All Good Things

Well, it had to happen at some point so I guess now is as good of a time as any. I got a call from the downstairs Indians of property Alpha saying that National Grid arrived to take the gas and electric meters for the upstairs apartment that I was renting as “utilities included”.

In 2009, the tenants there had vacated the upstairs apartment but National Grid left the power on. It’s been on ever since. So for about three years I’ve been charging for utilities even though I wasn’t paying for it. For three years I’ve made well over $9,000 off of their error so it was definitely worth it. They took out the meters and I have to start a payment plan for the original $1400 I owed National Grid to reactivate my account. The down-payment for the payment plan was $700, so I am REALLY hurting for money now. The meters will be put back on Friday, so Nicky will have to make due (like I care) until then. The problem is that Gretchen, who’s moving out on Friday, needs a place to make baby formula for her sick kids.

Sha told me that as long as Gretchen is not on the lease, I don’t have to do a damned thing for her. I don’t trust Sha’s law expertise, and I wasn’t going to let Gretchen sleep on the street. Even if I’m legally vindicated in doing so, it wouldn’t feel right. And I’m pretty sure if anything happens to her kids she will sue me. Rather than deal with all that stuff, I will let Gretchen and her dirty ass children stay in the empty unit of property Beta to make baby formula. I have showings until 5pm today, so I told her she come over today and tomorrow at 5:30pm. The second floor power at property Alpha is also connected to the basement apartment, so I’ll have to take some mighty cold showers for the next couple of mornings and will have to charge my laptops at work. I actually called Nicky to let her know of the situation and that the electricity will be back on Friday. I was actually civil to her, even though she called me yesterday try to goad me into an argument by quoting real estate law with our court date looming. I was professional then and I’m professional now. What can I say? I’m a professional-ass mother fucker!

As far as Nicky goes, I’m going to meet with my lawyer Marvin Wassle tomorrow to make sure my 30-day notice is rock solid. National Grid just called me up and said that they need to know who is responsible for the almost 3 years that the apartment was being used. Hmmm… is this my opportunity for revenge? I’m imagining sticking Nicky with an almost $10,000 bill and boy does that feel good. And she can’t really prove that she lived anywhere else because she was staying with her parents. She definitely deserves a 10k bill with maybe bad karma and gonorrhea, but I won't decide anything until tomorrow. 

You know, if I were smart I should have used some of that $9,000 to pay off my National Grid bill, but I wasn’t thinking clearly then. I was concerned more with profit than with taking advantage of fortunate situations like I’m doing now. Oh well, at least that’s one negative on my credit report that comes off. But taking a $700 hit AND having to pay a new monthly bill is going to hurt for quite a while, especially in the winter.

Capitalization Rate (Cap Rate)

This is a really interesting term that has some stuff added to it. I’ll give the definition and an example of the formula, and then go into some detail in my next post. The cap rate is the Net Operating Income divided by the purchase price OR the current value of the property. The net operating income is basically the pure profit made after paying mortgage and repairs and taxes and all over costs. Think of net operating income as PURE PROFIT. Let's take that prospective property Charlie that I was looking last month as an example. I’m hoping to get it for 100k or less, but for example’s sake we’ll say that the purchase price will be 100k. So I buy it and rent out all six units, with the mortgage (including taxes and insurance) to be $1000. Now let’s add in the estimated cost of repairs and water bills and whatever—make it $300 per month. So every month I have to pay $1300 in total costs, right?

Okay, now I’ve fully rented out the 6 unit property and my rental income is $3000 per month. Subtract the total costs per month ($1300) from the total received from monthly rent ($3000), and my monthly net operating income (or NOI) is $1700. My yearly NOI (1700 multiplied by 12) would be $20,400. To find the cap rate, I just divide the NOI ($20,400) by the purchase price ($100,000), and the cap rate for the prospective property Charlie would be .204 (20.4%), but we’ll round that out to 20%. 20% is a pretty good cap rate, and I would never purchase a property that wouldn’t have a cap rate of at LEAST 15%.