All Forum Posts by: Jenny Bayless

@Brandon Guite

We considered MFs, but made a personal decision that it fits better with our personalities and overall goals (we don't want 100s of units...or even dozens) to invest only in SFHs.  I would agree that there is the benefit of scalability and the price/rent ratios are definitely more preferable for Multis, especially in the Springs.  However, we decided strategically and personally, that we wanted to give that up in exchange for investing solely in SFHs so that we have better exit options.  

Feel free to PM me and I'd be happy to share some recommendations and areas to avoid!

@James Carlson

• Thanks for the other way of looking at it- you are right, leveraging is your friend!  When I made that statement, it was from a non-levered standpoint for an even comparison (13% for price increases and 8% rent increases as examples).

• I definitely don't see the growth stopping in CO Springs anytime soon, but I do see it slowing down in terms of both rental rates and purchase price escalations.  Again, this is all based on my personal observations and not supported by any market analysis :) We like to purchase small single family homes that are 2 or 3 beds and 1000 sq ft or less, and our tenants are responsible, young professionals and tend to have stable, service-related jobs (nurses, police, military, etc).  My assumption is that sooner or later, the rental rates and purchase prices are going to top off for these small houses.  Simply put, salaries for our tenants at this price point are not increasing at the same rate that the rental rates are pushing upward to.  However, I certainly won't be upset if I am proven wrong in this assumption and the high growth trend continues!

@Brandon Guite I was pretty excited to see that someone had started a 2018 Colorado Springs market discussion, so thank you for doing that!

Personally, I am pretty excited to see what what 2018 holds for Colorado Springs.  We have been investing in CO Springs since September 2016, and have since acquired 7 buy and holds there.  We are hoping to buy about 3-5 more in the next year or so. In that short amount of time of owning the properties, we have been extremely pleased with the performance of the properties.

I think something to keep in mind, is that it is easy to overpay for a house in order to outbid other investors (or homeowners), or overpaying based on the assumption that home prices and rents will keep rising.  There have been multiple instances where I was outbid at a price that I thought was absolutely crazy, and sure enough, 3 months down the road if that investor flipped it, they sold it for a price that I would have thought was nuts when I put the offer in 3 months prior.  I guess it worked out for them, but I wouldn't buy with that strategy personally.

I think if you stick to your numbers (what you want for cash on cash, return on equity, etc), and stick to what the values presently are, you should be okay!

Here are a few very anecdotal personal observations: 

*Please note that there may or may not be larger market data that support/contradict these statements, and I am stating this only based on my extremely small sample size compared with the entire population, so please take that with a grain of salt  :)

• For our preferred price point, it seems that sale prices are generally outpacing rent increases. What I mean by this, is a 3 bed 1 bath SFH in the Central CO Springs area that would generally be offered on the market in early 2017 at $150,000 and rent for $1200/mo last year, is now selling for $170,000 this year and maybe $1300/mo in rent. For us, it is getting harder and harder to find cash flowing deals, and my assumption is that the price increase is being driven by both higher demand and lower supply.
• Speaking specifically about our small sample of SFHs, we have seen (on average) FMV appreciation greater than 15% in our first year of ownership. I personally don't expect to see that level of growth consistently for future years, but it certainly is nice for the time being! We don't account for this in our calculations as I mentioned previously.
• We get multiple rental applications for vacant properties within a matter of days.  When showing homes, I like to talk with potential tenants to get a feel for what they are seeing in the rental market from their optic. They all pretty much have told me the same thing: there is simply not enough affordable and nice rental housing available.

@Anurag D.

Your property's basis is calculated as: Purchase price + capitalized improvements - depreciation

Your capital gains are calculated as: Sales price - Basis (above) - selling costs

1. Taxes are calculated based on the capital gains calculation described above, at the capital gains tax rate

2. You can do that, however, you will be taxed on the initial down payment.  The IRS requires any CASH that comes from a sale to be reinvested.  Meaning, your lender will be paid back as part of the sale, so you are left with your capital gain, original cash invested, and any equity pay down left as cash.  You can split it up, but would be taxed on the non-exchanged portion.

3. Nope, but you might be thinking of a reverse 1031?  You would have had to work with an intermediary for the existing property.

Hope this helps!

@Josh Deel

If you are very certain that it should have appraised for more, I would try a few options.  First, you can appeal the appraisal that resulted in the $330k.  You should be able to work with your lender to write up the appeal.  I would focus on providing receipts of the improvements you did as well as comps that you have pulled that you believe are good comparisons to your now-improved property.  

If that doesn't work, I would shop around for a new bank and try to get a new appraisal.  Hopefully they don't hire the same appraiser that came back with the $330k value :) . I don't know anything about how farm land is appraised, but I would likely try to work only with banks that do have a lot of farm properties they lend to.

@Steve Vaughan I completely agree with you, that the opportunity cost of hiring a PM is never considered.  

We have taken to self-managing now, and I can get a property rented in less than a week with full tenant screening, whereas it will take a PM weeks if not months to get it rented.  You figure if that is a $1200/mo rental, each week it sits unrented (when it very well could have been) is $300 flushed away.

Also not to mention, when a PM sends someone out to work on something, you don't know if this is actually a licensed technician in that field (i.e. HVAC) or a general handyman, in which case, they might actually be making the problem worse for you down the line, costing you more.

We do almost the same thing as @Michele Fischer except structure it slightly differently in that we name it a holding 'fee' and apply towards rent and have them sign something at lease signing stating they understand that this fee is non-refundable.

@Skyler Walker

I'm not a lawyer, so I would suggest speaking to an attorney regarding the appropriate structure for asset protection.  However, my two cents as a CPA are as follows:

Regarding the new tax implications, the new 'pass through' deduction will impact sole proprietors and single-member LLCs equally, so there is really no difference from a tax perspective. If you are utilizing your VA loan, I would be weary of the fact that VA loans typically require you to maintain the property as your primary residence for a certain amount of time. If you quit claim the property into an LLC, then they could consider this as a change in owner and could call the Due on Sale Clause on the note.

C-corporations have a double taxation impact to them (taxes on dividend distribution and taxes on income), there are a lot of high-level reporting and compliancy requirements. Given my understanding of your plan, I would not recommend.

For what it is worth, I too only work with buy and holds, and have a few LLCs set up.

Regarding your last question about ACH, if I am understanding correctly, you should be able to set up a separate bank account (doesn't have to be a 'business account' if you run it as a sole proprietor) to collect rent payments.  We use Cozy, and it is pretty seamless on rent collection, and will deposit rent to the account of your choosing.  

Hope this helps!

-Jenny

@Paul Gwilliam

You have identified an extremely important part of analyzing any deal, which is really understanding what the ARV is. This can absolutely make or break the deal if not done correctly. With that being said, I would take Trulia/Zillow with a grain of salt. If you don't have access to the MLS to look at sold properties, I would recommend looking at Redfin for 'sales' for the past 3 months. It is important to look for actual sold comps, as opposed to 'zestimates'. You can set geographical, size, etc filters on Redfin as a starting point.

One thing to note on this, is sometimes it requires a bit of research, in that the posted bed/bath/sq footage on Redfin isn't always accurate, so you might need to cross-reference it elsewhere.  For example, once a house is sold on Redfin, all the pictures are gone.  You might see a house thats a 3/1 and 1000 sq ft on Redfin, but then if you go to Zillow or County records you might see it was actually a 4/2 at 1500 sq ft.

@Lawrence E. Hopkins here are some important factors to consider:

• reputation (will they close or leave you high and dry 1 day prior)
• term length of the loan
• interest rate
• points
• other fees
• quality of communication with the lender
• quality of documentation provided by the lender (i.e. loan agreement, promissory note, etc)

I personally don't like including utilities in the rent rate, because even if it is controlled like in your case, people tend to not be mindful of their usage as much.  I am unfamiliar with this type of HVAC, but I assume that if it is used too much, it could cause it to break down quicker.

I would just advertise that the HVAC system installed could lead to lower-than-average electric bills.