It is January, and that means 2 things, at least for this year. The first thing is that it is tax season. As I mentioned previously, if you paid vendors directly, please consult with your accountant/CPA/tax preparer to see if you need to file the 1099 form. The deadline is February 1st. I can't provide any tax advice, but if you need any documents from my end, please let me know.
Tax is insanely complicated, so I educate myself by reading "Every Landlord's Tax Deduction Guide" every year. Since I already read the 2019 edition, I am willing to send it to whomever interested in reading it. I will make sure to sanitize it before I ship it.
One more thing about tax. Your accountant/CPA/tax preparer may ask you about the date placed in service. You may be advised to use the first date that the property got advertised. If you want to know the date, you can just check Zillow. Again, please consult with your accountant/CPA/tax preparer for your particular situation.
Talking about Zillow, unfortunately, they started charging to place rental ads on their website. With so many options out there, I will no longer place rental ads on Zillow. If I struggle to find qualified tenants, I may circle back to Zillow, but I'm confident I can do the job without Zillow.
The second thing is that we have a new administration. While I do not put too much emphasis yet regarding what will happen to real estate investing in general, it reminded me of one thing.
On January 20th, I had to go to this property with some repair issues. I hoped on my car and turned on the radio. I heard the national anthem. It was the inauguration day. As I was listening, it dawned on me that exactly 4 years ago, I was in this title company waiting for the paperwork for the purchase of this rental property while watching the previous president's inauguration.
With that, I want to share what happened in the last 4 years to the rental property as an example. I rounded some numbers to make it easier to understand the math.
- I purchased this property on 1/20/2017 for $65,000 cash.
- I put about $15,000 to rehab, so all-in I'm at $80,000.
- A few months later, I did a cash-out refinance and took out $47,600.
- I have $32,400 ($80,000 - $47,600) of my cash in this deal so far.
- I made $20,400 or $5,100 per year after expenses, including the property management fee, are paid.
- The property value went up about $35,000 or $8,750 per year.
- All in all, I gained about $13,850 ($5,100 + $8,750) per year.
- I made about 43% ($13,850 / $32,400) return on my money year after year.
While not all rental properties will produce results like the above, I am glad that I took action 4 years ago. 4 years from now, 4 years will pass. In 2025, I will rather be in a position to say, "I'm glad I did...," instead of "I wish I did..." If you haven't done it yet, it's a good idea to take a look at the property you have and evaluate what the best option is. You might be doing the right thing, or you might find out that there are more options than you originally thought. Earlier this month, I wrote a little blog called, What would you do with your factory? In it, you will find all the options you may have as a real estate investor. If you want a no-pressure view of what options you may have, I'm happy to chat with you.
Vendor's Corner:
I consider vendors to be one of the most important 4 aspects of property management (the other 3 posts are owners, tenants, and properties.) Let's define perfect vendors. Their price is reasonable, they are available (they respond and fix within a reasonable time,) they are good at what they do, they are honest, they have a proper license if required, they will submit an invoice (instead of taking cash under the table,) they will provide W-9, and they are insured. Unfortunately, it's very challenging to find a good vendor like that. Perfect tenants exist, but few vendors are perfect if any. My job is not so much finding the perfect vendors but balance out the above criteria. Usually what I end up doing is to find someone who is perfect except the price is not necessarily cheap.
Recently this property needed a plumber. I decided to try out a new cheaper plumber. He was referred by an experienced investor. I called him on 12/29/20, and on 1/20/21, I finally had to give up on him because he was too busy. What good is an affordable plumber if he can not get to your property? I had to go back to the plumber that I usually use, and he was able to schedule within a few days to fix the issue. FYI, I usually don't wait this long, but this particular issue was something that could wait.
When you see the Rental Owner Report, you only see one price. It might say "$300," and you might feel like that's a lot of money for that particular repair, but please know that behind the scene I am doing what I can to balance the different criteria that vendors need to have.
A few housekeeping times:
- Now you can read the new property management agreement here. Go where it says, "Resources & Forms." You do NOT have to fill it out or sign it. When it's time, I will send you one via DocuSign.
- I mentioned the CCRTLO (Cook County Residential Tenant & Landlord Ordinance) in the last video. The voting has been postponed till the end of January. While this will not affect Lake County, I will keep you posted.
- I sent an email about SB3066 which extended the eviction moratorium and seal some eviction records, amongst other things. This bill died in the senate.
Thank you for reading the January 2021 edition of Owner's Corner. I hope it was worthwhile of your time, and I'll send one again next month!
