All Forum Posts by: Brandon McCombs

This sounds similar to the apt bldg I bought last October. It was priced at $244900 and has 7 residential units and 2 commercial storefronts. Annual tax is $3k, insurance is $3k. Upon a walk through of the property we knew there would be some work to do. We didn't have the cash to pay or that or even have a down payment on the property itself to make a sale happen. So we asked for $60k in owner financing. Eventually we were able to make a deal that did include owner financing. This allowed us to only have to borrow 80% from our primary lender to maintain the 80/20 LTV ratio and it also provided us with some add'l cash to use for the repairs we had planned. Your 65k repairs is obviously quite a bit more than what we had though so it may change the likelihood of owner financing working. But if the sellers have the cash then they may be willing to front it to you for a small interest rate fee just so they can get the bldg sold. So I'd try the owner financing route as you mentioned to see if they will be interested.

@Ariel O.

I've found that I can't get any tenant-specific information from HUD caseworkers until I am officially their landlord and I have to wait for the title to be sent to me after closing to provide that to HUD as proof of ownership and therefore the new landlord. So that trick won't work for me.

As for background checks, HUD could care less. HUD doesn't even get involved until I have approved the prospective tenant, at which point I fill out the prospective tenant's HUD paperwork and submit to HUD. HUD will then contact me to schedule an inspection of the rental unit. Prior that inspection all the lease paperwork between me and the tenant has to be completed. If we don't approve the tenant through our application process then HUD isn't even contacted because there is nothing for them to do yet. The applicant simply moves on to looking for another rental unit with a different landlord.

It's up to the landlords to have an application process, to perform background checks (or other checks), to charge for a security deposit and any pet fees. HUD doesn't get involved in any of that so the landlord still has control over all that, which is nice.

I have apartments in north central wv. I inherited section 8 tenants through the purchases of a 9 unit bldg. I've since gone through the process twice with new HUD tenants.

For me I told the local HUD office to put me on the landlord list. Since then we get calls a few times a week asking if we have something available. The people who call already have their voucher. We don't even need to specifically look for them or advertise. HUD essentially did that for us.

When they call we tell them what we have when they ask. If something is available we offer to show it to them. If they like the unit we have go through the same application process as a non-HUD tenant which involves a background check and other checks. We don't do income checks because HUD already does that.

If approved we fill out the landlord portion of the paperwork they get from HUD and then submit to the HUD office. In the meantime we sign a lease with the tenant. HUD will inspect the unit and use many of the same inspection checklist items as the local city inspector uses for issuing certificates of occupancy.

If it passes inspection the HUD caseworker will sign contracts with me and with the tenant in separate contracts. They give us paperwork that specifies how much HUD pays and how much tenant pays. HUD *will* actually allow a tenant to pay up to 40% of their income for rent. We have a tenant now who is doing that. She is on the edge of not qualifying for assistance because of her income, despite having 3 kids.

The tenant and us must have a lease signed prior to the HUD inspection. When the unit passes inspection and those other contracts are signed that's the date HUD uses to define the start of the lease and thus the rent they pro rate for the first month. We have one tenant who had been paying nothing because she is disabled. Her SSI disability kicked in and she now pays about 25% or so.

We have HUD direct deposit their portion of all tenant rent in our bank account. The rest we collect as cash from each tenant. We give them receipts because they ask for them. I believe it is to show proof they aren't paying more than HUD says they are allowed to, otherwise they are indeed in violation of HUD policy. We as landlords also can't demand they pay more than what HUD says they can.

However , we can charge pet fees and security deposits just like with non HUD tenants.

Despite the local HUD office servicing 8 counties around me the caseworkers are able to get paperwork and inspections turned around in 1-2 weeks.

I closed on a 9 unit (7 residential and 2 commercial) last October. Sale price was $239k. Borrowed $198k from a local bank (northern West Virginia ) acting as primary lender with 20 yr, 4.99% for first 3 years as terms. Don't recall what it adjusts to. 

Also got $60k in owner financing with 10 yr amortization, 5 yr balloon at 5%. I didn't put any money down. Even borrowed $10k from my step dad to pay for appraisal, inspection and first year insurance, which has since been paid back. 

Jon

I know its cost segregation. I've done it before just last year with another property but in that case it was just for all new stuff (appliances and some kitchen improvements). Other than the property as a whole nothing existing prior to the purchase was depreciated. 

With that said, my question went unanswered. Anyone else know the answer?

Hello,

I just bought a 9 unit bldg last year. Most of the residential units had at least a fridge and range. I had to buy a couple new fridges and a new range for some of the units.

Obviously the new appliances should be depreciated on my 2014 taxes. But to me it isn't obvious whether the existing appliances can be depreciated on my taxes since they weren't explicitly purchased (i.e. they weren't itemized on the purchase contract) by me when purchasing the bldg but they were included when I took ownership.

And if the answer is yes the existing appliances can be depreciated then does that also apply to other non-appliance items such as the bldg roof or the 3 furnaces in the basement that are used by the first floor storefronts?

thanks

There can be some great deals but there are a few areas of high property values. Two of them are within 15 minutes of me in north central WV, one of which is where West Virginia University is located. As an episode of House Hunters a few years ago showed, some people are surprised when they see what the cost is of some of the homes around here because of simple supply and demand fundamentals. They hear WV and assume that everything is cheap here. You still won't find prices on the magnitude of California but they may be higher than what you may expect. But the vast majority of the state is inexpensive and it doesn't require traveling just a few miles from high priced areas to find cheaper land or homes which is a big plus.

To choose between CO and WV is difficult without knowing your requirements. We could go on and on about either state and still not mention anything relevant to your decision criteria.

If you do come to WV and are in need of a real estate agent in the north central region then let me know. My wife will be starting with ERA Signature Properties in January. :)

@James

1. I haven't been doing any type of payroll/draw but rather just making a withdrawal from my business account one or two times a year since the income from my properties isn't my sole income. But for someone who wants/needs something from their business as a paycheck type of thing you may want to discuss what I mentioned above, which is a draw, with an accountant. A draw is what a business owner would take from the business as sort of their paycheck, but it isn't a formal paycheck. I don't know the ins and outs (since I haven't yet looked into it myself).

2. I used to put the deposits for my first 2 units in to my operating account but when I purchased a 9 unit apt building a month ago I had a plan in place to create a better system. I'm in WV so this wasn't necessary but I have a separate account for security deposits now where they just sit until a tenant moves out. That way I know I have them if needed, plus it helps with tracking them for various other reasons (e.g. IRS). I then have separate checking accounts for each of my physical properties for inbound rent. Then I have a 4th as my primary spending account against which I write checks. I'm considering adding another account for the 10% of gross rent for repairs I try to save each month per property.

Other states may have specific laws regarding separate accounts. I know in some states you have to track interest and pay tenants interest that accrued while you held their security deposit so having separate accounts are almost a necessity I think for things like that.

3. Build up a cushion not only for yourself, because you never know what may happen, but also for the bank so that you can show you have reserves. In the beginning your personal reserves will be what your lender looks at but eventually they may only look at your LLC's reserves, especially if you have no W-2 income like many RE investors. After you have a large enough cushion then you can start adding on to that for reinvesting. I wouldn't worry about paying down the mortgage, at least not initially. You have tenants to pay rent to pay down your mortgage so you aren't in any danger. You can always save money down the road to make lump sum payments to speed up the mortgage pay off. I know that having that mortgage hanging around can make one paranoid but as long as you have tenants' rent covering it I wouldn't worry about it.

4. I can't speak to this one.

5.  Or this one.

I used a local bank in northern WV that my parents referred me to. I have 2 commercial loans with the bank now through my LLC. The mortgages are the only reasons I do business with them at this point because they don't have any branches near me that I can use for personal banking.

The first mortgage was only for about $70k but the most recent one was last month for $200k. In both cases they allowed me to have 20 year mortgage at 4.99%. The rate on the first mortgage is good for 10 years after which it goes to the rate equal to the US 1 yr Treasury note + 2%. On the 2nd mortgage it's 4.99% for 3 years; I don't recall what it changes to after that. I only needed 20% down for the first mortgage. For the 2nd, I also had owner financing of $60k but the building I bought was only $239k. My bank still let me borrow $200k so that I'd have some cash for whatever I needed. They have told me that they may let me do 85/15 LTV but it hasn't been necessary yet.

So I'd say shop around, especially to avoid having to roll into another note 5 years down the road, even if you didn't actually have to pay the balloon payment.

Nghi, tenants can still be short-term; you never know how long they will stay so a sub-job still works.