All Forum Posts by: Brian C.

What is the best way to determine if there's demand for MF in a specific market? Should I be focusing on vacancy rates, net migration, job growth..? Are there rules of thumb or ratios people look for? Is there anyway to calculate the total market demand (potential renters) vs current supply (total units)? I'm looking to purchase a small MF near Denver CO, but need help determining if there's demand in the secondary market. Thanks!

My two partners and I recently formed an S Corporation with the goal of generating cash flow from fix & flips so we can reinvest the profits into long-term rentals. We decided on an S Corp so we could reduce SE taxes by only paying SE taxes on a "reasonable" salary as opposed to all of the Company's profits. 

In addition, all 3 of us have good paying jobs ($100k+), so we have no problems reinvesting all of the profits into LT rentals. The ownership split is 40%/40%/20%. 

Based on our year to date activity, we should generate a before tax profit of at least $200k, but hopefully closer to $500k, if we continue at the same pace. We have implemented an Accountable reimbursement plan to reimburse us for mileage, cell phones, meals, travel, etc... In addition, we are considering a self-directed 401k so we can defer up to $53k per shareholder (less contributions from FT jobs) and then reinvest the self-directed 401k funds into LT rentals. 

Also, due to the reasonable compensation rules for S Corp's, I've decided to only pay a year-end net zero bonus, made up of only federal and state withholding, SE taxes and possibility 401k contributions, so it covers each shareholder's total pass-through tax liability and avoids the need to pay monthly paychecks or quarterly tax estimates at the individual return level.

Based on the above facts, am I missing any tax saving strategies? Paying close to 50% in taxes significantly reduces our property buying power so I'm looking for any legal way to reduce our tax liability. 

Is there an argument for paying our wives (assuming they actually help the business in some way) $18k per year and deferring it all into our self-directed 401k? Should we pay each shareholder $140k (assuming we can afford it) so we can max out the 401k employer contribution?

Lastly, will a self-directed 401k allow us to accomplish our goal of reinvesting into LT rentals?

Sorry for the long post and appreciate any feedback.

Thanks!

Has anyone converted a multi-family property into a vacation/ST rental? If yes, how did it work and what assumptions did you include in your analysis? Thanks! Brian

What are the best ways to find and work with wholesalers? We are particularly interested in Ventura and LA counties.

Sarah Ziehr in this case the 2015 financials came from their property management company so I'm fairly confident with the numbers. Currently the financials show a lower property tax expense based on the original purchase price. Should I adjust the 2015 actuals to include the higher property taxes in order to calculate a more accurate picture and CAP rate? Or should my offer be based on the 2015 actuals and then I would compare them to my own estimates based on market rent, higher property taxes, changes in R&M estimates and PM fees, etc.?

I'm currently looking at an 8-unit Multifamily property and I'm having trouble determining the best way to value the property and my offer price. Which of the following amounts should I apply the local CAP rate to? 1) the NOI from the actual 2015 financials? 2) the NOI from the actual 2015 financials adjusted for an increase in property taxes based on the asking price? 3) or NOI by starting with the latest rent roll, apply the local vacancy %, use the new property taxes, use actual insurance and utilities from the 2015 financials, estimate annual maintenance of $500-$700 per unit, include annual replacement reserves of $200 per unit and include a 4-8% property management fee based on size and location? My concern with #3 is what if the actual 2015 NOI, in #1 or #2, is lower than my estimate? Does it make sense to pay more because I can operate it more efficiently or the rents were just recently raised? Thanks!

Roy N. Thanks for the feedback. I have a few follow-up questions: 1) if the property is currently self-managed, is it appropriate for me to include a PM fee in my analysis when valuing the property? This will decrease the current value and ultimately my offer price. Is this common practice and will the seller understand as long as I'm using industry/local market averages? Same goes for landscaping, etc... 2) Continuing from #1, if I wanted to sell a property, even if I decided to do all the R&M, landscaping, PM, etc. myself to create the best financial picture a year before sale, is this pointless if the buyer is just going to value it based on the use of 3rd party vendors and a PM? 3) at what point should you reduce the offer price for deferred maintenance? We are already including a CAPEX budget as part of our investment b/c our goal is to strategically rehab units and increase rents over a 1-2 year period, however what types of deferred maintenance are sellers usually willing to accept? Thanks!

I recently visited a 10 unit multi-family property with a broker and liked the property. In most circumstances, I request the rent roll and last 2years of financials, so I can run an analysis on the current actuals, to calculate the market value as is, and compare it to my own upside ProForma. However, in this case, I received a rent roll and some handwritten (more like scribble) expenses which contained the actual utilities paid each month and insurance. I asked the broker again to request the financials, however he said the original owner, of 40 years, doesn't have financials readily available and I would need to rely on the available info until we make an offer and entered the due diligence period. The broker's advice was to use the rent roll, a 3%-5% vacancy factor (class A area in SoCal), calculate property taxes based on the asking price, use the actual insurance and utilities, include $500-$700 per unit for R&M, $200 per unit for replacement reserves and a management fee if we needed a 3rd part PM. Does it make sense to use these amounts when calculating the value of the property and my offer price? I usually use actuals, not a mix of actuals and my own estimates. What if the owner just raised the rents used on the rent roll? Does it make sense for me to include 12 months of rent based on the rent roll? What if there's a ton of R&M or other costs I'm not aware of? Is this a common situation and should I just make an offer using my best guess until we get under contract and into due diligence? I appreciate the help!

@ Cristina Ruffini - unfortunately I'm not a Pro member at this time. Do you mind sharing a few ideas from your forum?

Does anyone have experience using crowdfunding sites for loans or investors?