All Forum Posts by: George Skidis

Starting in 1993, every one of my properties has been a gut rehab before the first tenant moved in. The first 27 were built between 1955 and 1963. They are a type of prefab ranch style 3/1 home on a concrete slab. These were sold by "National Home" and that may have been located in Tennessee.

We always ripped out the 60 amp fuse box / electrical service and upgraded to a 40 space 200 Amp circuit breaker system. Yes that was a little bit of overkill when I did it. However, municipalities change their electrical codes on a regular basis. So yes a 100 Amp 20 space box would have worked from 1993 to 1997. But in 1998 Cahokia required a 30 space electrical service. Landlords who told me I was being excessive got to replace their electrical service more than once.

When the kitchen wall way open we would replace all the old lead and cast iron drain lines with PVC. We left the copper alone. However some faucet bibs were galvanized and that we always replaced.

All the floor coverings were removed down to the slab and new "COMMERCIAL" grade floor tile was installed.

If the roof was in good shape we left it alone.

We also replaced the asbestos shingle siding and windows. We did the siding before it was illegal to remove it. The windows were either wood or aluminum triple track and we went with vinyl.

So yes my upfront cost before refi was high. My annual maintenance costs were almost nothing for the first ten years.

That was my "Template" for the first decade. Now I prefer mobile homes since the annual taxes are so much less. A 3/1 on a slab is now over $2,000 a year in Real Estate Taxes. A mobile home is not subject to real estate tax but instead has a "Personal Property"  tax. Of the homes we own that tax ranges from $47.00 to $89.00 a year. Plus the land tax which is considered unimproved. For mobile homes we look for units built AFTER 1980. Then we gut them as well. So we will never get appreciation but saving $2,000 a year is not a bad trade off for a long term landlord. We gut them as well. If they are on their own lot we sell them owner finance using the Deal  on Wheels strategy of the late great Lonnie Scruggs.

Now I told you all of that to tell you this. You make your money when you BUY the property. Flips are fine but long term wealth comes from OWNERSHIP. Build a team of experts that can help you evaluate every deal. My original mentors have all passed on but there are always new teachers out there. I now teach others at my REIA. So go join your local REIA. Try an find one that is a member of National REIA. The membership is usually under $200 a year but there are exceptions. Don't spend all your capital or go in debt at some get rich quick seminar. Learn everything you can in 6 months and then start making offers. Don't be afraid to offend the seller. There will always be another deal around the corner.

Good luck and Good Investing.

How to title the house is a legal question best discussed with your an attorney. Don't have an attorney PM me for a recommendation. 

That being said we prefer using an "Illinois Land Trust" to hold title to real estate. Especially the house we live in.  "IF" you place your personal residence in a Land Trust for "Estate Planning Purposes"(worded exactly like that) your bank should work with you on accomplishing the task. 

Putting it in an LLC could result in some loan issues.

My personal preference is a management company that owns nothing but a check book. The management company rents the property or properties from the Land Trust. The lease gives your management company a right to sublet the trust owned property. Make sure the rent payment from the management company is paid regularly and is sufficient to cover both taxes, insurance and maintenance. 

Feel free to call me at the number below.

Check out the Chicago Creative Investors Association run by Jane Garvey. They meet on the third Sunday of the month.

Income is income. Cash, Check, Paypal, Bitcoin it doesn't matter for tax purposes. We use a simple numbered receipt book to accept rent in cash.

BUSINESS ENTITY: You can also create a small business DBA (sole proprietorship) and then open a separate checking account to deposit the rent into. It is never too early to consider opening a properly documented LLC. Lee Phillips, Mark J. Kohler and Bill Noll are all Attorneys and national speakers. Each of them have great programs on setting up an LLC for under $1,500.00 when purchased through your local REIA.

CAUTION: Once you open a business NEVER comingle rents with personal funds. Never pay personal expenses out of your business account. Write a check from the business to yourself if you need the money.

DEDUCTIONS: Determine the total square footage of the property. Then the square footage of your unit and that of his unit. His area is depreciable, but only of you are following the law and reporting the income.

REPAIRS: Separate the repairs between yours, mine and ours. Repairs to his unit, repairs to your unit and repairs which serve BOTH units. Faucet on his side depreciable. Same faucet on your side is not depreciable. A new roof covering both sides partly depreciable based upon occupancy percentages.

DISCLAIMER: I am not an attorney nor do I play one on television. Comments above are my opinion. This year I will prepare over 125 individual and business tax returns.

Good Luck and Good Investing!

TAX CONSIDERATION: You have owned the property for more than 365 days. What that means is, "IF" you sell, the profit is subject to long term capital gains. Long Term is better for you tax wise than short term capital gains.

YOUR ATTITUDE: If you sell are you going to invest in something else (with a positive attitude), or go crawl in a hole and feel sorry for yourself. Your attitude is the best gauge of what you should do in this instance.

MORTGAGE: When you say mortgage expense, limit it to interest expense.

Example a $250,000 mortgage with an interest rate of 4.5%  The monthly payment would be $1,266.71 per month.  In the very first month of the loan, the interest would be a whopping $937.50 with $329.21 being added to YOUR PRINCIPLE interest in the property. That ratio is not static it changes every month for the length of the loan.

In the 25th month of the loan (about where you are) the Interest is $921.08 and principle is up to a measly $345.63. Not accounting for depreciation your equity in the property has gone up over $8,000.00! Just by paying down the mortgage. To me this is POSITIVE. 

YOUR QUESTION:  Are you really losing $50.00 a month? Could it be you appreciating almost $300 a month. If you actively manage the property and meet the IRS guidelines what about using the loss on the property to offset income from other employment?

Remember to remove accumulated depreciation from your "personal" calculations when deciding if the property is profitable. Keep it there for tax purposes, but remember that depreciation is NOT a true cash out of pocket expense. it is only a bookkeeping entry to keep the IRS at bay.

My Opinion: If it was me I would spend $50.00 a month to make $300.00 a month as long as I could afford it. So if things are tight don't eat out once a month. Not that you can during Covid but it is a valid comparison of economy.

ACTION: Sell it or not, you need to learn how to protest the Real Estate Taxes on all of your real estate here in Illinois. Even your personal residence. PROTEST EVERY YEAR

I am not an attorney and do not play one on television. The above observations are my opinion only.

Good Luck and Good Investing

What happens if they move into a hotel for two days and rebook? Are they still a short term resident? Have you done a credit check or anything else a long term landlord would do?

It is very easy to overbuild for the neighborhood. Most investors and many renovators cannot add a bedroom in a cost effective manner, nor can you recover the proposed profit on a flip. 

My only exception to this rule is converting an attached garage into one or two bedrooms. We have done this several times and increased our rent accordingly. The problem with a garage in low income rental units is all the accumulated trash you need to wade through after a hoarder moves out. We would rather eliminate the garage storage issue, turn it into two bedrooms and increase the rent accordingly. There is still trash to throw out, but depending on your location you made another $200 a month or so for your troubles.

Other than the exception you would probably be better off selling the smaller home and renovating a larger one.

CALIFORNIA as well as New York require tax preparers to be licensed by the state. Just remember that if you formed a business entity or bought property in another state CALIFORNIA STILL wants their cut.

Check with the Los Angeles Real Estate Investors Association, (LAREIA) run by Bill Tan and see who their members use. Or go to the National REIA website, check on find an association near me and find a group closer to you.

We recommend Marc Ressler, CPI with Trident Inspections. PM for details 

We started out renting low income and Section 8. Our residents have called to report an assortment of issue One late 20s tenant called reporting a gas leak, After contacting the power company I drove down and discovered the street department was oiling and chatting the road. Another time a 35 year old tenant thought there was an electrical problem when all that happened is she saw the light bulb flare when it burned out. Another complained about the furnace not working when the gas had been turned off for non payment.

We NEVER put smart thermostats in rental units. all we install are the old "White Rodgers" thermostats with the sliding temperature lever for that very reason. Most of our tenants are reasonably smart and responsible, however, we always dumb things down to the lowest common denominator. Saves on phone calls. 

We have also installed exterior steel doors on interior bedrooms to save on wear and tear.

The company motto is "Make it simple and bullet proof".