All Forum Posts by: Lee Ripma

I was going to use patch of Land to close a deal in March 2017 in Kansas City. My experience in working with them is that I needed to do everything that I would need to do to close with a bank. I had an origination fee of 200, an appraisal on my duplex of 400, and an appraisal on my 4plex of 600. The appraiser couldn't get into one of the units due to a tenant not cooperating so there was an additional 150 fee. The appraisal also took a while. The underwriting was really extensive, like a bank. I had already paid the fees and done the appraisals but they require you to hold title in an LLC. I did not have my LLC paperwork back from the state. So I basically had to bail on them and use a local hard money lender. Local hard money lender did not require I hold title in an LLC, he also just drove by the places and made sure they were legit. He took my word for the ARV and would lend 70% of ARV. It was easy. It was also 12% and 4 points. Patch of Land was 10.5% and 2 points, but there was a ton of stuff I had to do (and all those fees are almost another point). Ultimately I couldn't close with them because their underwriting was so extensive and I had that LLC problem. They have high insurance requirements too. My advice would be to use a local hard money lender that knows your market over Patch of Land. If you do use patch of Land know about these fees and underwriting. They are certainly legit and I wouldn't be concerned that they can close, I think they will. However, it's much easier to gain the trust of someone local rather than using an out of town crowd funder. All of these crowd funding platforms basically make you do underwriting like a bank, but they give you rates like a hard money lender. Why not just use an actual hard money lender and skip all that hassle. Better yet, find another way to get the money you need that is not either of these options! I've actually had good luck using a local commercial bank. They will loan even on SFH and will give you money for repairs at a 5-6% interest rate (with an interest only period), 1 point, and 20% down. The interest and points are steep on these crowd funding and HMLs. I do think that if you build the numbers into the deal and it still works then go for it, but just make sure that you have cash on hand to pay massive interest when your project runs over! My experience is that a local commercial bank relationship is valuable and can be used for SFH to large properties. I hope I never had to use a hard money lender, crowd funder, or residential mortgage with Fannie underwriting guidelines again!

Hi Allison, congratulations on getting going. I live in CA but my CPA is in CO. It doesn’t really matter where your CPA is in my opinion. I found one I like who is RE focused so I’m fine with the CO location. You live in CA so you’re doing business in CA, even if your properties are not in it. You need a CA LLC. I own property in MO and I still have a CA LLC. My business partner is an attorney and he has assured me that case law supports this. Even if you get an out of state LLC you’ll have to register it in CA and pay the minimum $800 tax. You’ll do a return for your LLC and then you’ll pass that income or loss through to the LLC members. Maybe that’s just you maybe you’ll have others in your LLC. This is reported on a K-1 which your accountant can prepare. Some basics, hopefully helpful!

I think you've gotten some great feedback on this thread with those caveats that each person has to make the right decision for themselves and for their goals. For some perspective, I bought out of state rental properties for my first deal this year. It would have been very helpful to have house hacked in my local market before doing that. However, now I'm established with out of state investing and I'm happy to rent in Southern California. As I'm sure you are aware, California is an appreciation market and the BP rules of thumb don't apply like they do in other markets. Oceanside probably has a decent way to go in terms of appreciation over the next 10-20 years. Short term who knows what will happen. Long term I think Oceanside property values west of the 5 are going up. Good luck and keep us posted! 

How much equity do you have? Do you need to sell to get access to the capital or could you leverage the equity and buy additional properties in Indy? What’s your goal?

I agree with those in support of renting. I rent a nice rent controlled apartment in LA and invest in cash flow properties in the Midwest. I never have to drive in LA, I ride my scooter around, my wife’s commute is 10 mins on Sunset Blvd because we are so central. To buy a SFH in this area would cost me right around 1M dollars. That’s 250k out of pocket and a monster mortgage. I have the good location for a fraction of that cost and I invest elsewhere. With the new tax law I would be capped on what I could deduct on my taxes for that primary but with a rental property it’s a biz expense no mater the cost. I also could never rent out the SFH and cash flow. I say live where you want and invest where the numbers make sense. This is very true for us on the high priced coasts. I talk with my landlord about being a tenant and investing in an area where tenants don’t have the rights they have in LA. He can’t raise my rent more than 3% a year but I can raise my rents to whatever I want in the Midwest. If you can’t cash flow on a SFH then your only exit strategy is to sell it. In case you can’t tell, I’m all about renting. My tune would change in a different market but all about renting in LA.

My advice is to learn whatever you can. Perhaps you can intern at a RE firm to learn a lot. I’d focus on learning rather than jumping in, but that is just my two cents.

I would no go this unless she paid a year in advance in a cashiers check.

@Mauricio Ramos

Yep, got it. Right now I invest for myself and I'm not syndicating. I have a fund for capex that is separate. However, I care mostly about 1) how much cash I have in the deal once I'm done with it and 2) how much cash flow I actually get after expenses. I'm not saying that all these metrics are not important because they are. But I think when you're doing your own investments you can focus on the metrics that matter to you and not calculate every last thing. Also, once you know your asset you will know exactly what numbers you should use in your projections when you buy a similar asset. 

@Michael Choi

I'm not so negative on this as others. When you find the right partners to do something like this with it can really work out for everyone. Maybe this is a leg up on to doing something else, maybe it's not. Keep us posted with your experience on here! 

http://www.keystonecpa.com/ctspvideo.php

@Eric C.

See link above for an example. I don't know what the strategy is but most of them are not that obscure. Save receipts, account for all deductions, maximize deductions, plan your trips to your rental property so they can be claimed, hold your properties in pass-through entities instead of doing a schedule E. Instead of calling it a tax plan they should just say that they charge 3500/year for their services plus they charge x for returns. I'm seeing some really high prices for returns when I know that they are just going to input whatever numbers I give them. I have been trying to get a CPA to answer the simple question related to using a company like this to maximize my depreciation on two small properties. 

http://www.kbkg.com/residential-costsegregator

My goal is to use my investment properties to offset my W2 income, which I can do for up to 25k a year according to my research. I'm fine with paying professionals for their work but when I'm going to pay 5000/year to a tax professional for 4000 in depreciation it doesn't really make a ton of sense.