All Forum Posts by: Daniel Weaver

If you are investing out of state, I'm assuming you are looking at turn-key investments?

For turn-key investments, I would think the property manager would make a good deal more difference in overall return than the location. Now that you have narrowed things down to a few cities, I would research who you want to use to manage the property and make your decision based on who you want to work with rather than where you might get 1-2% more paper return.

The issue is not whether personal rate or corporate tax rate is higher, but what is the TOTAL tax rate on the income? The 5k income from an LLC is taxed once at the personal rate. The 5k from the corporation is taxed once at the corporate tax rate and then taxed AGAIN when you take the money out of the corporation as salary/dividends or whatever. That is why corporations are referred to as having double taxation. So the question is what will the total combined tax rate be on income. With the traditionally favored tax rates on capital gains, the total tax rate is usually lower with pass through entities like an LLC on investing activities, but might not be as favorable for active business activities.

@Account Closed - I've not used wholesalers. My two properties have been FSBO, and one of those was an off-market connection through a co-worker. I've made offers on MLS properties, and will be making an offer today on another MLS property, but have not yet had success in getting any of my offers accepted on these listed properties. As Elizabeth mentioned, the RE market is hot right now.

I can't tell you which zip codes are best, especially since neighborhoods in Memphis can change drastically within a single zip code. I focus on parts of 38111, 38117 and 38134 - and prefer properties that have ARV of $90k-$150k for my buy-and-hold strategy. Then again, as buy-and-hold, I don't need many deals - just own two houses currently and looking for my third - so I can be quite selective. I can afford to wait for the right one.

Once you have a chance to drive around, I'd suggest looking around parts of Mid-town, Cooper-Young, Harbortown or East Memphis if you are looking for upper-middle class types of properties. These areas are probably not going to fit neatly into a zip code, but you should get a feel for the neighborhoods pretty quickly by driving the streets and comparing what you are seeing to the rental and sale prices on zillow.

@Elizabeth Wilson has flipping experience, while I am just a buy-and-hold guy for now, but as a lifelong Memphian, I would point out that Memphis is not known for appreciation. There may be a little, but I think most of the flippers here have to focus on getting deal flow set up to find properties for under market value. If you get a great buy, and add value through repairs or remodeling then you may be able to make a flip work, but don't count on any unforced appreciation.

Also, look up Memphis Investors Group - monthly general real estate meetings and other meetups throughout the month. May help you make contacts here! Welcome to Memphis!

I can't tell from your post, but if you are just speaking of multifamily meaning a duplex or triplex to house hack to pay your mortgage, then I would focus on where you can get a good professional job first, then look in that market for a place where the numbers work to house hack. If you are looking at larger multifamily in Memphis, then try to talk to @Erik Nowacki who moved from CA to Memphis to own and manage multifamily. He has a good reputation within the Memphis Investment Group, a local investment club here. But, don't be fooled by the paper numbers of multifamily in Memphis. There are a number of abandoned multifamily apartment communities in Memphis that were shut down due to the high crime and difficult tenant base. Unless you have a clear plan and great management it will be difficult to escape the same fate.

I think what you are failing to factor into your analysis between the 30k home and the 60k+ home is the quality of tenant you will be able to attract for each type of home. The lower the home price, the more likely the potential tenant pool is going to be less than satisfactory. I live in Memphis, but even living in Memphis, I prefer to focus on homes that are worth $80k+ ARV and $1,000+ monthly rental value. There is a lot of competition for these homes but sometimes you can still get a deal. Cash talks, and sometimes will get you a discount - though being out of state, it might be hard to find the best deals. A reputable wholesaler might be your best option there. But since you are investing out of state, I would recommend finding the property manager you want to work with first, then find a house second. It's not going to do you any good to find a house via realtor if you don't already have a team set up to manage it.

Agree with @Chris Seveney - I had a fire at one of my rentals and the insurance check was written out in my name AND in the mortgage company's name. I had to endorse the check and turn around and mail it off to my mortgage company. Then my mortgage company had a list of things I had to submit, including inspections they performed, before sending back the money.

I would think anyone with flood insurance would have to go through the same process of working with the mortgage holder to get access to the insurance funds.

Now if the government steps in and offers money to affected homeowners, no telling what rules will or will not be in place around those funds.

Thank you for your advice! @Jason Bott @John Mocker

I'll see what my agent has to say and then go from there. Helps to have more insight into what things I should be asking about, so I appreciate the help.

So I currently own two single family rental homes in Memphis, TN. One of my properties had a fire in the attic caused by an electrical short that somehow caused the gas line to the furnace to blow up.

Thankfully a passing neighbor called the fire department, they responded quickly, and put out the fire while confined to the attic. Best case scenario for the situation, it seems to me. However, as would be expected there were still major damages to the house - HVAC, hot water heater and roof were damaged by fire, the ceilings, walls and floors damaged by the water draining from the attic. So my policy with National Lloyds paid out the cap for fire damage in the policy, $79k. Then, as I suspected they would, they cancelled my policy. 

Not sure why they would cancel, since there was no blame assigned to anyone for the cause of the fire, and the home will have upgraded electrical, HVAC, roof etc. so theoretically should be much lower risk now on several fronts, but I expected the cancellation anyway knowing how much insurance companies don't like to pay out. They're taking their marbles and going to play elsewhere I guess.

I've emailed my current agent to ask for options on getting new insurance, but thought I would ask here as well. How easily will I be able to find an insurance company to insure the home right after a $79k loss?

Relatedly, since the cancellation date given is sooner than repairs are likely to be finished, will I need a builders policy or vacant house policy temporarily until the house is repaired and re-rented?

Just to add my two cents here as a native Memphian:

Your home is in a fairly nice area. Newer area than my own neighborhood, and fairly close to the world headquarters of FedEx, a major employer in Memphis. But looking on Zillow, it's easy to tell there are a number of homes for rent in the general area for similar pricing with yours. As others have mentioned, this time of year is not the best for people moving, and there should be more activity in the spring and summer.

What comes to my mind is the old cliché: good, fast, cheap, pick any two. You have three factors, rental price, tenant quality, and time on market, and you can pick two. I.e. if you want good renters to move in quickly, you will have to make the price cheap.

Your rental price seems quite reasonable for the area, but having a fair price doesn't change the fact that there are lots of rental options on the market and not so many people looking to move in the middle of winter.

Real estate is not a microwave way to make money, it's a crocpot method, and if your house sitting empty a month or two is causing you this much stress, then you might be better off investing in something else.

I know it must be frustrating to have it sit empty, but I hope you don't think real estate investing is all a hoax just because you are experiencing this issue with vacancy up front. It is intoxicating the first time you get a rent check, or at least the first time you have a month with no issues and still get a rent check. At least it was for me. Seems too good to be true having someone drop off money and I didn't have to do anything. Amazing, lol.

But as you are finding out, there are issues to be handled, it doesn't all go your way, and so it's not for everyone. There's a reason most folks are happy with their mutual funds.