All Forum Posts by: James Mc Ree

The 2 of 5 years provision is current law.  The tax law changes making their way through congress appear likely to change it to 5 of 8 years.  It just means you have to live there for the next 5 years if you plan to sell the property "soon" and get a favorable tax treatment.

@Mark S.

Never mind on my question.  I just discovered "page 2" of the posts!  Duh!!!!

@Mark S.  Did you confirm the 2% annual management fee is deducted from principle prior to principle being returned? 

It is not stated that way in the offer which states, "Investors have received their 12% annual return and all their invested capital" as their return goal.  They don't guarantee it, but I did not see anywhere in the offering material or my investment agreement that they are deducting 2% from what is paid to investors.  My presumption was this fee was deducted above the 12% and is a risk to the 12% if the company is not profitable, but I didn't see that clearly stated either.

Any more feedback from the past few months?  My payments have come in regularly on my big $1,000 investment.  I'm thinking of adding more.

More info is needed. Model your cash flow and consider all of your expenses, such as interest, property taxes, insurance, maintenance, vacancy, property mgt, utilities. Consider the expenses involved in getting your $120k purchase price to your $160k ARV and how you might finance them. Consider expenses to rent the property again when your tenant moves out. Consider when appliances/systems need maintenance or replacement. In the end, you can model your return and decide if the cash flow is worth the effort. Consider your time horizon. You might find it is negative cash flow!

Don't make your model depend on your tenant buy the property from you.  Assume the tenant doesn't buy and maybe you are pleasantly surprised.  Don't forget transfer taxes and other closing expenses.

In terms of biting off more than you can chew, the real work with real estate is dealing with people and repairs if your financial model works.  Only you can decide if you want to maintain another property and deal with a tenant.

Capturing a company match is a slam dunk win: you can instantly double your money. Otherwise, it is just a tax deferred investment in the stock or bond market. Consider your asset allocation categories and all of your retirement investing options: IRA, 401k - and don't forget 529 plans for the kiddies!

Consider listing it on the MLS where realtors will get paid to find you a tenant. It will cost you a commission, but only if the realtors are successful and it gets them marketing your property for you too.

Otherwise, it is the holiday season.  Expect nothing and you won't be disappointed.

They are just bills to budget for and pay.  The expenses are either built into escrow in your financing or you pay them separately.

I would ask the tenant to split the cost.

I bought a property in a V flood zone in a year-round NJ beach community.  The V zone is a "high hazard" area for the 100-year flood.  The house will be new construction and elevated about 10 feet to get more favorable flood insurance treatment.  What to do with that 10 feet from ground level to the lowest floor?

The bottom 10 feet would be used for parking. The house will be elevated on pylons (concrete columns). FEMA and the municipal government discourage the use of walls and other enclosures in this space. We are allowed to leave it open, screen it with insect screen to form something like a screened-in room, or install breakaway walls that will blow or wash away with only 20 pounds of pressure but otherwise provide a weak, visually appealing enclosure. Any thoughts on which approach would be best, especially with regards to property value and flood insurance cost?

My thoughts so far:

The "leave it open" approach is lowest cost for construction and I think most favorable for insurance.  Parking and access is maximized.  Curb appeal might not be great compared to other approaches, but that could just be a personal preference.

The screening approach is similar to leaving it open.  Construction cost is slightly higher.  The screening and storage of anything in this space will wash away in a flood and not covered by flood insurance.  It also would not be secure.  It might be a good party area, but I don't know if the screen adds much.

Breakaway walls can be louvered, lattice or similar walls that provide an enclosure.  This would be the highest cost option.  I think the breakaway walls look nicer.  The homeowner could potentially store property here as it would be out of sight, but not secure.  It still would wash away and would not be covered by insurance.  Downsides are higher construction cost and they will blow/wash away.  The homeowner will pay a higher cost to replace them if desired.  I've heard they also raise flood insurance premiums.  I think that is because these walls wash downstream and cause more damage and clean-up.

Does anyone know how much more I should expect to pay in flood insurance for breakaway walls?  Any thoughts on the property value impact?

My inclination is to go with open space and exposed pylons.

thanks, Jim.

The seller's lease very likely contains an inspection clause.  Buyer and seller can arrange a time.  Seller will communicate the time to the tenant and arrange for cooperation.  My leases have a 24 hour notice requirement if the inspection is not for an emergency.