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All Forum Posts by: Henry Clark

Henry Clark has started 200 posts and replied 3848 times.

Post: Paying too much on utilities

Henry Clark
#1 Commercial Real Estate Investing Contributor
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OP

Ask your utility company to do an energy audit. This will show where your usage is coming from. 

Ask your insurance company or your hvac to do a temperature scan.  This will show cool and hot spots.  Way to check for insulation and airflow issues.  

Both of the above are free for us.  Get your PM to do.  

Post: Recession-Resistant Property Types Worth Considering:

Henry Clark
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General comments. We have also been concerned about the economy and have taken actions.

1.  Self storage is our main investment.  You need to stratify the discussion into ABC markets.  Our investments in C markets say 10,000 population.   Our occupancy has been at 99% forever.  We have increased our rental rates by 25%.   Too small a market for both Large or small investors to attack.  “A” markets draw the large locations and large REITS and oversupply and unit price have deteriorated.  Our “B” market investments are Performing well.  Self storage is great in both good and bad economies due to housing movements up and down.  Having looked at many markets in the U.S. there are still many markets that are under supplied.

2.  MHP maintenance.  It’s been 50 years but sewer line, water line and road repairs aren’t that big of a deal for established parks.  
 MHP needs to be stratified between lot rental only or Park owned units.  
      
  MHP are  housing of the last resort or a low cost entry point.  Both are great for a recession.   

3.  Senior homes.  Ride the Silver Tsunami.  Demand is guaranteed.  Baby boomers with all their wealth.  Problem this is an intense customer, regulatory, secondary customer- children, dietary, therapy, medical industry, employee based industry.  The real estate part of it is large but the easiest part of the equation.      

More than investment type concerns for a poor economy we have looked at the following.      
 A.  Reduce debt.    
B.  Increase cash reserves.   
C. Diversification of asset types.       
 D.  Pruning investments.      
E.  Both hold off or Start new investments.  We have held off starting our next Self Storage location even though the market analysis is concrete.  We are bringing to market a Country Subdivision.  We don’t build houses and this is the worst time to start a subdivision.  Luckily recessions don’t last that long and subdivisions usually take a while to fill.  We are doing this with cash and not a loan. 
F.  I personally would not start a new asset type going into a recession. Unless it was small and I did it for experience so I could ramp up quickly coming out of a recession.  

Post: Crew Enterprises DST Investors with suspended distributions please PM me

Henry Clark
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OP and other DST investors. Would you post your due diligence list and the various Stress Tests you performed on these investments?

The emphasis on Student housing.  What is the underlying concern being identified?  What was the impact of Covid versus your occupancy stress tests?  

We don’t invest in DSTs or REITS.  The investor plays the role of an investment banker.  Always wondered how Passive investors take on the Active role of an Investment Banker.  Could you state your technical profession. Would like to know how closely that aligns with the Active skill sets required.  

Post: Floodplain - To build or not to build?

Henry Clark
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OP not sure on what you mean by more technical.   

1.  Keeping water flow into the downstream neighbors property the same.

2.  Do you create a damming effect causing a portion of a neighbors property to now be in a flood zone.  

3.  Sewage lift pump.  Do you have enough “fall” across your property, or do you need a lift pump.  

4.   Storm drains.  Do you have enough “fall” to connect to the city or reach a storm pond.  

5.  Surface coverage versus drainage.  Example.  If you have say 80% building coverage that drains onto a drive say 5%, it will flood your building.  Grew up in LA and TX.  The most unexpected place I saw this was Lubbock TX.  The town would flood because it was so flat and had to much building coverage for the drainage.  

Post: How to Change ownership percentage in an LLC

Henry Clark
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Point C.  Set your limits at say $5,000 versus $20,000.   That way nothing gets out of hand and you both know what is going on since it takes two of you to pay.   You might have to pay them down 2 or 3 times a month which is a headache, but controls your spending better.  

Post: How to Change ownership percentage in an LLC

Henry Clark
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I wouldn’t do it.  

1. At some point he will want to or should want it just to be him. He should want to keep the same LLC so he has the history behind it.

2. If he goes to either dissolve the LLC or buy you out it could create some cash issues for him.

3. If you're not really good at writing the LLC operating agreement you could get sucked into a bad situation.

4.  To me it is better for him to do a consulting agreement with you.  If he wants you to share.  Taxes will be higher for you but less risk.  

If you move forward with the LLC then reduce exposure. Build these into the Operating agreement.

A.   How to value and you sell out.

B.  Loans and bank accounts require dual approval to add and for transactions.  

C. Credit card and account limits are small enough to trigger early payment.  

D. Would do term insurance on both of you for 5 years. The other is the beneficiary or the LLC.

Post: Commercial 5-year ARM's - Please tell me there is a better way!

Henry Clark
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OP.  This is standard practice.  Except your comment about interest only.   Should be P/I.

Is their an interest ceiling on the extension at the end of 5 years.   Example 1.5% points above current rate or prime.
 
Ask if you can do a 7 year term.  

At the end of your 5 years you might extend a year early or several months early, even if you pay a higher interest rate for one year.  Don’t wait till near term.      


Di you have a term sheet you can share in here?  You can exclude the bank name.  

Post: How Capital Gains Tax Law is Limiting Housing Inventory

Henry Clark
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OP it’s amazing what you think about when you’re out harvesting your cassava or yucca in the heat.

Run the numbers with them. Throw in property tax as mentioned before and insurance.  Old house versus say smaller new home.  

We are in the country side in Iowa.  4,200 sqft on 30 acres.   Acres is taxed very little.  Say $6k property tax and $5k insurance.  Would think if they are older they would go for a smaller house.  We will.   Thus the above are high.   Take their current figures and see what the annual difference is.  Unless grandfathered as noted in a post above.  Their costs should be a lot higher.  

Another reason for them to sale and leave since this comes out of their annual income.  

Tell them my guys will build a 1,200 square foot house in Belize for $30,000 if they own the land and run the utilities.  Property taxes will be about $100, almost zero income taxes and no Capital gain taxes.  The government earns most of its money off of tariffs.  

Post: How Capital Gains Tax Law is Limiting Housing Inventory

Henry Clark
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@Dave Foster.  Thanks for input.  

Post: How Capital Gains Tax Law is Limiting Housing Inventory

Henry Clark
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Quote from @Tyler Munroe:

@Brian J Allen Thanks for posting this, great to hear different perspectives on this issue! Funny, I was advising a friend heading into retirement on your exact same question and we came up with a solution that hasn't been discussed yet. They've lived outside of San Francisco in an extremely HCOL area for the past 30 years. I would estimate they're looking at cap gains in the range of 2-2.5M when they sell, and this is just a traditional SF home. What we decided is to have them rent the space for at least two years (there's no mortgage so this is nice income for them) and then after that make the decision to sell OR 1031 since it's technically an investment property and they've lived in it for 2 out of the last 5 years. It looks like there may be ways to utilize both the primary residence exclusion and a 1031, but we'll talk to a CPA down the road about that (or if anyone here has insight on that please let me know).


 This is a great problem to have but it has its issues.   

As you said check with their CPA. 


IRS doesn’t allow 1031 on primary so they can’t also take the 2 year primary deduction.

Say $500k forever versus $2mm avoidance.  The $2mm sounds best up front.  However if they do the 1031, they will need to do the full amount or the difference will be treated as 100% taxable income.  If value is $2.5mm and they buy a 1031 property for $1.5mm the $1mm difference will be taxable at 100%.   To avoid that they would need to buy a property for $2.5mm or higher.   The problem with that is no money left for their new home.  Unless they want to live in an apartment in their new purchase.  

Definitely discuss with a cpa or financial advisor who knows their entire financial and personal story.