All Forum Posts by: James Mc Ree

Look at it from the other perspective: Seller did not market the property with a new roof and new boiler. I don't think it is reasonable to expect Seller to substantially up the offer without compensation. Instead, you might consider splitting the cost. You might be able to justify that as you assumed the roof and boiler were "middle age, average, etc", but they aren't, so Seller, how about we do 50/50 on this? As mentioned above, it will be a negotiation and that negotiation will be influenced by the interest Seller thinks there is in the property besides you.

Are there water or foundational issues in the building? If not, I wouldn't pay for re-grading if I were Seller either. I'd say the building has been there since 19xx and has never had water problems, so there is no problem. This would be separating "perfect" from reality in which no property is perfect. It is a different story if the property has leaks or foundation issues.

In the end, as mentioned above, the deal works for you or it doesn't. It's just a numbers game for both you and Seller. You gamble the building will be OK with whatever you agree to and Seller gambles your deal is better than what else could be had, or not. Don't let emotions enter into the negotiation to drag you in where your numbers tell you not to go.

The PM company may be your main problem. Check to see if they recruited the tenants and how they were onboarded. The tenants may predate the PM company, so it isn't necessarily their fault; however, a competent PM company should never allow this to happen with new tenants. The existing company may have done all they can short of eviction, so they may have been as stuck as you are, but check to be sure they aren't the ones who created the problem.

I recently read an article that payments made by Zelle, Cash App, Paypal, etc in excess of $600 or $6000/yr will be reported to the IRS and a 1099 issued from the paying firm to the recipient. This is apparently a new rule taking effect Jan 1. Does this include rent payments? I don't know how these firms could identify a rent payment versus any other payment.

Is there any information available on how that will be represented on a tax return? I get a 1099 for Section 8 payments, but the 1099 says it is for a certain property. A 1099 from Zelle, Cash App, etc wouldn't have a property referenced since the firm wouldn't know it was even a rent payment. It would be nice to know more about this now so I can tag payments as they come in versus backtracking next year.

Price it yourself with your offer.

I have a separate account for each tenant's security deposit. It is a best practice to segregate that money away from yours as it is your tenant's money, not yours.

All of my real estate operations which would include what I think you are describing as cash flow and maintenance are in one account. I have a separate reserve account for large maintenance items or cash squeezes, such as if several properties stop paying around the same time.

There is a difference between a tenant "accepted into Section 8" and one having a voucher. Think of being accepted as having received a welcome kit. The voucher is what pays the rent. In my area, last I heard there was a 7 year wait from "accepted" to "voucher". Ask you tenant if they have a voucher.

Next, if they have a voucher, ask how many bedrooms the voucher covers. You might have a 3 BR home and a tenant who only qualifies for a 2 BR voucher. That will still work, but you will probably find yourself constrained on rents because Section 8 will evaluate your 3 BR property as a 2 BR property which limits your income. Your tenant's needs should be matched to the property.

Once you have a tenant with a voucher, you can choose to accept it and get your property inspected. Inspection is not a big deal as you may already have a municipal inspection that covers most, if not all, of the items. The downside of the annual inspection is it is one more thing to do and a fail can lead to no Section 8 payment until you pass. It's just a delayed payment, but a hassle nonetheless. You get some time to correct the defect, but some of the defects you need to quickly correct are not urgent defects.

I have 2 Section 8 tenants and they are fine. I made the mistake with both of accepting a 2 BR voucher for a 3 BR house, which is how I know all about it.

The HOA will provide services for those fees that you need to consider. For example, suppose the HOA provides trash service. A property without an HOA won't have the HOA fee, but will have a separate trash expense. It might be baked into your municipal taxes. That fee might be a wash. Likewise, there may be recreation club, pool, tennis court, etc benefits that may support a higher rent. The HOA may include snow shoveling, but you would require your tenant to do that at another property, so that's a loss for you. You need to consider the whole package.

Personally, I avoid properties with HOA fees to minimize my expenses.

Of course, it is your choice, but that seems excessive. I wouldn't do that.

You incur liability with employees beyond what you get with contractors. For example, you need to insure your employees, which you mentioned. That is additional cost for you. Likewise, you will have employer employment taxes to pay, tax withholding for federal, state and local if it applies and the related remittance. You will need to send him a tax form at the end of the year showing what you paid him, taxes paid, etc. That seems to be a lot of work for someone who isn't going to be doing a lot.

Workman's comp insurance protects the employer for a worker's injury. It doesn't protect you, for example, if he burns your house down and kills all your tenants. Instead, since he is your employee, you bear total responsibility for all of that. In contrast, a contractor with proper liability insurance bears that burden and you are potentially responsible beyond the contractor's insurance. (In reality you both will be sued, but your contractor's insurance should bear the bulk of the burden if the root cause was all your contractor's fault. I'm not a lawyer though - so seek professional legal advice if needed.)

There are 3 answers to this question:

1. Literally none, as anyone can do work on your property if you allow it. This means you assume all of the risk.

2. Your municipality may require contractors working within it to be licensed by the municipality which itself has requirements. Make sure your contractor is registered/licensed with the municipality if they do that.

3. The contractor must have the appropriate certifications, experience, references, best value, etc and be insured.

#1 Is the "I am going to stick my head in the sand and play the victim role if something goes wrong." plan. #2 Is somewhat better if your municipality registers contractors, but it is outsourcing the due diligence you should be doing. #3 Is actually doing your homework to ensure your contractor is properly skilled, certified, etc; you are protected by a bond or insurance and you have checked the contractor's references to know he/she is a 4+ star contractor.

Only you can decide how much risk you are willing to take to get what might be a below market rate. Ask yourself if the deal you are getting is worth taking the risk. A regular handyman has insurance, references, etc. One who doesn't might not be a "regular", nor handy, but otherwise a really nice person.

I am probably being totally and irrationally harsh on your handyman, but only to make a point - protect yourself. Know your contractor and pick the best deal for your business, keeping in mind that an accidental fall or fire could totally wipe you out if you didn't do your homework. I recently read of a landlord's tenant handyman-type person falling off the roof, is in a coma and the landlord hadn't done his homework. He was panicking.

My landlord insurance covers $1M per incident with a $2M/yr maximum. You could start there for a handyman if you are wondering how much insurance a contractor should have. It depends on what kind of work is being done and how much of it.

@Brian G. Yes, but you ask a nuance to the question that I do not know about: "your business." Here is an explanation of the tax deductibility of HELOC interest. This change came into effect in 2017.

I do not know the rules of a refinance within an LLC as all of my properties are personally owned. You may be able to take the funds out of one property and invest them into another all within the LLC, but will need to research that.