All Forum Posts by: Account Closed

My non-professional understanding of basis:

Your basis is the purchase price, including acquisition costs (except any that may be deductible as expenses in the current year) plus the amount you spend on the property to put it into rent ready condition. Also, capital expenditures made after the property is put into service increase your basis.

Any items that you can deduct in the current year as expenses do not increase your basis. Depreciation reduces your basis (even if you don't claim it on your taxes).

In 2005 I entered into a partnership with my brother and a couple of friends. We purchased a single family house to rent out. We (over)paid around $127,000 for the house. The property is titled in my brother's name, as is the mortgage on the property, with a current balance of $102,000. A few years back, as the partnership began to lose money, I bought out two of the partners. I now own about an 80% interest in the partnership.

I would like to buy out my brother's interest so that I can eventually either sell the house utilizing a 1031 exchange or re-finance the house at current low interest rates (I can qualify for a conventional mortgage). I don't want to sell the house out of the partnership and get stuck paying depreciation recapture. The house will sell for $130k - $135k.

In order to do a 1031 exchange or re-finance the house, I need it to be deeded in my name. Can I buy my brother's share of the partnership and then have the partnership deed the house over to me without triggering any tax consequences? Will the partnership (a general partnership, we never filed formation documents with the secretary of state) cease to exist if I buy out my brother's interest? Will there be some seasoning period required, or should I be able to re-fi right away if I acquire 100% of the partnership?

Mix your own thinset. You can get it for $5 a bag at Lowes and Home Depot, versus $30 or $40 for a bucket of mastic. It's not hard to get the right consistency.

Mike, I think the most likely problem is that the buyer won't be able to get financing to purchase the property because the deed restriction will show up during the title due diligence process. No title insurance - no loan.

Depending on your closing costs, you will break even within 6 to 18 months. Obviously, you don't want to pull the trigger on a re-fi if you are about to move.

At the end of the 5-year term, your rate is very likely going to go up, and the increase could be substantial. So there is probably going to be a 2nd breakeven point, where the rate increases would cancel out the savings you enjoyed over the first 5 years. Typically a 5/1 arm can only adjust 2% a year, so the 2nd breakeven point is probably at least 8 years out, and maybe longer if rates don't go up as much as I expect them to.

Also, assuming you are still early stage of your current loan, you would actually pay off more principal each month if you re-fi, even though your payment will be lower.

So, if you are planning to move or pay off your loan sometime in the next 2 to (approximately) 8 years, then you are better off re-financing. If you are planning to stay where you're at for 10+ years, you are likely better off keeping your current loan.

Property Manager - You can find many threads on these forums discussing the pros and cons of hiring a property manager. I'm in the office 45 - 50 hours a week for my day job and I manage four properties without too much trouble. If you can manage it yourself and keep it occupied, you would save yourself $2,000 or more a year on this property. Whether that savings is worth the time and effort on your part is a personal decision.

I don't know the market in your area, but it may be tough to find renters at that price point. My general sense is that there are a lot more renters looking to spend $1,000 a month on housing than renters looking to spend $1,500.

I would make whatever fixes you need to bring the property up to (or slightly above) the standard of other rental properties in your area and price range. Then put a sign in the yard and an ad on craigslist and see if you can find a good tenant yourself (read these forums to educate yourself about tenant screening). If you can't find a tenant within a couple of weeks, then you may have better luck with a property manager.

Common Fixes - The interior and exterior paint should be in good shape. All of the appliances, heat and HVAC, plumbing and electrical should all be functioning properly. With an 8 year old house, most of this stuff should be in decent shape already. Make sure the house doesn't smell bad or have any obvious damage to the drywall or the woodwork. Make sure it shows well and the tenant will generally tell you when things need repaired.

Flooring - For a house in this price range, you probably need to get rid of any carpet that is stained or badly worn. Replacement flooring is a tricky issue for a house in your price range. Most of the experts around here will tell you to use cheap carpet or not to use carpet at all because tenants will destroy it. I wouldn't go too cheap on carpet for a house in your price range. Ceramic or porcelain tile will last much longer, but I don't think it looks good except in kitchens, bathrooms, laundry rooms and entry areas. Real hardwood looks nicest, but is also the most expensive option. I recently put some laminate wood flooring (Golden Select from Sam's Club) in one of my rentals. It looks nice, was reasonably priced, and I was able to install it myself. I don't know how long it will hold up though. I have also used carpet in my rentals, with the understanding that it will have to be replaced a lot sooner than I would like.

Don't do it. That sounds like a scam.

Bug bombs won't do it. You can kill a lot of fleas, but they lay their eggs in the carpet and the bug bombs won't kill the eggs. You need to get an exterminator, or use the treatment an exterminator uses (which I think includes covering the carpet with some substance that kills the eggs). I had a terrible flea infestation in a rental and a dozen bug bombs didn't get rid of them.

$1.40 per gallon equivalent for compressed natural gas here in OKC. I don't actually have a CNG vehicle, but those Honda Civics are looking better all the time.

Bryan is correct - this is a state-specific determination. Check out the California Penal Code and look at the defenses to homicide (and also battery and similar crimes, if you want to shoot someone in a non-fatal manner).

If found this on the internet - no idea if it is correct or up to date, so please don't rely on it if you decide to shoot someone:

http://law.justia.com/codes/california/2009/pen/187-199.html

Homicide is also justifiable when committed by any person in
any of the following cases:
1. When resisting any attempt to murder any person, or to commit a
felony, or to do some great bodily injury upon any person; or,
2. When committed in defense of habitation, property, or person,
against one who manifestly intends or endeavors, by violence or
surprise, to commit a felony, or against one who manifestly intends
and endeavors, in a violent, riotous or tumultuous manner, to enter
the habitation of another for the purpose of offering violence to any
person therein; or,
3. When committed in the lawful defense of such person, or of a
wife or husband, parent, child, master, mistress, or servant of such
person, when there is reasonable ground to apprehend a design to
commit a felony or to do some great bodily injury, and imminent
danger of such design being accomplished; but such person, or the
person in whose behalf the defense was made, if he was the assailant
or engaged in mutual combat, must really and in good faith have
endeavored to decline any further struggle before the homicide was
committed; or,
4. When necessarily committed in attempting, by lawful ways and
means, to apprehend any person for any felony committed, or in
lawfully suppressing any riot, or in lawfully keeping and preserving
the peace.