All Forum Posts by: Kurt K.

I just bought a 6-unit. Commercial lenders would only give me 3 year balloon loans for commercial property. They offered a decent rate in the 5-6% range. I didn't like the idea of having to refinance that often so...

Consequently, I talked the seller into seller financing at reasonable terms, and we managed to get the deal done.

Renting your units below market is NOT saving money over time, it is losing money. It's like someone saying I will pay you $500 for your unit and you tell them, no no... you look like a good tenant I will rent it to you for $460 to save me money.

You're losing $40 a month... And if you believe this sort of thinking you're more likely to not raise rents in the future on other units! So if you have 10 units that are $40 under market in 10 years you will have given away $48,000, or $4,800 per year. Also values of investment property are usually tied into current net income. If you can keep your rents at market and you bring in an additional $4,800 per year, at a 10-cap you've increased the value of your holdings $48,000 dollars as well. So in our hypothetical example bringing your rents to market you bring in an additional $4,800 per year and raise the value of your properties $48,000 for a total difference of $52,800 by bringing the 10 units to market value.

It's a slippery slope. There is NO harm/foul/indecency in renting your units for market value. There is harm of renting them OVER market. Also a tenant is going to not be thrilled about a rent increase, no matter how much it is. It is better to raise it $40, once, than $10 each year for the next 4 years. Also buy raising it all at once you'll make more money as well.

Raise it. If your other tenants are renting the other units out at higher rent than the unit is WORTH that. Sure they may be a "model" tenant, but they could think you're the "model" landlord. And they're aren't paying above and beyond their rent as a token of appreciation to your superb landlording skills. If you're rents are obviously below market you're a fool in my opinion, and just not collecting money that is there. The tenant already has incentive not to move if they like the unit, plus the pain of moving, everyone hates packing up all their junk.

Dealer properties are not allowed to due 1031 exchanges. Flippers are dealers as they are selling seen as selling off "inventory".

All the aspects are very judgmental but I know the IRS always prefers to label everyone as a dealer. Things like holding period, implied intent upon purchase, solicitation, frequency of sales etc... can all affect the IRS's interpretation to whether you are a dealer or not.

I skimmed through this thread. Basically the benefit of a 1031 is paying no tax on the gain. The downside being you won't have cash for a lending business. So if you are going to pay 50% tax, $750,000, to sell the property, is that what you are willing to spend to "buy" your lending business.

Essentially, the lost gains (equity) of $750,000 is what you have to pay to "buy" your lending operation. If you think think your potential lending operations is worth $750,000 dollars, then it would be worth it. If it won't be worth $750,000 do a 1031.

As others have said it is a "good" problem to have with those types of gains, but I can see your anxiety as your decision has very large financial implications. A general rule of thumb is always 1031 when you can, but circumstances vary for everyone. I feel its best to frame it as paying $750,000 for another $750,000 in cash. Otherwise, you have the full $1,500,000 to buy additional properties.

I didn't worry about it personally. I just told them that no, I don't plan on renting to students. I didn't say I never would, just that I didn't plan on doing it.

I can't control the insurance companies. If I rent to a student down the road and something happens where I have a claim and they don't honor it because it was a student... then I will cross that bridge when it happens. Until then, no big deal.

I'd assume that a student to them is the "classic student". But that is just an assumption, I have no real basis if it is true or not. That would be something you'd have to ask whatever insurance company you are dealing with.

When I bought my property a couple of weeks okay they asked me if I planned on renting to students as well. I said no, (since it is fully occupied with no students) despite being 1 block from the college campus. So, I may in the future.... but thought that it was odd.

I guess the insurance companies are realizing that a large amount of student renters destroy property compared to the average non-student renter??

Month to month is preferable for the landlord side of things due to all the reasons Jon said. A lease binds a landlord more tightly than a tenant in most cases. That being said, if they are good tenants and you don't plan on a rent increase, there isn't a really reason not to do a longer lease. A lease simply makes you a little more inflexible to future changes since you're locked in.

Great Advice about the down payment choke point. And yes I plan on building a 6 month rent/expenses reserve before I look at any additional expanding. As well as there are a few small changes I want to make in my first property.

Luckily I have a "day job" where I should be able to save up for down payments if something were to pop up on the market before I had planned on being ready.

Hopefully I will have more to contribute to the site in the future as of now I'm mainly a "taker" of information :)

Thanks Ben Leybovich.

The down came to 19860, after some prorating. so out of 125000 purchase the down percentage was 15.8%

But I love the challenge of finding one better than this for my next deal! My goal is $10,000/mo gross rents by 2018 and this 1 property gets me to 2500/mo now and I plan on getting rents to market for 3000/mo. So I'm excited that this first property has me well on my way (25-30%) to my goal.

BP is a great site for not only information but support from experienced people such as yourself. Thank you!