All Forum Posts by: Joe Splitrock

Originally posted by @Account Closed:

Originally posted by @Joe Splitrock:

It's funny how people can be so sure without actually knowing the law. You are totally incorrect. It is very normal for landlords to separately bill for power in the exact amount that was billed to them. This is specifically NOT illegal in probably every state. Residential units go by state by state laws, there are no federal laws regarding this. Industrial units, like the ones I already have, are not regulated by these laws - there are no landlord/tenant laws regarding commercial units in my state. It is governed by contract law. (as I said, I consulted with the local power company before doing this)

I am not yet an expert on the laws of North Carolina, but it does appear that the specific law there is written to exclude properties built before 1977, which is what I am looking at. You are NOT a utility if you are selling power on property which you exclusively own.

I was incorrect to say it is illegal to rebill power in all cases. What I was trying to say is that you become a utility provider and have to follow strict regulations that most landlords would not want to deal with. I suspect most landlords billing power don't comply with the rules due to lack of understanding. That is kind of surprising because the information is readily available with simple searching on the internet.  

I attached a link talking about common myths landlords in NC have, specifically talking about misconceptions around the statute you referenced. Read the whole article, but one point it makes on the top of the second page is that a landlord charging for electric or gas meets the requirements of being a utility. The source of that article is law firm in North Carolina. 

I see a specific concern if you have a master meter and you are splitting it between residential tenants without sub-metering.  For example lets say you own a duplex. You get a gas bill in March of $186.24 and you then bill each tenant $93.12. You basically have determined without metering that each tenant used half the gas. This removes incentives for either tenant to reduce usage and ultimately you over-billed one of the tenants. Either tenant could argue they didn't use that much gas. 

Here is a direct quote from one of the links which is an open letter to apartment owners from the North Carolina Public Utilities Commission:

"The purpose of this advice is simply to provide guidance for residential apartment owners on how to avoid violation of utility law in North Carolina. Utility regulation may allow master metering or resale of utility service to tenants in other states. However, in North Carolina residential apartment landlords are prohibited from using master meters or reselling utility service based on tenant usage, with limited exceptions."

Here is another direct quote from a linked document from NCUC which states the landlord is a provider and it goes on to say they are a public utility:

"Every provider is a public utility as defined by G.S. 62-3(23)a.1. and shall comply with, and shall be subject to all applicable provisions of the Public Utilities Act and all applicable rules and regulations of the Commission, except as hereinafter provided.detailing provider billing requirements of a landlord. "

It would be easy to take one of my comments out of context and state that I am wrong. Ultimately utility billing is highly regulated and can be illegal in certain cases, even in NC. I encourage everyone to do your own research on any topic found on BiggerPockets. You will find even within the law there are different interpretations. I would avoid the assumption that because someone has been doing something for years that it is legal. People do illegal things all the time and never get caught. 

I would highly recommend separate meters in most cases and let the tenants connect directly to the utility. Exceptions may be gas for a central boiler or water bills. In those cases you should include the service in the rent as fixed and not bill separately.

Here are the links. The first is from the NC PUC, second is law firm and third is from NCUC:

http://www.aanconline.org/pdf/landlords%20and%20ut...

http://c.ymcdn.com/sites/www.triangleaptassn.org/r...

http://www.ncuc.commerce.state.nc.us/ncrules/Chapt...

I think some posters are confusing the fact that properties over 4 units get commercial loans with this being commercial for tax purposes. Just read the definition on the IRS web page. Residential is the classification regardless the number of units...

You probably want to file this on your taxes. Most likely some closing costs are deductible. Depreciation begins when it is put into service as a rental. That just means it is rent ready, not that it is rented. Claiming depreciation is a tax advantage so it is in your best interest to do so. Since it is residential the time period is 27.5 years. You should get an accountant.

It is illegal to to rebill power unless you are a utility and no landlord would want to enter that business. There are strict federal and state laws on this. It doesn't matter if you are billing at cost. You can increase rent at a fixed rate per month and say electric is paid by landlord. The danger is once you itemize and bill electric separate, you become a utility provider. Without separate meters there is no way to accurately bill and the utility space is heavily regulated.

Originally posted by @Justin Fox:

Yeah you just have to be upfront with people in a non-combative way.   This Kirby Vacuum guy came to my house once and asked to let his two workers demo the machine to me.  I told him I have tile everywhere in my house with only a 8x10 rug in the living room and had no need for a 3000 dollar vacuum.  He proceeded to tell me that these kids are in college and get paid per demo (not the sale), so I said fine, I'll let them clean my rug for free.

Well, when time to wrap up the demo they started asking about financing and ability to pay and were shocked to know that I had no intention to buy.  I told them to have a chat with their boss man that said I could get my rug cleaned for free.  They weren't happy, but I was!

This is a good example of when to say no. I tell sales guys, I am not interested. I tell them they are wasting their time. Still they don't listen. I don't have any sympathy for pushy sales people like this. Kirby is the worst and they prey on people who feel obligated after they spent their time cleaning your rug. That is how my mother in law got a vacuum that was too heavy for her to even use. Not to mention suckering old people is morally wrong. I hate those scum bags. 

Originally posted by @Alexander Ball:

Hi BP members,

I am in the process of selling my house.  Just yesterday I had a sale guy come out to give me an estimate on some work.  I found the gentleman quite offensive (racist, sexist, homophobic) and the product was far outside of my budget.

Even still, I had such a strong compulsion to pay more, to help this guy out.  He drove out to my place, he's trying to make a sale, and maybe I should just sign the contract for the estimate he gave.  Even for someone who I had a strong personal distaste for, I often find myself just trying to make everyone happy.

I am not afraid of conflict, I used to compete in martial arts, I debate, I say my piece, I stand up for myself at work -- however I just want people to be happy.

How do you get better at telling people no?  Is it a learned skill like anything else, or is there a particular mindset you get yourself into when you need to disappoint someone?

 Learning to say no is like strength training at the gym. At first your no muscle is week and only through training does it get stronger. The more you say not the better you get at it.

After sleeping on this, I change my opinion to agree with @Joe Bertolinoand basically tell the guy you are only closing if he transfers the full deposits. That is either a credit at closing of the amount or a selling price reduction. The last thing he wants is you knocking on the tenants doors and telling them their deposit is gone. Worst case for the seller, the deal falls through and the tenants are all angry at him for stealing their deposit. Spell it out for the agent so they understand there is a legal problem here and the guy needs to work with you or the deal will fall through.

The buyer has all the power in a transaction. You need to convince your agent you are ready to walk in order for your agent to convince the seller. 

@Account ClosedI have a CPA, but I also walk through my own taxes step by step. I do this for two reasons, first to check his work and second to learn the process. If you have interest in doing taxes in the future yourself, you can learn from what your accountant does. 

In your case since you are questioning your own ability to file your taxes, than the answer surely is yes you need a CPA. It is like your friend telling you they got arrested and asking if they need a lawyer...

@Amy Martinyou cannot deny someone for being unmarried. I am also not sure that denying someone because they are in the restaurant industry or because someone moves once a year is really acceptable either.  Your best plan is to establish criteria such as:

1. Income 3X monthly rent

2. Two rental references showing demonstrated ability to pay on time, leave property in good condition

3. Credit score of 600+

I am not saying this is your criteria, but find something similar that works for you. Stay away from using job type, marital status or perceived long term stability as your criteria. Just because she moved every year doesn't mean she will move this year. She is getting married and starting a new life. I used to worry about things like that, but I have learned it is hard to predict how long someone will stay.

End of the month is the best time to rent, because they need to give notice at their current place. If you pass on them, your place may sit vacant another month. I do take into consideration time of year and how early someone can move in. 

I am not telling you what to do, but you do need a legitimate reason for denying them. Then keep in mind every applicant needs to follow that criteria. In other words you cannot require 4X rent for the unmarried couple and only 3X rent for the married couple.

I would recommend reading up on fair rent practices just to protect yourself.

Originally posted by @Matt Galbraith:

Originally posted by @Joe Splitrock:

The IRS defines this based on when the house was placed in service as a rental. That is not the day you buy a new primary residence. It is the day your old property is ready to rent and being advertised as a rental. My interpretation from reading IRS documents on this is that you can only start depreciating the home and declaring expenses when the house is rent ready. That would generally mean after updates are completed and you place the property for rent. Here is a specific example the IRS gives that I copied and pasted from an IRS website publication: 

"On April 6, you purchased a house to use as residential rental property. You made extensive repairs to the house and had it ready for rent on July 5. You began to advertise the house for rent in July and actually rented it beginning September 1. The house is considered placed in service in July when it was ready and available for rent. You can begin to depreciate the house in July."

What you will need to do is talk to an accountant. Depreciation and capturing expenses will begin on the day the house is ready to rent. They will work with you to establish a depreciation value. The depreciation value is not what you paid for the house. There are a couple methods to establish current depreciation value and let your accountant decide what is best. 

I am not sure I would worry about claiming the improvement expenses. Any major improvement expense would be depreciated. Since you are establishing your depreciation value after improvements, your improvements will increase value and therefore increase the amount you can depreciate. I guess the point is you cannot double dip. For example if you put the house in service as a rental March 1, then spend $10,000 replacing flooring in April, you would depreciate the flooring expense. If you spend $10,000 on flooring in March and then put the property in service as a rental in April, your depreciation value will most likely be $10,000 higher to account for the improvements. In either example you get benefit from the improvements. Technically you are not supposed to put the property in service until the updates are ready. Basically this means the day you start advertising it for rent is the day it is put in service. 

Some accountants may claim your property went in service before the updates, but I would be careful because the IRS is pretty specific on this. Would you get audited and caught, probably not.

https://www.irs.gov/publications/p527/ch02.html#en...

Please talk to an accountant. I am not one, so my input here is just based on my lay understanding.

 Ok thanks for this thought as well Joe. I will be sure to have everything documented very well. The management company said they would start advertising it and we would have a specific move in ready date so if it was being advertised by the management company maybe that would satisfy the IRS obligation. As mentioned, I'm ok doing it either way so I will keep everything very detailed for when I meet with the accountant to keep from getting into any trouble. In the end if I can't deduct those then it won't affect me but your post is very appreciated so that I'm aware of what I need to be checking with an accountant. Thanks!

The point is that if you increase value with the improvements, it will increase your basis value for depreciation. Depreciation is a tax deduction the same and capital improvements. You will not lost out either way. It comes down to the right way to claim it. Talk to your accountant right away so they can tell you what types of things you should track and deduct.