Jackson Area Landlords Association Volume 15/Number 2 February, 2009 HERE’S MORE GREAT NEWS FOLKS: HOME PRICES IN RECORD PLUNGE The National Association of Realtors reports that home prices dropped a record 12.4% in the final quarter of 2008 (the biggest decline in 30 years) By Les Christie, CNNmoney.com staff writer/Submitted by Gae Winn NEW YORK (CNNMoney.com) -- Home prices fell 12.4% during the fourth quarter of 2008, the largest year-over-year decline since the National Association of Realtors began keeping comprehensive records in 1979. The median price for a U.S. home sold during the fourth quarter of 2008 fell to $180,100, down from $205,700 during the last quarter of 2007. Prices fell by a record 9.5% in 2008, to $197,100, compared to $217,900 in 2007. In comparison, median home prices dipped a mere 1.6% between 2006 and 2007. Distressed properties, foreclosures and short sales have flooded the market, accounting for 45% of all deals. That has driven sales volume up in Nevada, California and other states hit hard by foreclosures, but these heavily discounted homes have also pushed me- dian prices down. "People are responding to discounted prices and are slowly absorbing the excess inventory," said NAR President Charles McMillan. "Buyers clearly see value in today's pricing." Pain is widespread. The vast majority of metropolitan areas, 134 out of 153, recorded price declines compared with the last quarter of 2007. "Home markets are weak just about everywhere," said Pat Newport, an analyst with HIS Global Insight, "but in a few states, distressed sales are driving transactions." In Cape Coral-Ft. Myers, Fla., which has the third highest rate of foreclosure filings in the nation, prices fell a devastating 50.8% for the year, to $110,900 from $225,300. That was the most precipitous plunge for any metro area. In Saginaw, Mich., prices fell 41.4%; River- side-San Bernardino, Calif., prices dropped 40.8%; and San Jose, Calif., prices declined 37.7%. The high number of distressed sales pushed prices down for several reasons, according to Lawrence Yun, chief economist for NAR. For one thing, many sales were in low- and moderate-income housing developments where buyers during the boom years financed their purchases using sub-prime mortgages. In higher-end areas, fewer exotic mortgages were used. "Take Orange County, Calif.," said Yun. "It's the lower priced areas there where homes are selling. The high priced areas along the coast are not." As a result, the median home sales price for the area skews lower. And the high number of foreclosures means banks are willing to slash prices deeply to move inventory. Many of the properties they've obtained through repossessions now sit vacant, soaking up lender money for maintenance, heating, property taxes and insurance. The banks willingly take lower prices to end those cash outlays, which brings down prices even for normal sell- ers. Then there's also what Yun calls a "frozen" jumbo-mortgage lending market, which has also slowed sales of higher priced homes and reduced median prices. The good news is that bargain prices are bringing many new buyers into the market. "Many are first-time homebuyers who were priced out of the market during the boom," Yun said. The National Association of Realtors is hoping a piece of the stimulus bill before Congress will build on that momentum and pro- vide an extra incentive for buyers. " Assuming housing provisions in the economic stimulus package are quickly enacted and provide Home Prices Plunge…..Continued on Page 4 IMPORTANT REMINDER: INSIDE THIS ISSUE ATTENTION!!! Please pay your Page 2 Calendar Of Events THE NEXT GENERAL membership and credit President’s Message Page 2 MEETING WILL BE HELD on reporting dues in a Personal Opinions Page 3 MONDAY, FEBRUARY 23, timely manner. JALA depends on your Seeking Information Page 4 2009, AT THE STEAK’S dues to pay its monthly Teaser for March GM Page 4 EATERY IN VANDERCOOK expenses, so please pay LBP Installment Page 4 lake. THE MEETING WILL on time, just as you would Housing Stats Page 6 BEGIN AT 5:30 P.M. FOR expect your tenants to do! JALA Q and A Page 8 DINNER; THE SPEAKER Haunting Questions Page 8 WILL BEGIN AT We look forward Replacement Reserves Page 9 APPROXIMATELY 6:30 P.M. to receiving **Please have your meal ordered former members back!! by 5:30 P.M.** Page 2 February, 2009 PRESIDENT’S MESSAGE: JALA OFFICE GAE WINN HOURS Here comes spring with all its hope- fulness! Even though we all know it Monday CALENDAR OF generally snows in April, we are still 9:00 a.m. to 5:00 p.m. EVENTS excited about even two days of 50-60 degree weather. I personally found ————————————– Wednesday that I could bear the cold returning after the thaw had come, and the fact 9:00 a.m. to 2:00 p.m. Monday, February 23, 2009 JALA General Meeting that it is now daylight until at least Time: 5:30 p.m. 6:30 PM. Of course, now we can see Friday Steak’s Eatery all the junk that has been hiding under 9:00 a.m. to 2:00 p.m. the once beautiful snow (beautiful, but Monday, March 9, 2009 only until we had to pay in backaches JALA Board of Directors Meeting or money.) But our hope still runs high that new tenants will, like spring Welcome New Members: Time: 6:00 p.m. Abbey Villas Apts. Community Room flowers, appear and actually pay rent and in this era have a job. Wow, now We are saddened to announce that long-time JALA member, Barbara Hubbard, passed Monday, March 23, 2009 that is a hopeful thought! Yes, it has JALA General Meeting been hard and it does not look like we away at home on January 28, 2009. A Time: 5:30 p.m. are anywhere near a turnaround just memorial service was held on February 4, Steak’s Eatery yet. But with a little warmth, hope 2009 at Nichols-Arthur Funeral Home. shows its face and somehow there is a Barb came into the office often and was moment’s respite from the stress and always cheery and friendly. We will miss her concern for the future or the past. a great deal! JALA BOARD OF The general meeting speaker for DIRECTORS/2009 February will be talking on the issue of money recovery from deadbeats we If you have questions about President Gae Winn, 784-8833 rarely can collect from. So, drag out landlording, you may call one of the Vice-President Charles Drake, 768-0579 your old files and take a good, hard property managers/landlords Secretary Phillip Fracker, 787-9241 Treasurer Robert Tulloch, 596-2592 look at who owes you money, and we list for assistance. Board Member Mike Finnegan, 529-4289 come with armed with questions. Yes, Please refer to Page 3 for the names Board Member Mak Krzeczkowski, 734-214-2676 hopeful….that’s where we are. and numbers of these members. Board Member Fred Riley, 524-6781 Board Member Beverley Roberts, 787-2000 One more item: If your email ad- dress is NOT updated with us, please FOR YOUR Board Member Board Member Laura Schlecte, 780-3800 Terri Zdanowitz, 782-4663 call the JALA office with your new Office Manager Charyl Wozniak, 782-4384 information. We are using e-mail INFORMATION: Newsletter Editor Webmaster Beverley Roberts, 787-6540 Bob Tulloch, 596-2592 more then ever to cut our costs. Legal Affairs Bob Tulloch, 596-2592 Thank you! Editorials and/or JALA Legal Counsel articles in this newsletter Adam E. Howard ANNOUNCEMENTS are the opinion of the (517) 788-9055 404 S. Jackson St. JALA Web Site: author and do not PO Box 4292 Jackson, MI 49204 necessarily reflect the www.jala-mi.org policies or positions ************************************ STATE LEGISLATORS Credit Reports are available through the JALA Office or directly of JALA. Rep. Marty Griffin..…….....(517) 373-1795 using software for the members that PO Box 30014 have met the current criteria set forth Lansing, MI 48909 by All advertisements in this NOTE:TransUnion, LLC and JALA. Rep. Mike Simpson ...........(517) 373-1775 Newsletter are paid for by advertisers. PO Box 30014 A credit report guarantee the JARPOA does not is your first line of Lansing, MI 48909 defense! Arm yourself wisely!! products or services advertised. February, 2009 Page 3 Dear Sirs: BRACE YOURSELVES MEMBER SUPPORT In response to the Governor Granholm At the end of this month, the last two If you need advice regarding some of State of the State Address of February 3, renters who are employed will leave my your rental properties, please feel free to contact the following property managers 2009. In her State of the State Address for units. The remaining renters are all on for assistance: 2009, Governor Granholm advanced a some kind of assistance. It used to be that proposal that 45% of the power used in most, if not all, worked and just a few were Gae Winn from Winn Property Michigan (currently generated using fossil living with the help of some agency of the Management, (517) 784-8833 fuels) be instead generated by green re- government. newable energy by the year 2020; specifi- I just read in the Jackson Citizen Patriot cally generated by solar and wind genera- that Jackson County will have to make up Terri Zdanowitz from All-Pro Realty tion installed in/on their homes by Michi- And Property Management, $800,000-plus to the Jackson County em- gan entrepreneurs who would sell their ployee’s retirement system because of (517) 782-4663 excess capacity back to the utility compa- short falls due to the market losses, and the For technical assistance, contact Mr. T at nies. As a green, tree-hugging entrepre- fact that governmental employees gener- (517) 596-2592 or email contact@jala- neur, I am deeply interested in this pro- ally belong to defined benefit retirement mi.org gram to reduce greenhouse emissions and plans. That is, no matter how bad things increase green jobs in Michigan. get, governmental employees are guaran- To this end, I would like to find out how teed a healthy retirement no matter what PERSONAL OPINIONS….. to get support and funding to install a wind the effect on tax payers. You long term turbine generator in the back yard of my small investors who were relying on sell- Responses to personal opinions are wel- property at 616 Lansing Ave. in Jackson. I ing your properties for supporting your comed, and should be sent to the office. would like to know which state department retirement are in for a sad shock. You All submissions may not be printed. can help me in sizing the turbine/generator people, who worked and saved all your life so that I can supply the residence at that to be able to retire with even a modest life HURRICANE KATRINA address with ample power and at the same style, will have your dreams smashed on time generate excess that I may sell back. the altar of big government. REVISITED I would also need help in determining the If you can’t get enough money from your size of the interface structure to house all rentals to pay the taxes to support unlim- Thinking back to Hurricane Katrina and the phase locking equipment/conversion ited government, your property will be all those folks on their roofs and in the equipment that is needed to synchronize seized and sold to some bottom feeder for stadium, I wondered at the time why they my generator into the grid. Further, I will back taxes. The needs of government are would just sit there waiting for help that need help with the process for filing an superior to the needs of the producers of should have been provided by the city and environmental impact statement for my wealth. The purpose of our system seems state. Why didn’t they take action them- wind turbine/generator taking full account to be to feed the government and only then selves? Then, I remembered the daily of potential bird kills and ice throw protec- are we allowed to pursue life, liberty, and drives past the houses I owned in the tion for the neighborhood. Also of interest the pursuit of happiness. “hood”, and how I stopped and picked up would be the need to conduct a public all the trash strewn across the yards only to hearing and notification of neighbors po- Submitted by Robert Tulloch have a new layer of trash to pick up two tentially affected by my wind turbine/ ___________________________________________ days later. The occupants and all their generator installation. I would request little rug rats would sit on the porch and that the State of Michigan provide me with watch me pick up all their trash while of- a list of installation contractors pre- HEARTBREAK fering no help whatsoever. I guess that qualified to install the wind turbine/ came with FIA paying their rent and utili- generator on my property as suggested by I know it is unhealthy to take things too ties. So, in thinking back to Katrina, I be- Governor Granholm. Lastly, I am request- personally, but I am indeed heartbroken. I lieve I knew why. ing the City of Jackson Building Depart- drove by a rental that I previously owned ment to provide guidance in obtaining the on the south-side of Jackson about a month Submitted by Robert F. Tulloch necessary building permits to allow the ago in the freezing cold weather of winter installation within the city of my wind tur- and saw a small sign on the front door. It ___________________________________________ bine/generator. read that the property was unfit for habita- tion due to no heat. I looked around and RENEWABLE ENERGY IN Given the enthusiastic reception to the the gas meter was locked off and icicles Governor’s suggestion in the State of the hung out from below the lowest row of THE STATE OF MICHIGAN shingles indicating ruptured pipes and fro- State Address, I am sure that state and lo- cal authorities are all geared up for this zen flooding. I had owned this rental for The following letter was sent to the City initiative (45% by 2020?) Yes, We of Jackson Building Department, and the Can!!!! Heartbreak…..Continued on Page 7 state representative for Jackson on Febru- Submitted by Robert F. Tulloch, Munith, MI ary 4, 2009: Page 4 February, 2009 Home Prices Plunge…..Continued from Page 1 COLLECTIONS CORNER this issue in a unit (read free government money at this point), I felt (and still do) enough encouragement for homebuyers, that their approach has been geared to ten- we could see a quick lift in home sales for This article will be the first of a continu- ants instead of landlords. Yes folks, they the critical spring home-buying season," ing series being submitted by Sheila have come to talk to us at our general said Yun. Plentz, President of SP Recovery Ser- meeting, but they are not sales people. vices, Corp., in order to enlighten our They are nice, well-meaning COJ employ- On Thursday, it appeared that the final members with tips on collecting monies ees that really feel we should just jump on- iteration of the homebuyer's tax credit, still owed from past, current, and/or future board. They don’t understand the landlord which had very different provisions in the tenants. perspective on government or spending House and Senate versions of the stimulus money, thus this article. package, was shaping up to be closer to the Copies of Driver License or Id’s: This is Next, there was a series of inspections House bill, according to Yun. That means an awesome source of information to and bids handled by the COJ. A decision a credit of $7,500, perhaps $8,000, or 10% have copies of for your file, as it states by the unit’s owner was made to include of home price for first-time homebuyers. the full legal name and any and all ad- all three units in this endeavor. Then, the This windfall will not have to be repaid by dresses (remember to copy the back if day came that they had a low bid and that homebuyers and can be taken off 2008 there was address change.) Now, you everything would be covered by the gov- taxes. have a picture of the person to be used ernment grant. Yes, you out there with the in numerous situations. For exam- multi-units; $8,000/unit is what the gov- NAR estimates that could draw in an ple: If you have to go to court and need ernment will give you. Yes, I said GIVE. additional half million buyers this year. "It to hire a process server for personal This owner has had two doors replaced, could help reduce the high inventory of service, many times the debtor will lie paint encapsulated, windows soil covered, homes for sale," said Yun, "and get hous- about their identity and say that they and exterior trim covered with vinyl sid- ing markets moving again. It's hard to get are not the person that the server is try- ing. We expect a drop in heating bills due the economy back to growth until that hap- ing to serve. But, if the process server to new windows, and we can now say this pened. has a picture of the debtor, there is no __________________________________ doubt about the identity of the person LBP…..Continued on Page 8 that is being served, and in the end you HVAC SEEKING INFORMATION will be saving money. One of our members is seeking to have __________________________________ the following question answered. If you LEAD BASED PAINT: LAST have an answer to the question, or if you have some suggestions, please either call INSTALLMENT? ►Full PARTS Line the office at (517) 782-4384 or email the office at firstname.lastname@example.org regarding the By Gae Winn Complete Systems question: Well, here we are at the end of this pro- ject which started over four months ago. Boilers & Parts What are some tax benefits of having For those of you that have just tuned in to Sheet Metal Shop an LLC, or multiple LLC’s? An exam- this saga, here is a quick update: We first ple: An LLC for cleaning services, an learned that one of our tenant’s children Capacitors-Grills (two years old) had tested positive for lead LLC for lawn maintenance/snow re- moval, unit maintenance, etc. in her blood around the end of Sept., 2008. Thermostats When we called the City of Jackson (COJ), (Mechanical & Programmable) __________________________________ we found out that the unit had already been tested by an organization that the city hires Motors & Blowers to do this type of testing. No, they didn’t TEASER FOR THE MARCH call us, but they had received permission A/C Systems-Coils 23RD GENERAL MEETING from the tenant to do the evaluation. This, Filters-All Sizes needless to say, was rather irritating since I JALA will be having Dann Burger have NEVER given the COJ any cause to Furnaces-Controls (President of Energy 21 USA, LLC) as question my cooperation. When I asked our guest at the March 23, 2009 general about this issue, I was told “we do it” be- HVAC WHOLESALE PARTS, LLC meeting. Mr. Burger will be filling us in cause other landlords have refused us ac- 1330 S. Elm Street, Jackson, Michigan 49203 on ways to manage the high prices of en- cess AND because we can. Not an auspi- ergy sources. If you want to learn to save cious start, right? money in the future, then you will want to The COJ met with me and even though (517)- 788-9160 attend this important general meeting. they feel they have done tons to inform the M-F, 9:00 AM-6:00 PM, public about available grants for resolving 9:00 AM -Noon Sat. February, 2009 Page 5 The next few Winn Brokerage and pages reflect Management, LLC 12 Years In The Jackson Area our JALA • Management - Tenant Screening - Legal Services advertisers. • Maintenance - Repairs - Code Inspections Office (517) 784-8833 Complete 511 Wildwood Ave. Please be sure to 10:00 a.m. - 4:00 p.m. M - F Management Services Jackson, MI 49201 patronize these great businesses and be sure to ask about JALA discounts! KNIBLOE HARDWARE 1612 E. Michigan http://www.allprorentsjackson.com/ Jackson, MI 49202 Phone: 782-6823 Store Hours: Mon & Fri: 8 AM - 7 PM Tues, Wed, Thu, Sat: 8 - 5:30 PM Sunday: 10 AM - 2 PM •5 gal. pail paint • white and premixed colors • plumbing , heating and electrical supplies • pipe threading •glass, plexiglass, and screen sold, installed • screen and window repair • carpet shampoo rental • key cutting, rekeying and master keying • Commercial discount terms available Page 6 February, 2009 JACKSON HOUSING MARKET STATISTICS Low mortgage rates and affordable prices in January, 2009 have kept homes selling in Jack- son County with only 5% fewer homes sold compared to January, 2008 based on data from the Jackson Multiple Listing Service. Based on the number of properties listed for sale in Jack- son County, residential homes have a saturation point of 15.77 months down from 16.10 months in December, 2008. Driving the housing mar- ket right now are foreclosed properties. In Jackson County, foreclosed properties make up 17.1% of the properties currently for sale. In 2008, 59.7% of the homes sold were foreclo- sures. For January, 2009, 93 homes sold in Jackson County; 75.3 of these were foreclo- sures. The stats show that there was an overall depreciation of 50.77% from January, 2008 to January, 2009. Although this may sound devas- tating, this coupled with low interest rates means it is a perfect time to buy. If you (or someone you know) is a first-time home buyer, the current version of the stimulus package is including an $8,000 tax credit that does not have to be paid back provided you live there for three years. Submitted by Jacqueline Austin, Prudential Premier Properties STEAK’S EATERY Vandercook Lake “The Great Steak Place” EXCELLENT FOOD The next general meeting will be held on Monday, February 23, 2009. The speaker will be Sheila Plentz, President, from SP Recov- ery Collection Agency in Brooklyn, Michigan. Sheila will be giving a presentation then will take ques- tions from the membership. US 127 North-Jackson Oak Lane Interchange M-50 (McDevitt) EXIT M-50 Steak’s Eatery 4243 Oak Lane US 127 South February, 2009 Page 7 Heartbreak…..Continued From Page 3 Of course, it had its ups and downs, Reynolds Management, Inc. and finally I got tired of picking up Rental of Homes - Apartments - Businesses trash that was strewn all over the yard 40 years of experience; “Let us take the every day, and replacing doors kicked headaches out of owning rental property!” in by boyfriends that were kicked out, Jay Horsfall, Owner/Judy so I sold it. Reynolds, Certified Property Manager—Institute of Real Estate Management I don’t know what happened, but the sign was put up after the tenant called Office (517) 787-1889 Around-The-Clock 2427 Spring Arbor Rd. inspection and said that the landlord M - F 8:30 a.m. - 5:00 p.m. Service Jackson, MI 49203 had the heat shut off. Since these units were separately metered and the tenant was always responsible for heat, I sus- pect the tenant didn’t pay and Consum- ers Energy (in their effort to uplift Jackson), shut off the heat and damag- ing the property which I so lovingly improved. I don’t know if the landlord had filed one of those cards with Consumers Energy that allows them to notify him/ her when a shutoff is pending, but I know for a fact it does not work all the time. Maybe if the landlord had joined JALA, he would have known about the shut-off notice warning that is avail- able. So here we have a rental property probably severely damaged and per- haps even flooded/frozen in the base- ment, and I am sure it’s not covered for this kind of event. Repairable? Sure it is, if the landlord has lots of money to throw around. I suspect that thanks to Consumers Energy, this property will be abandoned, foreclosed on, and sold for a few thousand dollars to some bot- tom feeder who will throw very little money into it since he can afford to after picking it up so cheap. From there on, it is all downhill. Gee thanks, Consumers Energy. Maybe next time we’ll find an elderly, deceased United States Veteran who survived Normandy, but froze to death on the battle-field of social responsibil- ity right here in good ole’ Jackson, Michigan. Submitted by Robert Tulloch Page 8 February, 2009 LPB…..Continued from Page 4 starting the court process generally does. QUESTIONS THAT WILL It’s a business; it’s not personal. Even if HAUNT YOU unit is lead-free and safe for young chil- the tenant is totally abusive, get them to dren, not to mention that we can no longer court and let them abuse the judge. Be be held responsible for any children that 1. How important does a person have to sure to remember your pictures showing be before they are considered assassi- show high lead levels in the units. Of the condition of the unit before move-in course, the COJ has not issued final clear- and you are good to go. One might even nated instead of just murdered? ance. 2. Why does a round pizza come in a take pictures of the move-in and have the square box? To reiterate, the government has $8,000 tenant in the pictures. per unit available as a direct grant (do not 3. Once you’re in Heaven, do you get have to pay it back.) If the bids for re- stuck wearing the clothes you were Q: Does JALA have a list of recom- buried in for an eternity? quired work go over that, there is an addi- mended contractors (electrical, plumbing, tional $7,000 available in monies (no- 4. Why are you “in” a movie, but “on” sewer cleaning, snow removal, lawn cut- TV? interest loan per unit.) This does not have ting, remodeling, and so on?) I have seen to be paid back for five years or until the 5. Why do people pay to go up tall some of the ads in the newsletter. D.B. buildings, and then put money in bin- unit is sold. The requirement after this is all done is that you be willing to take low A: No, JALA has not yet constructed a list oculars to look at things on the income people on as tenants (but you are like this as of yet. I do feel that the sug- ground? not required to do this.) gestion has real merit. We will request 6. How is it that we put man on the Now, onto the issue of housing tenants that the JALA Board of Directors review moon before we figured out it would while the unit is being rehabbed. The the suggestion. Thank you for the great be a good idea to put wheels on lug- grant provides money for them to be idea. gage? housed in a local motel with a stipend for 7. If Wile E. Coyote had enough money food. Or, if the tenant has a place to stay, to buy all that ACME crap shown in Disclaimer: Answers in the ALL the JALA Mem- the grant provides a money reimbursement ber’s Question and Answer Columns are not de- every cartoon, why didn’t he just buy and food allowance. This allows the land- signed to provide legal council. Answers are pro- dinner? lord to collect the rent for the month and vided by active JALA Board members who have 8. Do the alphabet song and twinkle, helps the tenant as well. had a long time in the field and considerable ex- twinkle little star have the same tune? perience. We encourage members to do further Apparently, we are not done yet; tenant research on any question they may have by con- 9. Why did you just try singing the two complaints are surfacing right and left. songs above? tacting our legal council for their free consulta- So, stay tuned for more (and hopefully) tion. Submitted by Charyl Wozniak the final resolutions to the LBP saga. _________________ JALA Q AND A Q: If a tenant is late on their payment, can I call them/visit them to inform them that I will start the legal process of a judgment to come and claim any of their property to sell for their late rent? I am sure you have been asked this process before; is this the fastest way to get paid? L.A. A: Well sure, you can call or go over and say whatever you like, but we prefer to start with the tenant way before it becomes “not paying time.” We would like to see you take time to do a full-on explanation when you are signing the lease with a ten- ant. That helps to lower the hostile cli- mate that comes about when the rent falls into arrears. It is your property, and you can go there to speak to your tenant. However, remember that they do have rights of privacy (even if they are NOT paying), and full-on threats and descrip- tions of taking property don’t go a long way toward engendering full cooperation; February, 2009 Page 9 IDEAS TO CONTEMPLATE-REPLACEMENT RESERVES Submitted by Robert Tulloch; Taken From MrLandlord.com When purchasing a property, it is very important to consider reserves in calculating the cash flow. It is so easy to overlook the long-term effect of replacement reserves when you are eager to add new properties to your portfolio in this current market. The reserve issue is exacerbated by the higher-than-normal losses expected from higher vacancy rates and evictions. That great deal may not be so great after all. Replacement reserves are a way of accounting for the fact that parts of the building are deteriorating each year, and will eventually have to be replaced. A roof, for instance, has a lifespan of about 20 years and costs about $3,000 to replace. Most in- vestors look at the replacement of the roof as a once every 20-year expense that reduces the cash flow for that year only by $3,000 to $6,000, instead of 20 years at $150 a year. Because the usefulness of the roof declines each year, money should be set aside each year. A smart investor actually sets aside cash each year from the property income so that the money to replace the roof is available when the roof needs to be replaced. Other- wise, the investor must come out of pocket that year to make the repair. Remember, this property may only pro- duce $900 a year positive cash flow, and the roof costs $3,000 to replace! Here's the kicker about replacement reserves: There are many items in a rental unit that depreciate from year-to-year. Here's a potential list. Life spans may vary because appliances in one type of unit may be used more than in another differently sized unit and therefore will last for a shorter period of time. So, the cash flow with the refrigerator, stove, dishwasher, five rooms of carpet, central air, gas forced air furnace, asphalt shingle roof, and water heater now has to be re- duced by at least $1,000 per year, or a potentially negative cash flow. Needless to say, any negative cash flow is not good. Even if you buy used refrigerators, ovens, and air conditioners, you'll still probably only break even, which will only get worse with a long vacancy period, an eviction, tenant damage, an increase in property taxes, or any one of dozens of other things that can happen with a rental. In fact, the only thing that generally redeems a rental for which the buyer has overpaid is the tax benefits. But remember, the depreciation the IRS allows on your rental is subject to "recapture" (that is paid back when you sell): Page 10 February, 2009 JALA Newsletter/www.jala-mi.org Presorted Standard U.S. Postage PAID Jackson Area Landlords Association Jackson, MI 511 Wildwood Ave., Suite #2 Permit No. 337 Jackson, Michigan 49201 (517) 782-4384/E-Mail: email@example.com February, 2009 Issue ADDRESS SERVICE REQUESTED OFFICE HOURS Monday: 9:00 a.m. to 5:00 p.m. Wednesday: 9:00 a.m. to 2:00 p.m. Friday: 9:00 a.m. to 2:00 p.m. $100 CASH MEETING LOCATION Pot of Gold The next general meeting will be held Winner: Monday, February 23, 2009 (Must Be Present To Win) Time: 5:30 menu/6:30 speaker Steak’s Eatery Bob Stevens The speaker for the February General Meeting will be Sheila, from SP Recovery in Brooklyn, Michigan. SP Recovery is a collection agency in the area. Sheila will be talking to us about 50/50 Winner: collecting money from tenants and will be happy to answer questions from the members. Chris Cook ($14) IN ORDER TO EXPEDITE THE MEETING, NO DINNER ORDERS WILL BE TAKEN AFTER 5:30 PM. THIS WILL ENHANCE THE EXPERIENCE FOR EVERYONE INVOLVED! “This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the services of a competent professional person should be sought.” From a Declaration of principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.