more thing. Attorneys tell me having the LLC means little as they'll sue the owner personally and the LLC for negligence anyway.

Deleted

 Hi Dave. Haven't seen your posts for a while.

I grew up in a mixed-use property where my dad had his store, and there's a small apartment behind the 2 stores, an 8 room apartment upstairs, plus 4 garages. He bought the place for $25K from a flipper in 1963 and sold for over $1.1 million after he passed. In the later years he moved upstairs into the 8 room apartment and the rent from the stores more than covered his retirement. Because stores rents are so high, he followed my advice to close the business, rent the store out, and live off the rents. My concern was small single person businesses are subject to robberies which occurred frequently in the area in the early 1980's.

The building was built in 1890 and NYC established building codes in the 1920's, and someone owned it all the while passed and my dad offered to purchase it but was beaten to it by a flipper who got it for $23K, and he bought it from the flipper for $25K. Through the years, he did some renovations and contractors checking into it says there's no record on file as to the designation. He was told to leave things alone which is what he did, and not to stir up any problems. The property was finally sold to a developer who built a 3-story structure housing 6 condos that sold for half a million each.

Getting variances is quite time consuming in our area and I attended quite a few community board meetings which one has to attend before going to a zoning board meeting. Some of them are quite contentious. An auto dealer who owns an empty lot across the street from his establishment wanted to get approval for a parking lot to park his cars in the lot rather than on the sidewalks when the city cracked down on it. Empty lot was located across the street on the edge of a residential zone and the lot considered commercial. Took him years to get the approval because of opposition from a neighborhood association that a lot adjacent to a residential area will reduce property values.

As others have mentioned, if it's just a matter of getting loans, I rather shop around for banks that would do it. The politics and zoning issues differ everywhere so issues in my area may differ from the OP's, and your area. Appears the property in question can be used as residential or commercial and there are advantages to such a designation.

@Sachin Amin

You probably have a greater advantage keeping the properties under commercial zoning. I owned multis in residential zones where people have home based businesses, successful, then hired employees. Two things can happen. You'll run into insurance issues for operating a business in a residential zone. I was warned about it when a tenant hires employees, then they go down the block getting snacks, leaving the front entrance doors unlocked. Slips and falls, negligence claims may result. Then you can run across problems with neighbors, and someone can report your tenants running a business in a residential unit. In our area, obtaining zoning is also a big pain requiring zoning board public meetings. I rather keep it simple, go get a commercial mortgage and be done with it.

I owned and managed rentals for 40 years, and for a while operated my own IT business. Small jobs like these are hard to operate and charge a client.

Early on, I had to price contractors and handyman on small jobs, and some years back, the minimum charged is $300, or $150 for a half day job, even if the job last 10 minutes. The best example is tenants who don't know how to change a faucet washer, had few of those, and I had to go over to do it. It's a ten-minute job if you have the tools and parts. I had an IT job that pays well, had no time to run over after work to change a washer, and had my plumber charge me a special rate of $85 to do it on the way to his 1st job of the day. When my wife spoke to her mom about it, her mom having also invested a small sum in the property, and she was extremely upset that we paid such a ridiculous amount for a 10-minute job.

So, when we got the next faucet washer request, my wife thought that she'll try to go over and do it herself. The property was 20 to 30 minutes away. She went there, took the washer out of the faucet, and then had to go to the nearest hardware store to get one. In NYC, these local hardware stores had no parking lots, so it took 20 minutes to find parking, go into the store, another 20 minutes, and got help to get the right washer. Got back to the tenant's apartment and turned out to be the wrong size. By that point, she spent an hour and a half already, so she put the old washer back in, told the tenant to wait another day that we'll have our plumber come and take care of it.

The plumber I had used for many years, and he's done small jobs for me finally did it. My wife decided not to discuss small repairs at rental properties again with my MIL anymore as she's a penny pincher. Appears she got as upset as you. As a matter of fact, I heard two customers having a heated discussion at a local place where I had lunch over small jobs they have contractors do and they were charged a minimum of $150. 

@Shahaf Matityahu

You apparently checked with City Planning which zoning is part of, and they advised you it's for only 2 apartments. Usually, zoning regulations is for a certain area, and exceptions to it are only allowed after a zoning board meeting, and in my area, neighbors within 400 feet are invited. I attended these meetings where exceptions to zoning is requested, not for me, for landlords and developers, and they were all turned down due to stiff opposition from a neighborhood association, whose head whom I met are very stubborn. 

In my area, not only is there zoning regulations, but building regulations where 3 families are built to different building standards, such as cement walls for boiler rooms, sprinklers, fire escapes to name a few. One big issue is fire escapes change the look and feel of the area. I got local expeditors, who are also architects do a walkthrough for $150 some years ago to discuss all the issues. My duplex had an additional unit built in the basement and discovered by city inspectors when a neighboring squabble caused buildings department to check houses on the block and my house had 3 mailboxes out front. I was ordered to remove the unit, which I used as a home office, and the expeditor who handled the project had the order reversed, and the apartment was converted to an office by removing a bathtub, and a stove and refrigerator in the kitchen. The apartment had new plan filed calling it a home office, the living room was called a waiting room, and the kitchen was renamed an entertainment bar. Although I myself had been using it, I can see such a space nowadays used to run a home business or remote work requiring more home work space. A neighbor 2 doors down also cited had added a staircase between his first-floor apartment to the basement apartment legalized and with the crazy rents in the area, collected rents now legally for both. Now he has a 3BR/2ba apartment instead of  one 2BR/1ba apartment and one 1BR/1ba apartment

I had a legal duplex one time with an added converted basement apartment, my 1st floor tenant at one point also wanted and rented my basement apartment when his business expanded. The downside was he later hired employees which caused insurance and other issues running a business from a residential district. 

@Dane Reynolds

I've moved out of my homes more than once, then rented it out, after living in it a number of years, and my CPA's always depreciated it on the basis of the original purchase price.

As far as improvements, I did not do cost segregation, so it was added to the original home price. Things such as hot water tanks, carpets had to be replaced in a few years, so I wound up depreciation some items more than once.

I sold a rental last year for $430K that originally cost me $70K as an investment property. Got it, closed in 1985, sold it in 2023. Mortgage was paid off ten years ago and I cash flowed about $15K annually just the last 10. Placed $300K in two financial accounts, so far, it went up $80K. I did better than collecting rent. I set aside almost $96K in federal and local taxes, and I needed have to do another complete rehab if I kept the property.

My conclusion, at some point, it's worth it to sell. I agree with the others you probably do better holding on to it for a while.

 I had at one time had the tenants billed directly including the water bills. The tenants,3 single girls never bothered to pay the water bills billed to them and moved out. Found out later they didn't pay their electric and phone bills either. Because water was provided by the municipality, the past due water bills were later transferred to my tax bill account with accompanying penalties as I didn't learn about it till months after they moved. I complained but was explained I'm not the "bill to" party, so they don't have to notify me.

Nowadays, everything is online, so all I have to do is log into my account, download the online bills and forward a copy to my tenant via email or by smart phone, all done in a minute. Billing the tenant directly to save yourself some work and trouble in fact creates its own problems with me not knowing what's going on.

@Nathan Sherwood

We have rentals with oil tanks and tenants responsible for payment. We ran into problems with tenants having financial problems and ran out of oil, and the expense of fixing the system as a result. The tank had to be inspected and cleaned as oil dries in an empty tank and clog the pipes and furnace.

We had the tank auto refilled, the oil company sends me the bill, and I in turn bill the tenant. A little more work, doable, and safer in the long run. The tenant agrees to it and it's written into the lease.