All Forum Posts by: David Lao

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Buy & hold 4-plex with deferred maintenance. Below market rents, FPE panels, fuse subpanels, mold, leaky roof, non-compliant sewage lateral, and dated units.

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

30-yr fixed-rate FHA loan interest at 2.25%/yr; a block away from two major roads with commercial properties; the good side of MacArthur Blvd; good foundation

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

Off-market deal through family contact. Negotiated cost of sewage lateral repair.

How did you finance this deal?

FHA loan

How did you add value to the deal?

Sweat equity by addressed deferred maintenance and modernizing a dated unit

What was the outcome?

Closed the sale in Feb 2021

Lessons learned? Challenges?

FHA self-sufficiency test is a real thing and can affect your down payment. Don't trust your loan officer who isn't worried about it unless he convinces you with his or his calculations.

Hi BP community, I'm looking for some help. I've a 4-plex in Oakland, CA. I'm planning to rent one unit to a prospective tenant who has an approved Section 8 voucher. The Oakland Housing Authority will be conducting an on-site inspection. Is this inspection limited to only the unit that will be rented, or will it extend to all 4 units (that is, the entire building)? TIA!

I'm in a similar situation in Oakland. Any references anyone??

@Aaron W. The local economy doesn't seem sturdy. The coal industry was once popular there, but has since moved out. The population has been taking nearly double-digit losses each decade for the last few decade. I started investing in this city and when I was close to broke, which was why I overlooked some indicators. My original goal was to buy and hold there forever, but I now have second thoughts about whether that's the kind of area that is safe for a long-term hold.   

@Account Closed - I would think that population decline is a major indicator of real estate prices (supply-and-demand). Agree or disagree?

--

I was thinking about selling it now while the market is hot due to COVID-19. Locals there told me that in the last year, the market has been hot, which is uncommon for that town. I would be parking the sales proceed in stocks or CA real estate, which are both at all-time highs right now.

The options I'm seeing are:

1. Keep them as is. 

2. Sell now when PA RE is hot and reinvest in CA RE.

3. Sell later when CA RE is cold and reinvest in CA RE.

4. Take out loans and reinvest sales proceeds

In one sentence, what's the worst mistake you made on a fix-and-flip investment?

I live in California and own SFRs in a small central PA town since 2017. My cash-on-cash return with 40% leverage is about 11-12%. The rental market seems good, and each property is < $100K and exceed the 1% rule. However, I don't expect the home value to appreciate and am unsure if it makes sense to keep them there long term due to the town's declining population.

Thoughts?????

@Dave Foster @Basit Siddiqi @Bill Brandt @Bill Exeter

Thank you all so much for the info. I've learned quite a bit!

 Thanks Bill for explaining that. I depreciate annually and will continue to do so thanks to your input!  It seems like the depreciation recapture is ~1:1 with my tax-savings (I'm close to the 25% federal income tax bracket). 

 Thanks Basit for your professional insights. It seems like it would make sense to sell multiple rentals at the same time so that one would only have to do the 1031 exchange once.  

Thanks Bill for pointing out the net capital gain. I've some homework to do. What do you mean by the following?

• "25% depreciation recapture. (A good guesstimate is tax = 1% of the original building cost (total minus land) every year held."