All Forum Posts by: David Beard

Haven't encountered a drug background, but I will pass along that Nolo's Landlord's Legal Guide indicates that the Fair Housing Amendment Act protects prior drug users under the "disability" clause, even if they have felony convictions for drug "use". Drug "dealing" or other drug charges would not protect the applicant, but you cannot refuse to rent to someone solely because they're an ex-addict.

Yes, you can deduct expenses as of the date you began advertising the unit for rent. Keep a copy of the ad in your tax files to prove the date.

And it's all expenses beginning at point of advertising the unit: taxes, insurance, utilities, depreciation, etc. Depreciation will be based on the lower of your cost or market value at the point you converted it to rental property (i.e. the date you advertised it for rent).

Welcome to BP, fellow Louisvillian.

Cap rate is "net operating income" after expenses, divided by your all-in costs to own the house (purchase+closing costs+rehab expenses).

Generally expenses can be assumed to be about 50% of rent (taxes, insurance, repairs, vacancies, turnover expenses, replacement reserves on roofs, etc.), so you need $1,400 in monthly rent on an 84K house. This equate to a 20% gross yield, and a 10% net yield (cap rate).

Here are a few blog posts on the topic. In the comments of the first, attorney Clint Coons advocates the land trust/LLC technique.

http://www.biggerpockets.com/renewsblog/2010/10/14/will-your-real-estate-asset-protection-stand-up-in-a-fight/

http://www.biggerpockets.com/renewsblog/2009/03/11/land-trusts-asset-protection/

http://www.biggerpockets.com/renewsblog/2010/09/23/land-trust-traps-for-the-unwary-investor/

http://www.biggerpockets.com/renewsblog/2010/09/30/land-trust-traps-for-the-unwary-investor-2/

Clint's BP site: invaluable reading.

http://www.biggerpockets.com/renewsblog/author/ccoons12/

Is this a conventionally underwritten loan? If so, then they're just maintaining compliance with Fannie/Freddie underwriting standards.

Bottom line, if you believe the risk of the loan being called down the road is outweighed by the asset protection benefit, then you don't ask, you just do it. People do this all the time, without asking. The thinking goes that as long as you make your payments timely, the bank will never call the loan. I'm not so sure they wouldn't in a massive rate rise scenario.

There is also a school of thought around transferring to a land trust (which won't trigger the Due on Sale clause) with an LLC as beneficiary (to get the asset protection and make the whole structure appear too convoluted and complex to a suing lawyer). I haven't heard anything definitive on this one, been meaning to get with my attorney on this.

Actually, I was predicating this on 30% ROI, which is very achievable and is conservative on leveraged buy and hold investments in this area of the country.

And this doesn't even consider the hit taken down the road when you pay taxes on at least some portion of your retirement accounts at ordinary income tax rates (accept for a Roth, but I don't think that is what is being contemplated here).

I agree that this would be more appropriate for those under 55.

However, if you believe tax rates will be materially higher in the future (most sentient humans think this will be true), paying the taxes now at lower rates will offset at least some of the penalty. And importanty, you'll have your funds on an after/tax basis, presumably free from the long arm of the IRS. Retirement accounts are unhedged gambles on future tax rates, and the odds looks poor.

To create a live hyperlink, you type "" before the web address and "" after the web address (don't type the quotation marks).

John -- I would not pay for a "full rebuild" policy of 250K. That coverage is ridiculous when buying at distressed prices, such as $45K, and the premiums will just kill your cash flow unnecessarily. If it burns down, yes you'll just take your $100K and be happy with a nice gain. (You wont' "lose" 150K like the dim witted agent said.) Worst case you raze the property and sell the lot. Someone else may disagree, but this is how I've approached it.

David

The umbrella policy is a must, will cost just $200-250/year for 1mm. You might want to up the liability on your house to 500K from 300K. This will cost very little.

HUD has full-blown appraisals done that support their asking prices, as well as the BPO from the listing agen. There is no way they are "confused" about what they're selling, if that is what you're asking. There may be a typo, of course, in the listing. For awhile they were posting the appraisals on their site, but I believe they've not decided not to do that at this point, unfortunately.

The numbers look solid, even at 50K list price, if it's in at least a C+ to B- area.

I think Guide One is very reasonable if they write in your state. You can look for a local agent on their web site, who will probably be an independent.

Otherwise, yes, use an independent agent that represents numerous carriers. Some insurers are better on property type A, others on property type B, etc. They can shop among their companies.

You can call and benchmark it against a State Farm or Farm Bureau if you like.

Get $500K of liability coverage in the policy, and ask for umbrella protection of at least 1mm (2mm even better); doesn't cost that much and necessary to help protect assets against lawsuits.