All Forum Posts by: Greg Scott

Here are some thoughts I hope help.

The benefit of selling now is that as an inherited property you will likely pay no taxes because you inherit it at a stepped-up basis.

I'm not a huge fan of buying a house that has lot rent. You can assume the lot rent will go up over time and take away some of the benefit you would have had from renting.  One of the big benefits of buying the whole thing on a fixed rate loan is that one of your major expenses is fixed for a long period of time, including the cost of the land.  (It wont go up!) On a positive note, 100% of the purchase price should be available for depreciation since there is no land associated with the purchase.

I see a number of other double-wide manufactured homes available in GR, many priced well below $120K.  Here is one example, and here is another and another.  This is a double-edged sword.  A smaller valuation would mean less out of pocket to buy out your siblings and lower taxes, but it would also mean the lot rent is a much higher % of valuation.

I can almost guarantee you can find properties in Grand Rapids that cashflow because I've found them all over the Midwest.  I would agree it is hard to find beautiful properties that cashflow.  You pay a higher price for beautiful properties because you are competing with owner occupants.  If you want to make money, find the properties an owner occupant wont buy and then make them beautiful.  Often you are getting a pretty sizeable discount for your efforts, resulting in both captured equity and cashflow.

The best ugly properties go quickly, so when I was looking, I got in the habit of searching daily.  Here is one example, admittedly not the best, but its on the MLS now, so let's use it for discussion purposes. Other properties in that area of similar size and vintage in good condition have sold in the low $200s and rent in the $1600-$1800 range. Let's say you knew how to rehab that house for $50K, you would would create equity and have positive cashflow.

Yep, then you will probably need to move the cash.  

We use Chase, and they have checked that our LLCs are registered and current on filings. It may create a problem for you later if your bank discovers the account is owned by an LLC that no longer exists. I could envision them refusing to disburse funds until the LLC is reinstated.

There may be a way to transfer ownership of the account, but it is probably just easier to move the money.

It sounds like you are just talking accounting, not title work.

A lot probably depends on how you have your banking set up.

I have bank accounts for every LLC, so if I'm shutting down an LLC, I'm also shutting down the bank account and moving the money out. That would result in both a transfer of cash and associated journal entries.

If my LLC doesn't have a bank account and I've been tracking its assets in my accounting ledgers only, moving money for the sake of moving money would seem strange (and suspicious). If I had been tracking the assets via accounting, I would simply make a journal entry showing the LLC's assets and liabilities going to zero and transferring them to the Holding LLC or the LLC Members.

I'll admit upfront that I would never own rental property in CA, so that colors my response.

I'd offer the tenant up to $10K to leave immediately, keeping the eviction off their record, then sell.

If you are on cash accounting, yes you could do that.

On the other hand, you are ignoring carry-forward losses.  Realistically, there should be no benefit, and there are probably some disadvantages, of doing what you propose. (Late fees would be one example.)

Paid-in-full real estate almost always results in sub-optimal returns.

Do this math. Get a 50% LTV loan and buy another property just like the one you own. A 50% LTV on a $120K house at 7%, 30 year Am results in a $400/mo interest payment.

The cashflow on your existing duplex goes to $1,000 per month, but now you can buy another just like it so yoru cashflow goes to $2,000 per month.  This is obviously much better than $1,400 per month.

On top of that, you will now get 2x the depreciation write-off so your taxes should go down.

On top of that, you will now get 2x the appreciation when real estate price go up.

On top of that, your tenants are helping you pay down the loan, initially at about $100/mo for both properties, which gradually gets better and better.

On top of that, you now have more units so if one or two goes vacant, you have more renters covering the losses of the vacant units.

If you want to keep these properties, I would do a cash-out refi and go buy more rental real estate.

Those are not the most important parts of the operating agreement. While they are the obvious ones, they are much less impactful to building a solid partnership. More important questions are all the ones like this:

If there is a disagreement, how are issues resolved?

If someone wants to leave the business, how is this handled?  Remember, you may be tied up in several houses with little cash, so it is important to think of all possible situations.

Who is doing the accounting?  The taxes? 

How much time / cash / other are each individual expected to contribute?

If someone does not fulfill their contribution, how does the partnership handle that issue?

If one partner dies, what happens?

If a partner gets divorced, what happens?

What happens in a foreclosure?

Who is on title? 

I could go on and on, but suffice to say the devil is in the detail, not in the high level split.

I rarely invest where I would want to live.  My core investing philosophy is pretty simple, and has done very well across almost two decades and numerous cities:

1) Invest in cities with population (and job) growth

2) Invest in parts of the city where household income is near the median (or slightly below)

3) Invest in properties that provide cash flow from day 1