All Forum Posts by: Joe Splitrock

Most will want to see taxes to verify the income is legitimate. With 3 years self employed, why can't you got to normal lenders? Even if you have expenses on your taxes, lenders understand "tax expenses" versus cash flow.

Quote from @Theresa Schmiedel:

I am brand new to real estate investing (education phase) and am curious to weigh in on others' opinions on whether or not it is worthwhile to get my real estate license? Any and all insight is appreciated! Thank you and I look forward to growing in this community & making lasting connections.

 It is a tough time to be a real estate agent. Very competitive for listings and buyers agents. There is not much inventory, so you need to be very aggressive to help your clients close deals. New agents always have to work harder, but this is even worse.

Are you looking to do it full time or just wondering as a side gig? You need a place to hang your license, so it can hard for part time agents. Talk to some brokerages in town and explain what you are trying to accomplish.

Zillow is not reliable in my market. It doesn't show contingent properties. Realtor seems pretty accurate for listing status. You can also have your realtor give you access to an MLS portal. I can't see private details, but it is great for searching homes. I am also setup on email alerts for new listings, so I see them right away.

I purchased my first home in 1999. At the time, interest rates fell below 8% and everyone was excited. In the coming years, I refinanced multiple times. Every time I was told, "this is the lowest interest rates in 30 years or 40 years, you will never see this again". After 20 years of falling rates, I am a little skeptical when people claim we may not see these rates again. I think low interest rates are the new norm. We will see some ups and downs, but this is hardly your last chance to get a good rate.

That being said, if the numbers make sense, do a refinance. I have done three refinances in the last year. I was able to reduce payment and pull cash out. I freed up extra cash flow and purchased another house with no money out of pocket. 

We used to use separate folders for everything, but we merged our receipts together at the beginning of 2021. Each receipt gets a number assigned to it. Today would be 202201AAA, where the AAA is next number in the series. When we log the expense in our spreadsheet with the property address, we reference the receipt number. One folder for receipts, all organized in numerical order so any receipt can be found easily. We also moved to digital images for receipts, although we still file hard copies. All of our receipts are backed up to the cloud.

Each property has two file folders:
Legal - This is all mortgage, title and insurance documents
General - This is leases, applications, rent increase letters, violations, etc.

I am a fan of using the KISS method with anything we do. Keep It Simple Stupid. Reducing complexity saves time and cuts down on errors.

Dividing is different than building an addition or ADU. When you divide a lot, you change the legal description of real estate that has a lien on it. You will need their permission and they will need to do a partial mortgage release or refinance the loan. I don't think it is wise to attempt this without their permission or knowledge. This is not an uncommon request, so they will have a process to help you work through it.

Quote from @David M.:

@Bruce Woodruff

@Matt Devincenzo

Thanks.  I "get it."  I don't fully agree, but as I said earlier this deal structure may work...

Basically, the contractor's time isn't a sunk cost, to me anyway.  If it is a cost, the investor's time should also be included with some valuation.  But, this will go round and round similar to those who try to figure out an "hourly wage equivalent" for commission-based compensation.  It usually doesn't work since the systems and work is entirely different.

Yes, fixed price contracts, assuming this will be a fixed contract is a very strong inducement.  Honestly, its also an inducement to cut corners.  Just saying, not throwing mud or point fingers at anybody --- I've just seen it too often.

This all being said, do you see how risk in the whole deal is shared?  For example, its not the first time a contractor has walked off the job...  That's nice there is a contract, but legal fees and then trying to collect somehow on the contract is pretty cost prohibitive.  Meanwhile, the investor's cash is stuff in the deal, if there is anything left.  Seen this, too, many times.  Actually, just closed on a transaction where this just happened and the investor/owner sold to just "get out."

Honestly, then I don't see this as some sort of partnership/joint venture, whatever, with the builder.  This is just a contract negotiation.  Instead of the usual $190/sqft and fees (just going off the OP's second paragraph), the deal  is $125/sqft with no fees (lets assume fixed price) with a performance award fee of half of the profit (lets just skip the definition for simplicity).  Not to be a broken record, if structured well both parties can make out.  That is, the basic elements for a good business contract.  But, this is not some sort partnership in my opinion, and the builder doesn't have skin in the game (at least to my view of the term).  The builder just has a contractual incentive.

 Instead of worrying about how much money he is making, look at your own numbers. What will the property be worth when complete? How much will you get for rents and what will your cash flow be? What is your cash on cash return? Take those numbers and compare it to doing your own project, where you own 100% of the deal. Which is a better investment for you? Structure it so that you make money and worry less about what others are making. Maybe there is a way to do a cash out refinance when the project is done, to dial down your capital into the deal. You both still retain 50%, but you get some cash back. You both get what you want. Look for win/win solutions.

@Michael Parkins we get rid of ice/water when we upgrade refrigerators, but that is harder to do when the current tenant has both. I would explain to them what you plan to do and why. Make sure they are ok with it. They could argue that since you rented the property with those amenities, they are entitled to them. That being said, there are portable ice makers and the tenant can buy filtered water. 

Deleting the mechanical items that are prone to breaking is good long term, but you have to strike a balance with tenant happiness. 

Quote from @James Quillen:

I'm trying to figure out the tax implications of the househacking method. I will be living in the basement of a property I just purchased and renting out the main house. Are there any differences from a tax perspective since I'm living in the house as well? My main foci are depreciation and my ability to write off tools and repairs used to repair and/or improve the property.

 Expenses are all prorated to take into account shared use of the building. This includes depreciation, mortgage interest, utilities and repairs for any common items. Repairs in your personal space are not deductible. Repairs only in the rental space are 100% deductible. Improvements are capitalized. If you buy new appliances for the rental space, you depreciate them. If you buy new appliances for your personal space, that is just a personal expense. 

It sounds like you are using around 50% of the property, so you would split common expenses in half. I am not sure you should be writing off tools for a house hack. Same with things like a cell phone and car mileage. When your home is your rental, you can't reasonably claim certain expenses. All expenses need legitimate business need. When shared with personal use, you must split the expense based on use. IRS knows what is reasonable per property.

We are investing for wealth, so we can buy time and opportunity. I want to choose how I spend my time and not have my decisions controlled by money. Early retirement, healthy life style, travel, legacy and charity are all things I can accomplish through wealth. I also want to set a good example for my daughter, so I can be her "rich dad", making her path easier in life.