Monday, March 26, 2012

February Update

Things are looking better at the Houston apartment complex. Of course, the previous times I’ve said this it’s usually turned out to be a short-lived turn-around, but still, a good month is a good month. Rental income increased in February by almost $10,000, mainly due to decreased rent concessions. This month saw the highest rent revenue since April 2011. We had t pay out $3,800 for some repairs to the roof and access gate, but other expenses are running according to budget. Management implemented  a water conservation plan and that has resulted in significantly decreased water and sewer bills. They are now moving forward with a gas billback program. This means the residents will start paying a portion of the gas bill. They currently pay a portion of the water bill and with the reduction in that expense, management feels the gas billback will be accepted by the tenants. They should still have an overall lower billback cost than they had prior to the water conservation program. They also installed a separate water meter for landscaping so they can begin a billback program for landscape water usage.

Now, it’s been a long time since I lived in an apartment – at least 20 years. Maybe things have changed since then, but I know I never paid any sort of utility billback for general landscaping or anything. I paid my rent and that was it. If I recall, the units were individually metered and all the utilities were in my name, so that might be part of the reason. Off hand, I can’t remember how the units in the Houston complex are metered. It just seems strange to me to bill renters for water used for landscaping. Of course, this might also be a regional thing too. If that’s how things are done in Houston, then it makes sense that we do it too.

Last month, management asked the investors to inject another $250,000 into the property to help it get through the current rough financial situation. I opted not to contribute and apparently, I wasn’t the only one. They raised $140,000, well short of their goal. However, they are using this money to catch up on payments with vendors who we still owe money to. Management is also using the funds to make ready more units to help improve the occupancy number. They didn’t give an occupancy percentage with this report, but if I use the gross rent and vacancy numbers from the financial report, it looks like we are at about 91% occupancy right now.

On the hard money lending side of things, I didn’t blog about it, but my partner said last month that things seemed to be picking up and he was short of funds. Well, a lot can change in a month and things have now reversed and he has money waiting for investments. Our main borrower says deals have slowed down a bit, although he is still buying a couple properties a day. A short time ago, he was doing two to three times that amount. As my partner says, the business is often cyclical and he has learned to be patient and wait for good deals rather than invest in questionable deals just to get funds invested in something. That's how you go 20 years in this business without losing a penny of your investors' principle.

On a more personal note, I got my taxes back from my accountant this weekend and I got hammered on my federal taxes. I owe a couple thousand. I wasn’t sure how that could have happened until I remembered that in 2010 I converted a traditional IRA into a Roth IRA and elected to report the income over two years. I should have adjusted my withholding rate last year to help alleviate this, but I guess I forgot. The good news is that next year, I won’t be hit with another big tax bill (hopefully), as that conversion has now been fully reported. The Houston apartment complex gave me a roughly $7,000 passive loss I can claim. Unfortunately, it can only be used to offset passive gains, of which I have none. So that loss will just get carried forward until I have some passive gains I can use it against. I had thought that the interest from my hard money lending was passive income, but my accountant reminded me it is not. Based on my current investments and future outlook, I think this loss will probably end up being carried forward until the Houston apartment is sold. But that’s OK. It just means I’ll be getting a nice surprise in the future, as I’ll probably forget about it. That actually happened to me this year on my state return. I had a $400 credit from 2009 that  was carried forward, adding to my state tax refund this year.

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