All Forum Posts by: Anna Laud

@Nate Secor

Hi Nate!

This is actually a very interesting question in your numbers as I can tell you that this purchase price point range fits into some Class A and Class B areas in landlord friendly Indiana, specifically some areas outside of the usual investor go to of Marion County and into that of Hamilton County. 

Straight from the MLS, I'm looking at a 4/2.5, just over 3,200 SqFt listed at $315K with an average area rent of $2100/mo in a Class A area. It's got an HOA annually of $325, move in/rent ready now with noting on seller's disclosure as significant defect, noted roof is 7 years old with commercial kitchen updates, playground area, etc.

Semi annual taxes here are $1239, and cap out at 2% non owner occupied, out of State owners. So your purchase price point and projected monthly rental criteria are defiantly doable in Indiana, and beyond Marion county alone, into Hamilton County in the areas of Carmel, Noblesville, Fishers, Westfield and Zionsville (Class A areas). 

Bottom line, that's a very decent budget to work with for a long term buy and hold in Indiana and bumps you up to Class A and B areas if that's part of your criteria.

Happy to help you see more of these if you'd like- unless I'm totally missing the mark here and this is not what you mean! Let me know if you'd like me to message you with the address for pics for a better idea, or a more in depth overview of any of the areas that I've mentioned. 

Hope that helps some! 

@Grayson Lynum

Hi Grayson! 

I can only advise on this from the POV of being a custom home builder's daughter and knowing the in's and out's of building specs from what I grew up with- hope it offers some insight at least! 

Now it may be different in CO and more development based, but usually (or historically) when you're going in to buy these 'cherry' or prime lots, it's not unheard of to also need to buy an outlaying or unfavorable lot as well. It usually comes at with a discounted rate from the better lot, but it's been the way (again, historically speaking) to get rid of the less desired lots while they're selling off the lots they know will go quickly. 

This is worth looking into as a possibility if you're going to be stuck buying an additional lot that backs up to an interstate etc. Yes, there's an overall shortage in most places of available housing, but I would word caution in overbuilding a spec on one of these lots as want to be on the lower end vs the higher end. Meaning, I'd rather have the least in home value in the neighborhood on one of these lots vs the highest home value in the neighborhood, so it would in theory move faster. 

I would also evaluate the competition closely as far as other home builders go and make sure that I could compete in not only my plans but cost as well. I say that as many custom home builders were pretty much outpriced as competition with tract builders with their cookie cutter designs  and lower overhead. 

You can take a spec house of higher quality and sit on it for months longer vs a cheaper tract home (with enough material in it to simply pass inspection) in too many cases- so knowing your market and competition well pays off. In a lot of cases end users are looking at SqFt and price point over a quality product. In 'lay person' terms- they don't understand the difference in crawl spaces vs slabs, the amount or quality of product in trusses, grade of wood in floor joists etc. and the price point differences that go along with it. It's like having costume jewelry vs heirloom quality custom made pieces and a lot of folks want the sparkle without the price tag. 

I guess that would be my other word of caution, know your market and if it's conducive to specs in more in 'personalized' end user purchased with tract homes or new builds that support more custom home end user transactions. 

If you and your crew can get in there and crank one of these spec houses out that's in line with other new builds in the area as far as price point, and you can keep from having too much capital tied up on your (maybe) undesirable lots, it might not be a bad idea. 

You can always market for custom home building in the meantime and build your buyers list while you turn out a few specs of more generic or average quality and scale up that way in time. This would be a good way to judge the market for new builds as well- simply running a PPC ad for custom homes while having an initial spec or two going. 

I would go ahead and connect with an agent in your area if you haven't already that may be able to help negotiate the lot purchases and obviously they are going to want to help you with this and what's in your best interest as they want the listing after it's built as well. 

They may also have established relationships with lenders as well that could be beneficial to you getting started - I may be able to help with an argent connection if you need it.

If you go this route and end up wanting any advice on staging and getting some tips on showing properties yourself let me know- I've been doing that since middle school ha and I'll be happy to send along what I can. (That may come up in time if you've got more than one spec going and your agent is holding an open house in one- you might be showing the other if there's not a newbie agent to help with the other showings) 

Hope that helps some! 

@Bobby Balow

Hi Bobby! 

So without being fully aware of your personal tax situation, it sounds like maybe some things that were able to be deducted might not have been is what you're thinking? 

Capital improvements that add value to the property are deductible over the life of the property. Capital improvements include expenses for improvement to the property, such as a new roof, new siding or major renovations.

Capital improvements for residential property are deductible over a 27.5-year period; Ordinary repairs required to maintain the property in good condition, such as painting, fixing leaks and replacing broken windows, are deductible in the year they are paid. 

If you spent a decent portion of this $150K on capital improvements, in theory you will be deducting them over the remaining economic life of the properties. The other portion of these improvements (ordinary)  that were more immediate in need and paid for this year would have been deducted this year. Maybe there is some confusion in capital improvements vs ordinary improvements.  

Depreciation deductions are a way to deduct the cost of the property during the life of the property as long as you own it. So with capital improvements the  depreciation is deducted over 27.5 years for residential income property. The value of the land cannot be depreciated, only the value of the improvements- which is what you're speaking of as far as a portion of your $150K goes I'm assuming.

For example, a residential property costing $400,000 has a land value of $100,000. The value of the improvements, $300,000 in this case, is deductible over 27.5 years. $300,000 divided by 27.5 yields a deduction of $10,909.00 every year. This amount is prorated in the year the property is purchased. The depreciation deduction allows investors to recover the cost of the initial investment over the life of the property- hence a 'hold' portion of a buy & hold investment vs a flip and the long term recouping. 

It's more specific than this breakdown, but basically rehabbing a bathroom (think attached/modified structure) would be a capital improvement deducted over time, but something like the cost of the toilet would be deductible this year as 'ordinary'  and therefore maintenance. 

But one thing it does seem would be beneficial would be to use an accountant that's familiar with every possible way to deduct your expenses now- someone who invests themselves or works with investors regularly- there may be things that qualify for expenses vs capital improvements that weren't accounted for. 

It really would be best it seems to get some professional CPA advice to clarify if any deductions were missed and to be clear on your full tax situation from someone who's familiar with real estate investing, as well as taking a closer look at what was (from your records) an ordinary repair/expense vs a capital improvement.

It might be best to sit down with them and have an overall plan or idea as to what you could see over the next 5,10,15 years etc as far as deductions go, combined with your clarification on expenses and rental income. This way you could have more of a plan in terms of projected ROI and perhaps not have any more surprises.

Hope that helps some- and I can also message you the link of another BP member/site that might have some advice or input if you'd like as they do accounting for investors. I've never used them personally, but may offer some help. 

@John Akhlaghi

Hi John! 

Actually right now in a rental I've got one very similar to this;

https://www.lowes.com/pd/GE-Ga...

You're just in time too I think for Memorial Day sale pricing. The bonus to this one is there really isn't anything on it to break as far as ice maker or water dispenser goes. I've found the less there is in options, the less that can break and cost in repairs. 

With it being garage ready the temperature gauge on the thermostat goes below 40*, which is nice if you ever moved it to the garage for any kind of kitchen rehab or to another property for garage use, in the winter (until it gets to freezing temps outside) the it keeps working. 

I don't prefer bottom freezers as kids like to sit on the ledge of the drawer to pull out popsicles etc and it can break easier. I would avoid LG products, and a quick google search of LG refrigerator issues would expand more on that.  If not this particular one, Whirlpool is okay - it can be difficult to get a certified Whirlpool technician out for repairs however- sometimes up to two weeks or more in certain areas. (That's if you had trouble under the manufacture warranty) 

I'd pick up something like this one and the big box store warranty that goes beyond the manufacture one- no bells and whistles to break $, top freezer, and more 'mobile' in range of temperature function if ever needed. 

Hope that helps! 

@Nick S.

You bet! Happy to help and pass along at least what I think may work for you from an Indianapolis standpoint in similar zones = )

@Stephen Foote

Hi Stephen- yes as far as going with 20% down and that eating away at cash reserves the best choice then would be to wait until you can go it alone. That's just my opinion - but here's the quick math as to why; you're talking maybe 12% to come in from income over the first year before any expenses are taken out, including debt service (I don't imagine you'll find a partner with $80K willing to go in on a 1% monthly rental yield house - $80K partners are usually going to be looking at flips, multi family etc). But if you did, you're talking perhaps about a prorated portion of maybe 8%- (expenses from 12% a year of its a 1% monthly rental yield house)- in other words not much of a return on your investment. I would wait until I had a larger reserve and then go with cash out refinancing plans in the future. At this point I'd get hard loan numbers from a non VA lender and run rent comps to verify if how long you had until this was possible - 6months, 12 months etc

@Stephen Foote

Hi Stephen!

My reply will come in a few different steps here; your VA benefits, your reason why this should not be done (leaving one unit free) and alternative suggestions!

1.) There's not a limit on the number of times you can use the Veteran's loan program because it's a lifetime benefit. There is however entitlement portion of the VA loan- like the guarantee of the loan if default occurs broken down in preliminary and secondary entitlement that would come into play.

That can be a little market dependent on the amounts. It basically means that if you used your initial entitlement amount, once a loan is paid off, you can request to have full entitlement back one time. Now depending on the number of times you've used the program, your specific military service in some cases, and the loan type there are funding fees for the VA loan program; if you're at 0%-4% down, it's under >4%, 5%-9% down, it's a little over 1.5%, and over 10% down under 1.5%.

So if you wanted to sell the investment after time and use this as your primary & house hacking until ‘dream home’ days (or moving out of your in-laws), you could sell and pay off the original loan balance and go this route or pay off original loan amount without selling and keeping it and apply for the one time benefit restoration - which is not the same as entitlement re- installment for active/permanent change of station orders or foreclosed upon properties.

It depends on where you are too if this is worth waiting on as in some areas (higher price point markets) the ‘bonus entitlement'/2Tier for first time users of the program can be higher. Based on your COE (Certificate of Eligibility) you could qualify for basic plus bonus and that could be the ‘dream home' consideration (again, if there's a chance to move from in-laws yet to come) and speaking of for first time VA loan usage.

2.) HAVING SAID ALL OF THAT; 

Leaving one unit 'open' as your primary is mortgage fraud and never a good idea. Any rental income coming in would not offset 30 years in prison or $1M in fines. Even if you can get around the underwriting process with your current employment making it seem like you would actually reside there, it's not a good idea. 

3.) Alternatives;

If you have a decent job (I assume this means you're a credit worthy borrower), decent cash in reserve, no debt etc. obtaining a (civilian) traditional loan isn't out of the realm of possibilities. Interest rates are still low, I'm assuming you would be able to swing the 20% down to avoid PMI, and qualify for a pretty affordable fixed rate loan product. This would put you in line for cash out refinancing and reinvesting as well.

It does sound like if you're not able or willing to have a fully self financed cash transaction, you would probably qualify for a decent traditional loan product that would keep you on the legal side of things- which is ideal for beginning your REI journey!

My best suggestion would be to speak with some lenders in your area get very clear on the best loan product for your personal financial situation. Not trying to dissuade you on REI by any means, just offering advice to keep you legal = )

Hope that helps! 

@Nick S.

Hi Nick! 

I'm not super familiar with this area in Illinois but I'll include a zone map to help you find some quick fixes- just figure out he zone specifically and go with a zone appropriate choice(s). 

I'm thinking that you're maybe dealing with similar to Indy weather, so I'll tell you one bush here that works well year round and what most of our utility companies (at least back in the 90's and 00's) had running around electrical boxes in front yards. 

Taxus cuspidata, the Japanese yew or spreading yew, is a member of the genus Taxus, native to Japan, Korea, northeast China and the extreme southeast of Russia. It is an evergreen tree or large shrub growing to 10–18 m tall, with a trunk up to 60 cm diameter. 

It's just got to be trimmed back after a year or so to keep it from spreading too far out- these are the ones that you can shape into squares, cones, etc. 

It's going to come pretty full and bushy looking, so you don't need to wait too long. It's going to look the same year round as well- so 'winter stable' in evergreen nature. 

Go with odd numbers typically- usually (and I'm suggesting based on your picture) three on each side of the door. 

I would not plant any trees- anything decent enough in size will cost a pretty penny. If you do plant tress do not go with a Bradford Pear tree- these are super popular in the Midwest at least and what far too many builders put in and still do as they are very fast growing. The issue is they are super soft, and one storm will break it down the middle or at the trunk if it's still small- avoid this one! 

I can't see fully from the pics, but yes- you said power washing the roof as well- looks like maybe some fungus from the trees having been there and that will take some years off of the roof in looks. 

I would go maybe with two smaller bushes at each side of the front stoop near the front. I would stick in some English Lavender right now as it should be in bloom until Sept/Oct. and will have a bright purple color- avoid boxwood bushes as they smell like cat urine. 

I would probably run a solar powered lamppost where the stump has been ground -adding visual separation between the drive and walkway. 

For extra eye grabbing attention and a homey feel I might add a small cement bird bath outside one of the front windows behind the Japanese yew bush. It will show nice as well maybe to have some birds visible from the dining or living room windows. 

I would probably try to lay some grass seed as well and it should grow quickly without the trees giving off as much shade anymore. Don't have anyone out (I doubt this is in the works) for weed spraying, and be careful of overspray for weeds if you've planned on hitting the walkway and drive with weed killer, not letting it get onto your grass seed.

I think you can swing this one with 6 bushes, two lavender plants, a solar powered lamp post and maybe a bird bath and some grass seed for a quick an inexpensive fresh look. 

Hope that helps! 

@Rupesh Gunturu

You bet! I will message you shortly with a few PM tips to hopefully help = )

@Rupesh Gunturu

Hi Rupesh! 

Class C areas become more of a 50/50 split than Class A and B areas as far as renters and owner occupied houses go. In these locations the schools tend to have lesser quality ratings, but more families (as gentrification transpires) will ultimately (and in time) choose private school settings.

Pros to these areas are usually 1%+ monthly rental yield to 2%, and having a steady pool of renters, as well as more frequent opportunities for fix and flips. Cons are slight downgrades in quality of renters, property damage more likely/possible.

You’ve described this as a buy and hold situation, which is usually where your higher monthly rental yields come into play, but I would say one of the key things to this being successful for you would be your ‘boots on the ground’ and having people you can count on for the rehab/deferred maintenance as well as a PM that will be able to manage it for you skillfully.

Overall, I think the evaluation of the crime rate is going to come into play as well, and verifying the average area rents are going to indeed be along the lines of the monthly rental yield you’re looking for. I would probably recommend getting some advice from a local professional here in an agent as well as running your own comps on rent.

https://www.rentometer.com/

https://www.propstream.com/

Also look at Zillow 'for rent' as well as 'sold' recently to help with ARV some

Class C isn't a problem in most cases for buy and hold investing, however if you’re truly describing a significant crime rate - my concern would be that this is on the cusp of a Class D area. This is where professional advice/experience would help and make sure you’re not getting into a mess it seems.

I can say there are areas in Indy that are Class C for example that are more buy and hold friendly than others and where I would feel better about investing in- not going off of ‘its a Class C area’ alone if that makes sense.

I can send over some tips for interviewing PM’s if you’d like at least or help you connect with an agent as well who might be able to guide you in greater detail.

Hope all of this helps some!