All Forum Posts by: Bobby Lee

I agree with those saying look in California.

You mention working in IT - if you're in the startup world, make sure they understand stock options, 83(b) elections, and the plethora of rules in that area as these issues may not be familiar to smaller firms that don't regularly deal with startups or employees of startups.

Here's a general rule of thumb:

If it is to bring it back to good condition, it's a repair & maintenance expense.

If it is to improve, upgrade, or somehow make it better than the original, then it's a capital expenditure.

I suspect most turnover expenses are repairs.

First, it's almost never a good idea to buy a house you would otherwise inherit. 

Why do they need to sell the property in retirement? Are they looking to use the cash to buy a new house to live in? Do they just not want to deal with tenant issues?

If they want to buy a home to retire in, then you can buy the home they like and rent it to them. You have the perfect tenants (they're not going to destroy their son's property!) and you capture the depreciation.

If they don't want to deal with tenants anymore, then they can hire you as their property manager & tenant. You'd be doing the same anyway if you purchased he property from them. They get less headache, nobody pays capital gains, and you can mutually decide how much you get paid as property manager and how much rent should be depending on whether they want to give you money (property manager fees) or you want to supplement their retirement (rent), and you get the property when they pass on.

Sudip, take it as a learning experience. Either (1) you need to look upmarket when looking for new properties or (2) you need to reevaluate how you screen tenants. Are you good at "reading" people? What kind of background checks or reference checks did you do?

Back when I was in graduate school I lived in a fourplex, across the hall were some undergrads. Total party animals, made a mess of the place and even broke a window before they moved out. Total headache for the landlord. We were on great terms with the landlord so he'd tell us some horror stories about those boys. I listened and empathized, though I liked them since I got to party with undergrads. :) But I would not want them as my tenants either. Landlord told me they had shown up dressed nice, spoke well and respectfully. So sometimes bad tenants are just hard to identify - that may just be what you got yourself into also.

I've been lucky, all my tenants have been able to pay.

One is a small business owner and need to work out a rent deferment, which I obliged. But once they were allowed to open again, they were back to work and promptly paid the backrent instead of continuing with the rent deferment.

Check your local laws about this. In California it's illegal to evict a tenant like that. IIRC if a guest stays more than 30 days, they're a tenant under landlord-tenant law, not a hotel guest.

For a little added protection at no extra cost, you can get a Google Voice number and use that exclusively for cold calling.

In a hot market I'd say it's a good idea. I've done it twice as a buyer now.

Even though agents are supposed to be watching out for their clients only and not for their own self-interest, we're all human. So while other buyer agents won't know what the strongest bid is, guess whose buyer agent *does* know what the strongest bid is?

And this agent gets a bigger bite of the pie. Again they're not supposed to take that into account, but again we're all human.

Now some will say "I can't represent both parties" and I actually prefer that. They're honest. Then I ask them to recommend someone from their office, as I'm not currently working with an agent. Now who will the selling agent likely help out - some agent from another firm or their buddy they just recommended over to you? Maybe their buddy will hound them for clues as to the strongest bid and they'll play a game of "hot or cold" with the numbers so the selling agent doesn't have to feel ethically compromised. At any rate his buddy is more likely to get helpful hints than some agent from another firm.

You have to make a judgment call though, as you want to make sure you don't end up with an unethical one that will really try to fleece you by pretending there are higher offers. If someone is willing to represent both sides, you really don't have someone fighting just for you.

Don't.

Let them pass it to you when they pass on. No reason to increase basis for you.

In California you'd also pay property tax based on the new sale price rather than their purchase price. Don't know where you are so I don't know how your property tax is calculated.

Source: I am a tax attorney and accountant.

You really have to start within your friends circle.

Will everyone own an equal share? If there is a capital call, will each partner be able to meet it? What happens if due to unforeseen circumstances, one partner cannot (ie, roof needs to be replaced and it's expensive). Who is primary contact, do you want a property manager or will one of the partners manage? If a partner manages, how will he or she be compensated?

What is everyone's exit strategy? Will current partners have right of first refusal? Can current partners sell to other parties? If a partner wants out, how will that share be priced, and who pays for the expert that will price it? Have you agreed who will keep the books, how often they will be shared, and who will handle taxes?

All questions from the top of my head. Partnering can bring more capital to get bigger and better properties, but you need to lay a solid understanding and foundation with your partners.