XUMelanie and I are becoming landlords for the first time and thought a thread here discussing residential rental business in Ohio's cities would be a good fit.  I know at least one other poster here is very passionate about the subject and this could be a place to discuss strategies, lessons learned, answer questions, etc....

 

Please let me know if this is not a proper topic for UrbanOhio, or if it is mis-categorized.

Sounds like a good topic to me.  I have one small commercial property and I am kicking the tires on a small apartment building. 

Our background is that we have a nice single floor condo on the under construction streetcar line in Cincinnati (across from a stop).  We moved a few blocks away to a three floor brownstone to handle our growing family.  We would like to return to the original condo once the kids move out as we really, really loved living there.  We're also concerned that the home prices are jumping up so quickly in downtown Cincinnati that we'd be priced out of our neighborhood by the time we retire.  However, the whole idea of being a landlord even for just a single upscale condo is a bit scary given all the potential issues and complexities with being a landlord.

Talk to a smart RE lawyer for working partnership agreements, lease drafts, should you do a LLC etc. Even if you inherit leases the language could be bad.

Relative to appliances, stoves, ovens, W/Ds, etc. allow tenants to "use" them but if they beak down that ain't your nickel, especially if it is

tenant negligence.

Understand how and when to return security deposits. Limit your liability, read as much on Ohio landlord tenant laws as it relates to what you own and lease.

 

Congratulations

Our background is that we have a nice single floor condo on the under construction streetcar line in Cincinnati (across from a stop).  We moved a few blocks away to a three floor brownstone to handle our growing family.  We would like to return to the original condo once the kids move out as we really, really loved living there.  We're also concerned that the home prices are jumping up so quickly in downtown Cincinnati that we'd be priced out of our neighborhood by the time we retire.  However, the whole idea of being a landlord even for just a single upscale condo is a bit scary given all the potential issues and complexities with being a landlord.

 

You should have a waiting line of good tenants for that Condo. If the mechanical, electrical systems are modern don't be scared to rent it out.

Might want to check with your insurance company to adjust the policy to reflect that it is a rental.

Good idea for a thread.

 

When I'm in my 30's, I plan on investing in Ohio housing and renting it out from across the country. Has anyone on the board done this from out-of-state? Did you hire a local property manager and/or maintenance guy? Any red flags I should look out for?

 

If it helps, I'm looking to invest in Sandusky, Toledo, Cleveland, Cincinnati, and also Monroe, Michigan (Toledo satellite city on Lake Erie).

Good idea for a thread.

 

When I'm in my 30's, I plan on investing in Ohio housing and renting it out from across the country. Has anyone on the board done this from out-of-state? Did you hire a local property manager and/or maintenance guy? Any red flags I should look out for?

 

If it helps, I'm looking to invest in Sandusky, Toledo, Cleveland, Cincinnati, and also Monroe, Michigan (Toledo satellite city on Lake Erie).

Depends on what kind of investing it is? You buying a 100 Unit building? You hire a full time property management person for this or a firm.

Really hard to be out of town LL with smaller (4 unit) project, too small to engage prop mgmt firm, and easy for contractors to rip you

off because they know you are out of town.

Really hard to be out of town LL with smaller (4 unit) project, too small to engage prop mgmt firm, and easy for contractors to rip you off because they know you are out of town.

 

Not necessarily true. I know of several reputable property management firms in Cincinnati that specialize in managing smaller rental properties for "silent" property owners/investors.

Becoming a landlord is another totally lame responsibility that has been dumped on me over the past few years.

 

Yeah, it's OK to hire a property management firm even if you only own one property. Keep in mind that it's going to cut into your profitability and make it slower for you to become wealthy in real estate. All those old ladies with tons of money but zero mechanical ability, no capability of performing manual labor and a slight physical presence do it. But an in-town man with a good set of tools, a little free time, an eye for contracts and a strong back can save a lot of bucks by going desperado on the management aspect.

Becoming a landlord is another totally lame responsibility that has been dumped on me over the past few years.

 

Yeah, it's OK to hire a property management firm even if you only own one property. Keep in mind that it's going to cut into your profitability and make it slower for you to become wealthy in real estate. All those old ladies with tons of money but zero mechanical ability, no capability of performing manual labor and a slight physical presence do it. But an in-town man with a good set of tools, a little free time, an eye for contracts and a strong back can save a lot of bucks by going desperado on the management aspect.

 

One dulpex that I owned in Clifton (I lived in 1 unit) needed a new roof. Was friendly with a good carpenter, so we went out and bought all of the materials.

We took the old roof off and he showed how to install the new one. We did a few rows together, he left, and I did the rest of the work. Back breaking.

But I saved thousands on doing that myself.

http://codes.ohio.gov/orc/5321.04

Really hard to be out of town LL with smaller (4 unit) project, too small to engage prop mgmt firm, and easy for contractors to rip you off because they know you are out of town.

 

Not necessarily true. I know of several reputable property management firms in Cincinnati that specialize in managing smaller rental properties for "silent" property owners/investors.

 

I think it depends on your motivations, if your goal is to have significant cash flow from across the country, it is hard to do that with a property management firm. You still will receive some cash flow when it is operating at peak efficiency (and depending your purchase price). The key is that you buy right. There is a ton of stupid money from the West Coast in Cincinnati now that bought rental properties that had no idea what they were doing and we are buying them for deep discounts while they lose their shirts.

 

I always say Condos are not the best investments, but can be ok if the price is a steal. Also, if you have a friend who can show vacant units to tenants, and let repair people in that is the best way to manage the smaller property. You are still getting the tenant calls and making sure the repair is needed then calling the repair man. Pay your friend a month's rent for handling these tasks. I know a number of people doing this and it works very well for them.

XUMelanie and I are becoming landlords for the first time and thought a thread here discussing residential rental business in Ohio's cities would be a good fit.  I know at least one other poster here is very passionate about the subject and this could be a place to discuss strategies, lessons learned, answer questions, etc....

 

Please let me know if this is not a proper topic for UrbanOhio, or if it is mis-categorized.

 

You may want to join Cincinnati REIA. I have belonged to them and the apartment association for years now. They can provide you with vendor discounts and more importantly, they have a library of leases, contracts, checklists, forms etc that you can download and help you in your business. They have already been prepped by attorneys and are tailored for Ohio, KY and IN. There is a wealth of information there. When I got started, I went to their meetings on a regular basis.

While not exactly "rental property" does anyone have experience with AirBNB? I have stayed at places using them, but I'm now considering listing two bedrooms in my three bedroom house because I have literally only ever been in them to renovate them. I don't want permanent roommates, but wouldn't mind people crashing for a couple days here and there while visiting the UC campus nearby.

I do not know much about AirBNB but did read that some state taxing authorities were looking into it. The issue is whether you have to charge sales tax when you rent a room by the night. This is what separates apartments from Hotels. If such is the case, it could make the business model for AirBNB rather difficult as the average person may not want to go through the requirements of getting a business license and paying sales tax on renting their rooms out short term.

Obtaining a vendor's license and signing up with Ohio Business Gateway can be done in 30 minutes. I just did it again about a week ago. You can print out your own licenses now.

Interesting news on AirBNB. Looks like the beginning of the end for this service, or it will definitely curtail its growth.

 

 

http://www.bizjournals.com/sanfrancisco/blog/techflash/2014/05/airbnb-new-york-attorney-general-host-records.html?page=2

Interesting news on AirBNB. Looks like the beginning of the end for this service, or it will definitely curtail its growth.

 

 

http://www.bizjournals.com/sanfrancisco/blog/techflash/2014/05/airbnb-new-york-attorney-general-host-records.html?page=2

 

That could/should end up being an interesting property rights battle, though in my mind NY and NYC in particular have some rather oppressive rental/hotel laws as it is. Of course, the only thing NY is interested in is tax revenue and appeasing the very powerful hotel lobby in NYC.

 

I would have never been able to do internships in NYC if everyone followed the letter of the law regarding sublets. At UC, a co-op quarter was about 3 months long. Legally, I would have had to stay in a hotel that entire time or get a long term lease and break it, wasting thousands of dollars. Luckily I made contacts with a few short term sublet broker type guys in Queens that didn't give two shits about the hotel/rental laws, and everyone was happy (except the tax man).

 

The fight against AirBNB, much like the fight against Tesla dealerships and Uber, seems to be the established revenue/tax dollar generators fighting against services that give consumers and sellers a better option.

Does anyone have a recommendation for a financial tax guy/gal that I could help me make sure my books are good for renting a condo in Cincinnati?  I just want to make sure I'm above board on the below and wanted to pay an hourly CPA type person to help me out.

 

How/When do I pay Cincinnati/Ohio Tax?

How exactly do I do the 27.5 year building depreciation including for a partial year?

When and how much do I pay the tenants their interest on the deposit they put down?

Can I report certain expenses (including partial expenses) to the IRS?

 

Do you do your own taxes?  If so, Turbotax can take care of everything for you.  Not sure about actually having to pay interest on deposits, never did that.  Not sure what taxes you are referring too, the property taxes will still come to you, or escrow, or however you have it set up.

 

Yes, you will need to itemize expenses, and depending on your income, they may or may not come off the current year's taxes.  If not, they are then carried over until a year that they can be expensed, or the building sold.

 

The available expenses are VERY numerous.  Don't miss out on anything.  There is some good, free, available programs to look at.

As part of Ohio law there is the following:

Any security deposit in excess of fifty dollars or one month's periodic rent, whichever is greater, shall bear interest on the excess at the rate

of five per cent per annum if the tenant remains in possession of the premises for six months or more, and shall be computed and paid annually by

the landlord to the tenant.

Cincinnati I believe collects taxes on income earned even from rent.  I think Ohio does the same.  I thought you had to pay it quarterly in the quarter it is earned, but I'm honestly not sure.

Looks like you are paying it!  I would just make it an annual payment made on the anniversary date. You would probably need to claim it as income if it is in an interest bearing account in your name, but then you could deduct it as expenses for the property.

Wow, I've never received or given interest on a security deposit before.

Not to mention the high interest rate!  Where can you get 5% these days?

I've never paid a security deposit that was more than the first months rent. I imagine the interest requirement is why so many deposits are matched to the first months rent, actually.

If you are paying interest on a security deposit you are not doing it right. First, you really do not need to charge more than 1 month's security deposit to rent a unit. If you do your diligence as a landlord, it is just not necessary to charge more and you will scare off a lot of qualified tenants.

 

Also another way that many landlords handle security deposits to avoid the interest rule is they charge a very small security deposit (say $200 or even up to one month's rent) plus require first and last month's rent due upon move in. This way, they already have last month's rent should the tenant try and skip out early and they have a small security deposit to cover them against misc damages that may occur.

 

Now if the tenant completely trashes the place, there is no security deposit that will cover that and you have to assume the risk or insure against it yourself.

 

There really is not need to charge a security deposit of more than one month's rent on the apartment since there are legal ways to get around the interest requirement.

Becoming a landlord is another totally lame responsibility that has been dumped on me over the past few years.

 

Yeah, it's OK to hire a property management firm even if you only own one property. Keep in mind that it's going to cut into your profitability and make it slower for you to become wealthy in real estate. All those old ladies with tons of money but zero mechanical ability, no capability of performing manual labor and a slight physical presence do it. But an in-town man with a good set of tools, a little free time, an eye for contracts and a strong back can save a lot of bucks by going desperado on the management aspect.

 

One dulpex that I owned in Clifton (I lived in 1 unit) needed a new roof. Was friendly with a good carpenter, so we went out and bought all of the materials.

We took the old roof off and he showed how to install the new one. We did a few rows together, he left, and I did the rest of the work. Back breaking.

But I saved thousands on doing that myself.

 

That's impressive.  I'm not afraid to get on a roof but I do not know what I'm doing when it comes to anything other than the most primitive repairs.  I got two estimates on my roof, one was $10,500 for rubber and the other was like $21,000 for metal.  I watched the guys work (obviously I went with the rubber roof) and in the case of a roof like mine, which didn't have many or any rotted wood to replace, I'm convinced that they made at least $6,000 and likely $7,000 over their labor and materials costs for just two days of work.

 

 

 

Do you do your own taxes?  If so, Turbotax can take care of everything for you.  Not sure about actually having to pay interest on deposits, never did that.  Not sure what taxes you are referring too, the property taxes will still come to you, or escrow, or however you have it set up.

 

Yes, you will need to itemize expenses, and depending on your income, they may or may not come off the current year's taxes.  If not, they are then carried over until a year that they can be expensed, or the building sold.

 

The available expenses are VERY numerous.  Don't miss out on anything.  There is some good, free, available programs to look at.

 

Yeah TurboTax is very easy to use, but they charge for each of the worksheets.  For example I have a small amount of royalty income and their fee eats into that in order to process "worksheet C" or whatever it is.  TurboTax DOES let you file a screwed-up return, however.  I think it was in 2011 it let me take the wrong deduction and I got an intimidating letter and a bill for a few hundred dollars from the IRS a few weeks later. 

I do use Turbotax, but I was wondering how I handled local/state estimated taxes as well as such things like partial electric bills for the time we were getting the place ready for rent.

Don't know what version of TurboTax charges for worksheets.  Mine doesn't.  Maybe the cheapest one does, but I don't know. 

 

If you owned numerous apartments or buildings where the income might require quarterly payments, I guess you would need to file and pay quarterly.  For a small number of apartments, the amount of income probably isn't great enough to require.  You would need to look into that.  TurboTax has a program to calculate that.

 

As fas as your example about electric bills, you would add them into your expenses as you do your taxes, the same as you would for your expenses of calling a plumber.  As I said before, your income (all total) will decide whether or not those expenses would be deductible this year, or at some point in the future when your income is lower; or when you sell the building.

 

You can search for your questions, or go to Turbo tax for explanations.  If you're not comfortable, it might be best to speak to a CPA or tax preparer and let them do it for you.  Good luck!

Does anyone have a recommendation for a financial tax guy/gal that I could help me make sure my books are good for renting a condo in Cincinnati?  I just want to make sure I'm above board on the below and wanted to pay an hourly CPA type person to help me out.

 

How/When do I pay Cincinnati/Ohio Tax? - You pay Cinci Tax quarterly if you are making a lot on the property. If you only have one rental property, chances are it operates at a loss (because of depreciation) so you don't need to worry about Cinci Tax

How exactly do I do the 27.5 year building depreciation including for a partial year? Turbo Tax can do this for you

When and how much do I pay the tenants their interest on the deposit they put down? - You don't because you are not taking bigger than a month security deposit - (take first and last month rent instead)

Can I report certain expenses (including partial expenses) to the IRS? You would have to elaborate more on this.

 

 

More than an accountant, you probably need a bookkeeper. TurboTax can do a lot, especially if you only have 1 property and it is not an LLC. Even if it is, turbo tax is fine. If you starting getting a big portfolio, you will want an accountant at that time. They typically charge $2000 or so to do this work.

edit

 

 

 

 

 

Edited March 30, 20205 yr by jmecklenborg

Don't know what version of TurboTax charges for worksheets.  Mine doesn't.  Maybe the cheapest one does, but I don't know. 

 

If you owned numerous apartments or buildings where the income might require quarterly payments, I guess you would need to file and pay quarterly.  For a small number of apartments, the amount of income probably isn't great enough to require.  You would need to look into that.  TurboTax has a program to calculate that.

 

 

I believe you need to switch to quarterly once your gross revenue from business purposes reaches $150k. Income from your day job doesn't count.

I was trying to sell my house in Cleveland Heights by owner, without much luck.  As we are in a pretty bad time of the year for selling, I'm thinking I'll try and rent it out (not that the rental market would be super hot right not either).  I just listed it on Case's off-campus housing site, but does anyone know where else I should list it?  Any experience on craigslist?  I haven't listed it there yet as I am somewhat skittish after hearing so many craigslist horror stories.

I recently used Trulia in the Cleveland area.  Got a lot of nice attention, wouldn't hurt to try them.

I posted on craigslist, and as long as you're willing to thoroughly investigate your prospective tennants you will be fine.

Rentals can be tough in November and dec.

I've always had good luck in Jan and Feb.  Folks are flush with tax return cash, so they can make that security and first months rent payment on a new place.  It's a big chunk to come up with for most renters.  Throw in moving expenses, and things get tough pretty fast.

Moving on ice sucks ass though. Never again.

I couldn't believe it, but we recently tried to get an equity line on our $250K rental condo that we own outright and were turned down.  Apparently, there are very few lenders (if any) that are willing to do equity lines on rental condos no matter whether or not they would be the first lien holder.  If it were a house they would have been willing to loan to us.  I'm thinking this negatively affects urban areas greater than the suburbs as a greater percentage of urban properties are condos than the suburbs.  Anyone else have any lending issues when it comes to urban properties over suburban ones?

My guess is that there are secondary market reasons for that (might be harder to sell the note on a rental condo).  Because as long as it has a proper insurance covenant and passes appraisal, they ought to be reasonably secure in first position on a condo as much as a single family house.

 

That said, I know a lot more now than I did five years ago about how insane condo associations can be.  All the worst features of petty tyrannies combined with all the worst features of the Roman Senate.  I might not want to take the risk that I might have to accept a unit in one in lieu of payment on a defaulted loan, either.

My guess is that there are secondary market reasons for that (might be harder to sell the note on a rental condo).  Because as long as it has a proper insurance covenant and passes appraisal, they ought to be reasonably secure in first position on a condo as much as a single family house.

 

That said, I know a lot more now than I did five years ago about how insane condo associations can be.  All the worst features of petty tyrannies combined with all the worst features of the Roman Senate.  I might not want to take the risk that I might have to accept a unit in one in lieu of payment on a defaulted loan, either.

 

In 2013 I looked at a condo in a historic building with an association of about 10 units, but one guy owned 2 units.  He was actually the guy who bought the whole building when it was apartments and then sold them off one-by-one as condos.  Well *he* ended up foreclosing and not making the HOA payments on his two units, thereby compromising the whole HOA! 

I believe you are right about the secondary market being the issue which would explain why nobody is willing do to these lines of credit anymore.  I'm just frustrated with affects this has on owning urban properties and with the no exceptions attitude.  You think being first lien holder for less than 20% of the properties value would mean something.  It comes off as using an elephant gun on a horsefly.

In 2013 I looked at a condo in a historic building with an association of about 10 units, but one guy owned 2 units.  He was actually the guy who bought the whole building when it was apartments and then sold them off one-by-one as condos.  Well *he* ended up foreclosing and not making the HOA payments on his two units, thereby compromising the whole HOA! 

 

True, but a simple (or not so simple) condo questionnaire filled out by the HOA should weed out the bad actors.  With big banking now it seems like there is little room for making loan decisions based on merit.

Condos are bad investments. too many variables for the banks to lend on. If you owned the whole building, it would be an easy thing for the banks to get you an equityline.

I believe you are right about the secondary market being the issue which would explain why nobody is willing do to these lines of credit anymore.  I'm just frustrated with affects this has on owning urban properties and with the no exceptions attitude.  You think being first lien holder for less than 20% of the properties value would mean something.  It comes off as using an elephant gun on a horsefly.

 

Did you try this at multiple banks?  I think a number of smaller community banks and credit unions (if you have access to one) might be able to work with you on something like this, where a larger bank would be less flexible.  I'm a huge cheerleader for such smaller lenders for regular individuals, based on personal experience.  My wife works for Bridgestone, and the Firestone credit union is fantastic, and they were definitely able and willing to give us special, individualized treatment after larger banks refused us.  We got our mortgage through them, and we were impressed enough that we went back to them for my wife's new (used) car financing, and I expect that if I end up getting a new (used) car soon, I'll do the same.  Valley Savings Bank here in the Akron area was likewise able to give personal attention to the merits of a loan, not just formulaic attention; they've been bought out by Westfield Bank now, but I think even Westfield is still small enough to consider such things (though admittedly they're much larger than Valley ever was).

Is this equity line of credit for improvements to the condo? If so, I've had no problems in getting home equity loans.

Condos are bad investments. too many variables for the banks to lend on. If you owned the whole building, it would be an easy thing for the banks to get you an equityline.

 

Bfwissel owns a condo in one of the best buildings in the city.  He got it when that building was on the edge of "civilization" but with the revival of Over-the-Rhine it's now in the center of the action. 

Is this equity line of credit for improvements to the condo? If so, I've had no problems in getting home equity loans.

 

The issue is that it is a rental property.  You just can't get a line of credit on a rental condo (it immediately disqualifies you).  Now if it were a rental house then there are no issues getting a line of credit.  That's my frustration especially since this is a luxury condo with no encumbrances.

Can an underwriter help?