All Forum Posts by: Joe Hines

@Ramases Gousheh

I'm with @Tara Wright on the traffic and the cremations.  That could be bothersome to a lot of potential renters.  Another interesting proxy that might help you gauge the rental market for it:  How long has it been on the  market?  Is it priced lower than other nearby properties?  If people are slow to buy it, others may be slow to rent it.  

Thinking beyond the short-term cash flow from rent demand of the property, with a business next door, it might be that you can later get it rezoned to light commercial or office.  That could help appreciation.  

@Anthony Wick

That's a great, grounding reminder about real estate investing. I've read countless posts in this forum where new investors view REI as a high interest savings account that is going to yield a fat check every month. This is a business. You have to think in terms of strategy. You have to consider a lot of variables (like rental markets, capital reinvestment, tax advantages, etc) to keep your bottom line returns up. You have to view your RE investments as your side job, even if you have a PM. It isn't for everybody and like everything in life, you just have to find what makes you happy and focus on that.

Sometimes, saying 'no' is as important as saying 'yes'.  

Thanks on behalf of all of the people who read this post and really think deeply about RE investing before they jump in and cause a lot of suffering for themselves and others.  :-)

Joe

@Riley Zane Crebs

Overall, it looks like you've account for the right variables, with the potential omission of lawn maintenance. I also include 3% of the purchase price as part of my initial costs to fund a CapEx account. Even though you've just set the money aside and it isn't really a 'cost', it will drive the initial ROI lower since investment increased.

If the market is at $1000 per month and your property is comparable with houses commanding that rent, then you should raise rent immediately.  

Was your question based on having an existing tenant?  Otherwise, raising rents on a listing would be simple.  If the property is coming with a tenant, you'll have to honor their existing lease.  I'd give them a heads-up that you'll be raising rent when the lease expires, however.  

@Ben Payano I'm glad it was useful to you!  Good luck with your overseas work!

Generally speaking, I don't think it is a good idea to include use-based utilities in the rent (like water or electricity).  The key economic point is that the tenant will use as much as they can afford to pay.  If it is free (you are paying), then there is no incentive to keep usage under control.  

If you're concerned about the lawn, just offer a clear rent reduction in exchange for the water.  That makes them whole, gives them a good lawn and keeps them accountable for their water and other utility usage.  

@Ben Payano

I'd say it depends on your view of it as an investment.  If you want to move back to SD and make that your primary home and you can take the monthly hit, I'd hang onto it.  I'm in a similar situation in a house in Ft Lauderdale.  It's a great place and renting until I get ready to retire and move there means somebody else is paying my equity.  I'm also an active investor in several areas of Florida, so I can deduct the travel expenses.  It still costs me about $500 a month, though.  

If you have no intention of moving back into the unit and you see it as an investment only, I think it's time to bail out.  I'm sure you would never keep an investment in stocks or other instruments if the broker or advisor sent you a monthly bill of $800.  

Looks like a beautiful place!

@Michinori Kaneko 

Yes, that's what I'd do.  

@Michinori Kaneko 

Having separate accounts is sufficient.  Transferring money from account to the other doesn't not breach that separation.  It is the same as having a W2 job and your employer directly depositing your paycheck.  That transfer does not constitute co-mingling.  

By "getting creative in paying yourself" I simply meant you could choose to make this transfer monthly when you get your rent, quarterly as you see what your expenses are going to be or even annually after you close out your financials for the year and assess your taxes.  You could even choose not to pay yourself at all and re-invest all proceeds back into your business.  It's up to you.  You are the boss of your small business.    

Absolutely.  

You are now running a small business.  Looking at it from that perspective, you should never co-mingle funds with your business funds.  You can be creative about how you 'pay yourself' and transfer money from your business account to your personal accounts, but make sure there is a clean separation between the two.  

While you are at the bank opening that account, I'd recommend opening a CapEx Savings account. Depending on the age of the home and the condition, I usually set aside 3% of the purchase price of every new property into this CapEx Savings account. In addition, I put 10% of rent each month into this account. This will give you a nice cushion to pay for a new roof, refrigerator, etc when the time comes (and it will come). If you do a great job in managing your capital costs, then you want to reward your star employee (you) with a bonus from your capital expense account!

If you intend to grow your rental business, also consider accounting software.  Just be sure to get advice from your accountant as you'll need their help to set up your chart of accounts and advise on how to implement properties in whatever system you choose.  

Hi Eric,

I think you're on the right track.  

I do include an additional 3% management fees on top of my 10% (for a total of 13%).  I don't have a lot of turn over in my units, so the 13% came in about right.  Just to help verify this amount, I set up a separate account in my bookkeeping system to hold the additional charges.  In essence, I keep "Property Management" and "Property Management additional fees" as separate accounts.  That lets me keep precise accounting of them and understand how that plays out for each property.  Over the course of a few years, you have great baselines built up and can then more effectively negotiate with your property manager to reduce these fees, especially if you have a substantial number of units.  

Along those lines, I did take the time to negotiate some of these fees up front with my PM.  So, for example, worked with them to drop the lease renewal fees when I reached 5 units.  

Keeping good track of these fees helps in accounting and understanding property expenses!