All Forum Posts by: Jack Macioce

I am in the process of closing a deal using a 30-year conventional mortgage.  We acquiring the property with tenants.  I was told by our lender that there is a 2% cap on credits the seller's can offer.  When I say credits, specifically for this deal, I told our closing agent to include the pro rated rents due to us and the security deposits on the closing disclosure.  Since the sum of the rents and security deposits exceed 2% of the sales price, they have to remove a security deposit and have the seller write a personal check to us.

I don't have a problem with this scenario, but wanted to know if this was actually a rule.  Also, going forward, should I just handle the rents and security deposits outside of the closing disclosure?

@TJ Angelo, no problem. I'm fairly new to REI myself. I started with a large real estate developer two years ago here in Pittsburgh after working as a CPA for five years.

Initially, I'm not sure that I would get too hung up on forming a business entity. I would focus on finding/acquiring a great first deal and learning the ropes as you go. As an individual, your REI activity will go on Schedule E when filing your taxes, so it can be pretty straight forward (just be very organized and keep all receipts/documentation of expenses). In addition to a CPA, I would also find an attorney who can also help you navigate what business entity would be best for you and current situation.

What is the purchase price?  I can't answer your first question, but it is certainly not unreasonable to ask the sellers to cover that work, or for a credit.  If you include the potential cost to remove the old electrical work, what do your numbers look like?

For number two, if the house is in good shape, then I think your number is reasonable.  Include the R&M that you have budgeted, and you are reserving close to 4,000/year (assuming you don't spend a lot on R&M).

For number three, my understanding was that the water needs to be in the property owners name.  You could have both units separately metered, but they would be in your name still because you would to ensure those bills are paid.  If you are looking to bill the tenants back for water, maybe ask about the installation on sub-meters to both units?  You would have to manually read both sub-meters, however, to determine each units allocation.  Maybe charge a flat fee for water and then after a few months, change it based on activity?

Not sure where in Mt. Washington the duplex is located, but the expected rents seem to be reasonable, but not any higher I would think.

Regarding CPAs, what kind of relationship are you looking for - tax questions, bookkeeping, etc.?

Thanks for the advice @Alex Deacon.  The water intrusion was a big concern for me, particularly the problems that water can bring (i.e., mold, etc.).  I was able to get the seller's to agree to cover the costs of a waterproofing company to come and take care of the problem.  The "basement" part of the crawlspace is the only area to get water, the rest of the crawlspace is dry.

I also had the seller's take care of the electrical safety issues.  All outlets without a ground were identified.  Real estate transfer dye and visual test was performed at the expense of the seller's and no issues identified.

@Brandon Simmons, I do agree that the price is higher; however, since this will be our first REI purchase, we wanted to find a property with little improvements required. Based on the location and the type of tenants this place attracts, this place was ideal for us (I am still including a CAPEX reserve in my pro formas). Compared to the other duplexes and triplexes I looked at in Butler and Connoquenessing, this place was far superior. The other properties ranged from $60-$75k, and were in need of much needed repair. I should also mention that these other places had a least one problem tenant. I saw things that I thought I would only see on TV...

To make sure that we were not going to be "paying" for our first experience, i wanted to get an idea of the returns other investors were making or expected to make in this area.  If they are looking for and/or making 25% on  buy and hold, then I will feel more comfortable with my 15-17% returns.  Definitely interested in more properties in the area though!

@Mark Gallagher, we are under contract, but have not closed.  

@Michael Oyler I sent you a request.  We can shoot for something after next week.  I'll talk with Lindsay and we will get a hold of you.  We are in Zelienople now, so we could plan to meet somewhere north of the city.

I've read a majority of the guides provided on this side.  They offer good advice.  I also purchased a few of the Bigger Pockets books, The Book on Managing Rental Property is a good one.

I tend to fall on both sides of the argument, but as @Allan Smith, I too went with my individual name.  I worked with my insurance agent and obtained an umbrella policy in addition to the dwelling policy I obtained for my rental.

As a sole proprietor, however, is it worth it to operate under a business name rather your own name (i.e, DBA filing)? I haven't consulted with a RE lawyer yet, but my initial thoughts were that I could create a business name that I could later use if I ever decided to start a business. In addition, my tenants would be dealing with a business (in name of course) rather an individual. Even though they would still be working with me, the name might suggest that they are dealing with a bigger business than just an individual for whatever benefit that would offer.

What if the seller's included a termination provision in their lease?  What benefit would a tenant estoppel play in the closing process?

@Michael Oyler  Nice to see you on the site!  Lindsay said you got a hold her a few weeks ago.  We are interested in meeting up sometime.  Let us know when you have some time after work!

@Harry Schoeller @Gary Swank - Can you elaborate a little more about using gross average income to value a duplex?  It was my understanding that anything less than four units is priced based on sales approach rather than income.  I only ask because I am in the process of purchasing a triplex.  Thanks!

And @Dan Mason has a good point.  But it does seem like the area between Mt. Washington and Allentown are improving. 

Thanks @Josh Caldwell. I signed up for the Pittsburgh REIA newsletter. Can't it make it tonight due to other obligations, but I plan to attend next month's meeting to get an application and join. Thanks again for the info!