All Forum Posts by: John Dunn

House hacking is a good way to get started.  I see plenty of homes that have been owned by one family for generations that didn't really update the property. These properties are perfect for a long term house hack.

Debra, as someone who invest in Westchester I do understand the high home prices make starting out seem daunting.  Remember wherever you invest, what you care about most is the individual market more than the US population.  Yes national trends are important but there are plenty of markets that don't move in lockstep with national trends (in both good and bad ways).  Westchester (and most of the desirable areas are New York City) still have pent up housing demand despite the poor population grown numbers from the last five years.

You are going to have to do value add investing to make deals work.  If you want to stay in Westchester, there are going to be deals there for older homes that need work because the previous owner was either too old to keep up with the house or they lived there a long time ending up as asset rich/cash poor and couldn't put money into the house.  You may not find these types of deals in the higher end communities since people who live there have the money to constantly renovate/upgrade their houses but one step down the value chain you can find these deals.

Thanks for all the advice.  One other wrinkle to add is some of these lines of business will have different estate planning consequences.  It seems the multiple LLCs may be the way to go.

As you are looking into different towns across Westchester, understanding the municipal government of each is important.  

Here is a good resource to understand the tax structure of each municipality in Westchester.

https://retiredassessor.com/

Tax systems and rates vary wildly from one municipality to the next.  As a consequence a deal that makes sense in one municipality may not half a mile down the road and over the border in another municipality simply because of the taxes.  

Besides understanding the tax differences among all the municipalities, try to gain an understanding of their buildings departments.  Some municipalities
have a reputation for incredibly difficult building departments.  For example it took four months for me to get a permit to remove two trees.  If you know any contractors, ask them if there are any towns they won't work in.

Whether you are going to rent the apartment in the future or not, research the co-op's finances.  When you become a shareholder in a co-op, you are assuming a portion of the co-op debt.  If the co-op goes bankrupt, you lose your shares.  Co-ops sell at a discount compared to condos because of this assumed debt.

You also need to investigate the coops rules about renting.  Some coops are stricter about renting than others.  Co-ops can be wary about having too many renters.  Banks charge higher rates for the co-ops underlying mortgage when the percentage of renters climbs over 20%.

As I expand my real estate portfolio, I have been thinking about the best structure to match my portfolio. Currently I own two single family homes owned through an LLC and am looking to expand into small multifamily (possibly with a partner). Additionally I am looking into note investing with my wife.

I don't want to put anymore properties in my current LLC. Part of the reason is one of the properties in the LLC is the home I grew up in and I want to protect if there are any problems with other properties.

My current line of thinking is to form separate entities for new properties and note investing.  Is it advantageous to form some type of holding company to help tie various entities together?

Dollar amounts (annual) are:

Cash flow - $15k

appreciation - $25k

Including increases in equity (Appreciation and principal payments) ROI is 15% to start and increases to around 25% by year 5.

Thanks for the feedback.  Profits are essential (no way I would buy a money losing property for just appreciation) and margins on the rental income isn’t the sole financial driver of my analysis.  

Brandon - I am anticipating appreciation and plan to benefit from the appreciation by either doing a cash out refinance in a couple of years to help buy another property or a 1031 exchange.  My assumptions are also pretty conservative.  Rent increases are slightly above market but I’m also budgeting more for Maitenance to modernize the property.

Randy - I ran a scenario comparing investing the down payment and closing cost in an S&P index fund to selling the property after renting it for 6-7 years.  The rental scenario made money money.

I'm crunching numbers on my first investment purchase and suspect I'm focusing too much on the profit margin during the first two years (low single digits).   I think the margins will be between 10% (no refinance and lower interest rate) and 15% (refinance at a lower interest rate) in 5-6 years.   My gut instinct is the first year margin isn't the most important thing to focus on as long the property is profitable in the first two years.  Margins will improve over time since the largest expense (mortgage payments) is fixed.