All Forum Posts by: Oren K.

Gentlemen,

Don't get bent out of shape just yet. Just because your valuation went up a scary amount does not mean that your taxes go up proportionally.

Firstly, if this is happening county wide, the mill rate will go down. To use a simplified example; if county wide, property values go up 100% (forget about multiple 100%), county residents will not tolerate the budgets of the county / city / school doubling. Rather the mill rate adjusts so the county / city / school receive the funds they need for the work they do.

Secondly, read up on bill 920 which smooths out dramatic increase (and yes decreases!) in valuation.

Thirdly, if for the past few years the property has been under taxed and you were the beneficiary, great but you should have been planning for this eventuality.

Finally, keep in mind that there are any number of legal firms that specialize in appealing tax increases. They work on a contingency basis (usually ~ 30% of first year savings) so there are no $ out of your pocket. Also because of the contingency fee, they are very honest regarding the likelihood and degree of success you can expect. If you need a referral, PM me.

Oren

I understand the' tying up the property' approach but it can be difficult to walk the price backwards once accepted. You may need to do it as it is better to walk away from a deal if it does not fit your criteria. People are funny that way ;). 

As well, in most markets, there are only so many agents that get the bulk of the listings (80 / 20 rule) and you don't want to get the 'reputation' of not being a closer.

Ronda,

There are a couple of web sites that are like BP but focused on the laundromat business;

www.coinlaundry.org

www.thelaundryforum.com

You can check on there regarding discussion regarding quality / value / etc. and also look up distributors of the various brands. Even if it is not for a retail laundromat but for a multifamily building, the information is the same but operated on a smaller scale (e.g. 2 or 3  vs 20 washer / dryer sets).

One of the things you will find is that virtually all laundromats / building operators either have or are moving away from coin to some kind of card (e.g. Credit Card or Value Add card). Both approaches have their pros and cons; CC needs communications and you give up a percentage, Value Add requires a 'reverse ATM' on site which also needs to be serviced periodically.

Also, many building owners (not idea what percentage) prefer leasing the machines. There are different arrangements in terms of income split or just leasing a fee but generally speaking the leasing company takes care of all maintenance and repairs (this is what I do). The owners view (and mine) is that this is a building amenity and are happy to 'break even' on the costs while leaving the headaches to someone else.

The big player is Coin-matic but they don't have the best reputation. There are other more regional / local players that should also be considered. I use a local company out of the Bedford Heights area for the past 2 years and have been happy with their service. If you want an introduction to them, PM me. The also sell new / used equipment.

Oren

Justin,

Firstly, get familiar with the Fair Housing Act which basically prohibits discrimination.

With that in mind, set your selection criteria and formalize it (e.g. an email to yourself will do). Also decide on a pet / smoking / guest policy. Next, get a draft lease that conforms with Ohio law which you can customize.

You will need a service to check credit scores / any criminal history but you can be very hands-on in checking prior landlords and social media sites which I would recommend. There is nothing like learning by doing.

Many / most landlords exclude anyone with any criminal history or evictions and are looking for credit scores above some threshold and current income at least some multiple of rent (e.g. 3x). Depending on the area and your targets, you can be more or less strict. For example, if you rent to a student, they probably don't have any income or credit score so you would need a co-signer. Similarly, someone that did something stupid in collage may be a very responsible person 15 years later and an excellent tenant.

Oren

HST is charged on new construction of a home / condo. Any resale going forward is HST exempt. Unfortunately, the rehab costs are not HST exempt and at the end of the day, it is just the cost of doing business in Canada / Ontario. 

It is up to you to roll this cost up to your selling price to meet the profit targets you are looking for.

This is one of the reasons when I looked at Michigan I did not invest; 12% (1 months rent) and 10% of the remaining rent. To make the math easy, on a $1,000 rental the PM gets $2,100 out of a total of $12,000 in the first year. That's 17.5% of the income before anything else. Many also charge the same fee even on a renewal. If not a full months rent then 1/2 a month on a renewal is also common. This means that when you run your numbers, you need to use 17.5% for PM in the first year and at least 14.2% ongoing.

I was also told that another thing to look at is if the PM that signs a tenant claims a 'right' to their 10% (or whatever) of the lease income even if you part ways with them. The nightmare scenario is you could  technically end up with 2 PM's at the same property, each 'managing' a subset of the units. Could you imagine how bad this could get if you go through a few PM's in a 'short' period of time.

When I heard this, that the PM would continue to get paid for each tenant they signed even if they were not managing the entire property, it did not make sense to me. Hopefully I was miss-informed but better to ask.

Oren

April,

Firstly - Unless you know her situation don't feel 'bad' yet. For all you know, she has other income / assets and just wants to stay where she is comfortable. 

I also, have a couple of tenants (one is over 90) whose units are rented below market. As I do know their situation, I do not have the heart to price them out of their unit but as this is a medium sized MF property I am willing to live with it.

On as smaller property like this and as an investor I don't think you can afford to be very lenient (if at all).

Oren

Donna,

My understanding is that 'accelerated depreciation' requires segregated capital accounting. Also, investment may be to broad a term; various items, if accounted for separately, can be depreciated at different rates (e.g. Carpeting, Appliances). Sometimes it is in recognition that the item simply wares out more quickly and sometimes it is just the government trying to encourage spending.

If everything is just thrown into the capital expense account, the depreciation is going to be based on the longest period. If things are segregated, each category has it's own depreciation period / schedule. So unless the bookkeeper / accountant does the segregation, you are stuck with the longest period.

Also, as an investor in a group, you do not get to claim depreciation directly / separately. The entity the holds the investment, claims the depreciation on its tax return.

This really should be a discussion with your accountant but I hope this helps.

Oren

Don't know the local standards in your area but do not see utilities on the list. Unless everything is separately (sub)-metered or RUBS implemented these are your costs. Also, regardless of occupancy, you have to heat the place over winter so may have eat some of that cost.

Agree that vacancy is also low; $2,400 a year is less then one month gross of the two other units. You better be very very confident that you can find qualified tenants who are going to to be long term very quickly.

Greg,

Assuming it is papered correctly, what you describe is a master lease arrangement and not property management. 

Property management is when the manager is acting as an agent for the owner, has a fiduciary duty (i.e. has to act in their best interest) to the owner and takes on none (or very little) of the legal liabilities associated with ownership.

As a tenant (master lease holder) the property owner is still your landlord  and all that means.

Good luck,

Oren