All Forum Posts by: Leo B.

I would work the numbers backwards as you would any other potential deal.

$2500 + $1200 + $3000 (expected rent on vacant unit) = $6700/mo gross rent

What is your ideal cap rate for the area and what would you be willing to pay for the income generated? Based on income generated and average CAP rate of the area (although not considered 5+ unit and commercial; what is it zoned as?) minus deferred maintenance expenses, is what I would offer. CAP rate in downtown SF near the Mission district I've found in the current market is at the most 5%. Based on that, the $1.6M is fair market value if there is no deferred maintenance.

Based on my experience, MFDs in downtown SF are difficult to sell unless fully vacant. And fully vacant MFD go for market value and above. If you can purchase this property at a significant discount, it might be worthwhile. Tenant buyouts are expensive in SF but are worth it if you can increase the value through the increase of the income generated from the property. Make sure you enlist a reputable RE attorney for tenant buyouts as there are legal ramifications (with all the rent control laws in SF) if not done properly. If you are able to get $3K from each unit totaling $9K, at a CAP rate of 5%, the property would be valued at $2.16M. Again this would depend on zoning and if the property is considered commercial property if you were interested in refinancing out.

Low ball the asking price and see what they say.  The worse they can say is NO and it would be no loss to you except time.

Good luck!

-Leo

@Mark Shaffar

Great post Mark!  It's the debate I have with myself frequently looking into out of state buy and holds.  The "headache" definitely ways in that you cannot count on paper.  I'm sure as many have attested here that the higher vacancy rates and maintenance issues that come up in certain asset classes end up eating into the better cashflow in the Cs and Ds.  There is a lower barrier for entry into those classes which I'm sure other investors consider.

Since visiting a few of the Midwest cities the last month, my target are the B and greater neighborhoods for long term buy and hold.  However, what has intrigued me as of late are the transitioning C neighborhoods that border the B areas that have a potential for appreciation which I'm also looking into.

Ultimately, it boils down to tenant selection and the company that manages the property.  C and Ds cash flow better but even the best PM company can't control the quality of the tenant pool that rents in those areas and the "headaches" those properties come with.

I'm seeking reputable general contractors in the Indianapolis metro area.  If you know of any, please reply here or PM me directly.  Thank you!

@James Syed

Hi James-

Can you please PM me the portfolio lenders that do under 50K loans?  The portfolio lenders I've contacted require a minimum $50K loan amount.

Thanks,

-Leo

@Jay Hinrichs

@Dawn Anastasi

I figured the credit unions would only lend to local investors which is the same in my area.  Wishful thinking I guess :)

Jay: I've been following a number of your posts and it sounds like you have quite a bit of experience in many markets.  Thank you for providing your insight to the rest of the boards here.  It's very helpful.  Yes, I grew up in Hercules and it's a nice little suburb outside of SF that I love.  Not many deals here and lots of competition from local investors some of which are on the forums here.  How do you know Hercules?

 Hi Dawn-

Do you know if the credit union you used will lend to out of state investors?

-Leo

Do you have any reputable hard money contacts for WI and IN?  If yes, please PM me. Thanks. 

Perfect!  Ok that makes sense.  Thanks for the clarification.

Enjoy the weekend!

Best,

-Leo

@Dave Foster

Thanks again Dave.

This is my first time hearing of a partial exchange.  I'm trying to understand the amount of tax I would pay in a partial 1031.  Same example as above.

Old property was originally purchased for $400K.

Sold for $500K

$100K net proceeds (assuming closing costs included to simplify the numbers)

Using all $100K net proceeds, new property is purchased for $400K.

Since I utilized the entire net proceeds of $100K into the new property, what would I be taxed on?

From what I understand the two basic requirements for a 1031 exchange are the following:

1. Use all net proceeds from sale into another investment property

2. Subsequent property must be of equal value to the net sale of the previous property

My question was around the value of the next property.  How is the value determined in order to meet this requirement?  Is it verified with the appraisal?  Or does the purchase price of the next property have to equal the net sale price of the previous property?

For example,

Old property

- 500K sold price

- 100K net proceeds after closing costs and mortgage payoff

New property

- 500K appraised amount

- 400K purchase price

- 100K down payment

- 300K loan

Would the above example qualify for a 1031 exchange?