All Forum Posts by: Charles Situ

Investment Info:

Townhouse buy & hold investment.

Purchase price: $109,000
Cash invested: $109,000

3 Bedroom 2.5 bath townhouse. 1,380 square feet. Built 2000.

What made you interested in investing in this type of deal?

Already owned 2 other townhouses in the association and desirable area. Satisfies the 1% rule. Seller lived in it since it was built and maintained the place well.

How did you find this deal and how did you negotiate it?

Was on MLS and just came back on market. I emailed my PM, who is also a realtor about this property. But he was too busy to get back to me. I decided to contact the listing agent myself and told him I am a cash buyer and didn't mind him being a dual agent. Even though there is already 2 other offers, we were able to figure a win-win-win for buyer, seller, and agent.

How did you finance this deal?

Cash. But I may consider to do a cash-out later on.

How did you add value to the deal?

By asking the right questions, I was able to address seller's concerns. Her previous sale fell apart with Roofstock (full offer of $115k) whom asked for $4k reduction after inspection. Since then seller replaced the roof but was still worried about a similar situation. Also she wanted some time/flexibility to shop around for a bigger new place. Seller also provided the previous inspection which shows several small handyman items and an old furnace and roof were the major items.

What was the outcome?

There was already 2 offers: $113k cash and $115K w/ 25% down. I gave 2 offers--$112k w/ a cap of $2k credit (budget for furnace) after inspection & $109K as-is. Both of my offer included a 45 days closing and option to rent for a month at market rate ($1100) after closing. She decided to take my $109K. Listing agent decided to take 5% commission vs 6%. At closing seller was under agreement for her replacement, but still needed the extra month. 1 month rent & security deposit was held back.

Lessons learned? Challenges?

I took a risk by contacting listing agent directly and not having representation myself. But the listing agent was willing to work with me. I also could had ruined my relationship with my PM who was adding as my agent. When I talked to my PM about the place to manage, he was a bit disappointed that I did it without him. But he said he will let it go and agreed that I have a good deal. After this situation, it also seems like my PM is more willing to look at deals for me and ignored me less.

$2100 does seem excessive. I paid $1950 for my 2019 tax returns preparation, which I think is more complicated than your situation--joint filing with my wife, did returns in 2 different states--had 3 properties in MA and one of was sold in 2019, and 5 properties in GA. All the GA properties are in a single-member LLC. I also had multiple brokerage accounts and a K-1 in a publicly traded partnership (not real estate-related).

I have to agree with others that an LLC doesn't provide any tax benefit. Some think that you can write-off more items with LLC, but that is not really you true. I totally get what you are doing with your wife qualifying as real estate professional. If you have a high W-2 income (i think anything about $150K), normally you are not allowed to deduct your reported real estate losses causes by depreciation in the year it happened. You have to carry them over to later years when you have some gains to offset them. But once your wife qualified as real professional, you can just deduct those reported losses and not have to carry them over. However, you didn't need an LLC to do this. You receive that tax advantage because your wife qualifies as a real estate professional, not because you created an LLC.

I don't know if your LLC is single member or in a partnership with your wife. If your LLC is a single member, for tax reasons its a disregard entity, and every property will be a schedule just the same way as if they were owned in a personal name. Also if its single member, the CPA uses the member's SS number and not the LLC's EIN.

I am curious about the area also. What is the typical cash flow returns and price points for SFR in Tucker/Doraville? I invest OOS in the South Atlanta (Henry & Clayton counties) area, but I may consider branching out more north at some point. The south seems to have lower price points and I can still find 1% rule, but I may be giving up on appreciation potential relative to Tucker/Doraville.

I own a couple of multi-families in Worcester. I purchased them in the summer of 2018 and had been in out and a couple of other properties in the area since 2013. Prices have definitely increased very fast. Triple deckers were in the $200-$300k range back in 2013 and now are in the $400K to $500K range. But rents have also increased from $900 to around $1300 for the average 2-to 3- bedroom 1,000 square feet unit, and I think there are potential for this to continue. After losing out on a couple of deals despite being over asking by a significant amount last summer, I decided to invest out of state. But I think it may have cooled off a little and Worcester can still work (both cash flow and appreciation) if you want to live in one unit and rent out the others, and/or put a minimum down with FHA. And you can learn a lot about managing and maintaining properties during the process. I can't do it now because I have a bigger family. But I wish I did more house hacking when I was single. Within Worcester, the best area are on the West (Tatnuck, Salisbury), North (Burncoat) or East side (Lake Park) and not so much the middle. Both of my properties are on the East, which gets high rental demand because of UMASS Hospital and Medical School. When you do your numbers just have a good budget for capex because most of the multi-families (and I would say a lot of areas in MA) are older. If Worcester is an area you are interested in, I have a great PM.

@Mark Weinstein On the market analysis, in addition to population growth and low unemployment rate, you should also consider the diversity of industries, which is one reason I invest in Atlanta. You don't want a market that is too exposed to one sector or one employer. For example Detroit suffered from the collapse of the auto industry and Orlando is being hurt currently because it relies on tourism (e.g. theme parks). But I definitely agree that having the right team, particularly your PM, can make or break your investment despite numbers looking great on paper. A good PM will also be very knowledgeable about the micro level of what neighborhood is good or not.

@Jason Pennacchio At the moment there is a big bifurcation or spread between investor-owned and primary residence. Lenders are generally more cautious about potential tenants not being able to pay rent in this high unemployment environment. The best I got also is 4% for investor-owned refi in my local market. Also many lenders are not doing cash out for investor-owned at all.

To me just being able to trust the PM to do the right things. PMs may not have the level of urgency as you do for your properties. But you don’t want to have to manage the manager. You want someone that is on top of things and good at communicating. I live in MA and invest in the Southern Atlanta area with 2 PMs. Both of which are agents and investors also, which is generally good because that gives them perspectives and know where you are coming from. But I find that when they are too busy, these other roles can conflict with your interest. One of them missed a lease renewal and I get a sense he is trying to do too many other businesses because he was too busy to return my calls or emails. So, I moved some of my properties to the other PM who has a team with a strong contractor & vendor network to handle all the property management issues and agents working for him also, so there is a clearer line of responsibilities. Meanwhile the person in charge can also help with me with finding and evaluating new deals.

@Katrina Cabral I guess on a lot details of the property and exactly what price you purchased it at. I can also connect you with my property manager who has done a great job for me if you decided to hold it. Feel free to direct message me if you want to discuss the details.

@Tyler Evans I have been investing out of state in the area, mostly south of Atlanta in Clayton and Henry counties, for about 2 years. I got into the area for some of the same reasons you mentioned (diverse set of sectors, some population growth, and lower price points & better cap rate than my home market).

@Joel Owens I am curious to know what are these craphole areas, so I could avoid them. I work with 2 PMs that are also agents. One of them that was representing me wasn't as selective in picking the areas. Through him, I did buy some places in Jonesboro and the southern part of Decatur (isn't as good as north Decatur) that I later realized that are tougher areas. I am now using the other PM as an agent who is much more informative about what is good or not. I am learning, the area can be very spotty, especially when you get closer to the city.  

@Michael Ehmann I love to get some contact for wholesalers if you don't mind. I have a great property manager. But one area I am lacking is sourcing deals. 

I can't say I know the Atlanta area very well. But I am an out of state investor and I have been growing my portfolio just south of Atlanta, mostly Clayton and Henry Counties (Rex, Stockbridge, and McDonough), for the last 2 years. Anecdotally, I am not seeing a slow down. I am under agreement on one where there were 3 offers. Also the seller on this is trying to move-up (sell this one to buy another) and the listing agent said they put offers out on 5 before they were under agreement. I didn't ask which areas they were looking though.