Tenant Proposes Improvements
Interesting situation was presented to me by my property manager (PM) in Florida. The tenant started work at a local design firm well known in the area. The firm offers discounts to its employees for material and labor. The tenant proposes to install new laminated linoleum that looks like hardwood flooring in the kitchen, dining room, living room, hall and hall bath, and something similar in the master bathroom. The tenant also proposes to install crown molding in the dining room, living room, and maybe the kitchen. She also intends (note not propose) to install carpeting in the 3 bedrooms, which I know is old and very dirty. I haven’t replaced it in over 5 years. She proposes to pay for all the cost for the work.
In return, she asked for locking in a 3 year lease just to ensure she gets to enjoy her improvements, and to adopt 2 cats that belong to her decease mom. There is no mention as to who will be doing the work and the type of materials. I can only imagine that she will not be doing the work. According to the e-mail between the tenant and PM, the designer indicated to her the work will improve the value of the property.
Is this recommended? I read in past how tenants promised to do work to the property only to do a worst job or left the work in mid-stream. Is there a risk to me? The tenant has been living in my house for about 3 years, and has for most part always paid her rent on time. I only recall a few late payments early into the lease, but not for awhile. She also replaced at her cost for a new range and dishwasher, which I had no indication she broke it or it was in need of replacing. The prior dishwasher was less than 4 years old. I thank you in advance for your comments and suggestions.
Wow! I would be very temped to give her the go ahead.
Yes, I would make the new, written, lease conditional on completion of repairs.
I have given (once) reduced rent in exchange for promised work. Very little of the promised work was completed, although the quality of the work that was actually done was good.
Chris
[ Edited by ypochris on Date 05/01/2008 ]
Thank you all for your valuable input.
Geez, those kind of tenants are like gold. Renters with owners pride improve property rather than destroy it. If you think you know her pretty well by her word and her tastes, I would allow her some leeway.
Naturally we are all eager to hear how this worked out for you! Keep us updated...
Chris
Some newspapers have on-line versions with up to date rents- prevents having to purchase repeated newspapers, especially if you are not local- There are also the freebie newspapers that have rentals. Also, some property management companies are on-line and have their rentals there.
craigslist, if it is in your area.
good ideas!!
We have enough rental properties coming into the www.PropBot.com database now that we will start providing local statistics of properties that have rented out within the area.
But make sure your listing your properties through your My Properties area first.
What is my My Properties area?
Quote:
On 2008-05-09 13:40, joel wrote:
We have enough rental properties coming into the http://www.PropBot.com database now that we will start providing local statistics of properties that have rented out within the area.
But make sure your listing your properties through your My Properties area first.
Try Rentometer:
http://www.rentometer.com/
Good Luck.
[addsig]
I looked into this on the NC and SC coast. HOA/Mgmt fees were so considerable that I decided not to pursue the idea any further. For me, it remains a fantasy. I will continue to rent (for that maybe one week a year) at the coast... and not jeopardize my portfolio with a negative cash flow vacation rental.
Condos vs. houses? I prefer houses, but have both.
Have you used Craigslist?
John-
The reservation page of www.hiltoncreek.com did not display correctly in firefox (on a Mac) for me. I made a screen capture an put it online.
http://img170.imageshack.us/img170/3460/picture1zl0.jpg
Is it?
If I understand, you have to fork out 12,500 + 22,500 for a cash flow of 1400/mo.The way I calculate the IRR (lump sum of -35K in month 1, 3 mo vac to do work, then 12 months and 24 months of cash-flow, I get -8% for 12mo hold and 0% for the 24mo.
Not a good investment to me, but I may have misinterpreted your assumptions.
Excellent reply Chris. I am always impressed by your depth of knowledge of the business.
Well said Chris!
From a long time multi SFH rental investor.
So, even though I am no longer gonna be on the Title (the Property will be within my LLC) my credit report will still show the Mortgage?
Anyone to clarify on the Tax treatment of a Rental?
Do I have to pay Income Taxes on the Profit from the sale even if it is after more than 2 yrs of ownership?
Thanks,
"Do I have to pay Income Taxes on the Profit from the sale even if it is after more than 2 yrs of ownership?"
You are thinking of the exclusion for a primary residence. For a rental residence, you will deduct all of your expenses plus depreciation (about 3.64% of the basis you have in the property excluding the land value) from your rental income. This generally results in a loss, which you deduct from other income.
When you sell the property, you will pay 15% capital gains on any profit (assuming you have held for over a year) and the depreciation you have claimed will be "recaptured" at 25%.
Of course if you use the rental as your primary residence for at least two of the five years prior to the sale, then you can use the primary residence exemption.
This is of course a vast simplification, the IRS has a publication on rental housing you should read.
Chris
Quote:
But the recapture rate will likely be lower than your current tax bracket, and money paid later is worth less than money paid now.
Chris,
Has this happened for you yet?
I suspect that your marginal tax bracket will get higher than the unrecaptured depreciaion tax rate once you get a lot of free and clear properties fully depreciated. This could take forever if you plan to add one or two new properties to your portfolio each time you get one fully depreciated.
Of course, this all assumes that there is no outside income pushing you into a higher tax bracket.
I agree completely with Newkid!
Thanks guys, does that mean that you are recommending that I should keep the Renatal under my name and not transferring it under the LLC? Does the same hold for Trusts also? So far I never had problems with frivolous lawsuits, but I thought that some extra protection might come in handy. How do I hedge against lawsuits or at least minimize the extent to which I will be personally responsible?
Thanks,
Quote:
On 2008-05-12 10:48, sd2734 wrote:
Thanks NewKidInTown3, I am looking for a way to protect my personal assets and to separate them to a certain extent, from my Rental property. In doing so I hope that I will not be personally liable if someone decides to sue me over something pertaining to the property (slip and fall, lead paint etc.) So, I view the LLC more as a protection tool rather than a Tax minimizing one. What legal formation would you suggest in order to achieve something like this?
I can only reiterate that when you manage your own rentals, a business entity gives you NO more asset protection than owning the properties in your own name.
Get liability insurance to protect your assets if a lawsuit arises from your rental activity.
Here is the link to that program.
http://thislife.org/Radio_Episode.aspx?episode=355
John (LV)
TCI Moderator
Thanks John!
MC
Thanks! Would be interested to listen to this.