All Forum Posts by: Michael Garofalo

Jamey, you should find a CPA that specializes in real estate. Years of experience is somewhat irrelevant, there are CPAs that specialize in all kinds of businesses so make sure you go with one that specifically focuses on real estate. Even if you just have one property, I highly advise forming a relationship with a CPA and having them assist with tax advice and preparation. That way as you continue to scale, you already have systems in place and won't be scrambling once activity starts to pick up.

Kyle, 

I don't think there is one right or wrong answer here. I would certainly start looking now so you get practice analyzing properties to see what exists and at which price point makes sense. That being said, you should determine whether or not you plan on staying in the area after graduation. If you bought something soon and house-hacked, but then move out of the area after graduation, then you have just officially become an out of state landlord. Nothing wrong with that at all (I myself have property outside my home city) but to do that effectively, you need to have a legit team of people in place to help manage the property. Personally, I would recommend starting with something local where you are living yourself (or can get to easily) before you try owning something further way. Trust me when I say identifying a good property manager takes time and previous experience being a landlord, to know what to look out for when you are interviewing companies. Vacancy will be your biggest and most painful expense, and the success of your investment will be determined by the quality of your manager and how effective they are at placing and maintaining good tenants.

@Account Closed if this seller could list it on the MLS for top dollar, then why would he be willing to give it to you at a discount? There is likely some form of motivation if he's willing to let it go for less than market value. Deferred maintenance, pending evictions or issues with existing tenants is likely at play (or a combination of both), or is he just desperate to unload these to roll money into something else via 1031 exchange? Or, does he not want to deal with real estate commissions/agents?

I'd probably do more due diligence to find out why he is interested in selling, and specifically why he would be willing to give it to you for less than it's fair market value. If you say you know you are overpaying, then why even pull the trigger and buy this? 

A wise investor once told me that there is ALWAYS another deal to be had. The people who get emotionally attached to a specific property and rush to buy something because of FOMO or anything else will likely get knocked out of this game quickly. It's easier said than done when it's your first property--I was definitely eager to get my first deal, but I looked at a ton of inventory, and only made offers I knew made sense. Fast-forward 4 years later and i'm sure happy I listened to others in this community and friends/family who have been investing for decades because everything changed when Covid hit, and if i had overpaid and was over-leveraged, it would not have been good.

@Pete Harper I would definitely file a lawsuit against him. If he truly has nothing he won’t be able to defend himself and you’ll win a default judgement.

From there yes you can place a lien against his house, so whoever wants to buy it next will have to pay you as well.

Sorry again to hear things turned out this way.

But glad you were able to post on BP and solicit feedback, and avoid giving him any more money back when he had asked for it.

Create the LLC first. Establish ground rules for how you will run the business, what each of your responsibilities will be etc. Put everything in writing, then go out and purchase a property in the name of the LLC.

@Luke Larkin obtaining a HELOC will be easiest (and command the best rates) if it is against your primary residence. I did this and used it to fund a down payment on a larger multifamily building, but that was through a portfolio lender I had a pre-existing relationship with. Every bank is different but if I were you, I'd suggest using your own cash to fund the down payment for the next duplex, house hack it, and take out a HELOC against that which you could use to parlay into another property. But when you go to get a loan on that 3rd property, go through a local bank/portfolio lender that is flexible. Big banks are a pain to deal with and are not very flexible.

Just my 2 cents and how I would go about it. There is no single right answer here! PM me if you have more specific questions. I have used HELOCs the past several years to grow my business and protect me when unexpected CAPEX line items have hit at inopportune moments.

@Daniel Dube you're most welcome and thanks for the additional context. Honestly, if it was me I would wait a full month, see how they behave once you take over and how they pay rent when it is due in April, and then issue fresh lease Agreements to go into effect 5/1/21 for the ones you feel good about. Aside from seeing who pays, talk to the residents who have been there the longest to try and get a feel for anyone who causes disturbances or intimidates other residents at the building. For any that give you trouble before 5/1, move forward with eviction on the basis that they do not have a current valid lease in place and you do not wish to renew for reasons x y z. 

When you issue the new leases, I would not recommend by starting off with having them fill out paperwork and undergo background checks. Think about it from their perspective--many of them may consider the building to be their home, if they have lived there for years. Asking them to undergo all of that will, in my opinion, eliminate any chance you have at building genuine trust and rapport with each of them. If after you issue new leases to them and they do something to break the law, or otherwise violate the agreement, then move to evict them at that time. 

@Marvin Byrne I hate to rain on your parade but $250k will not be nearly enough for what you are looking at in LA. I'm sure local investors could weigh in but, I'm not even sure if that price point would be sufficient to obtain a 2 BR condo in which you could house hack. Now, if you are willing to look further outside LA proper, I am sure you could find something in that price range.

I don't have any knowledge regarding the rules and regulations that come along with declaring personal bankruptcy. But my advice to you would be to try and house hack for your first purchase, and that doesn't have to be in the form of a true multifamily apartment. Maybe find a small townhouse or condo with extra bedrooms so you can rent out the others and offset or eliminate your cost of living.

$10,000 is not very much to get started with, especially if it's all going towards a down payment it sounds like you won't have anything left in reserves in case there is a major repair or CAPEX item. If possible, I'd keep saving until you hit the $20k mark, and then put the $10k down so you have some buffer in case things don't go exactly as planned.

@Clay Gerber, every private lender is going to have different terms. I think the best place to start is consider your goals. If you are looking for short term to get you into a property or complete a rehab, which you could refinance or pay down in 1-3 years, then the terms you might be willing to accept, and who you are going to for that money would look very different than if you are trying to lock in something long term.

Generally speaking, if you are looking for something long term with reasonable interest, you should go through a local bank/portfolio lender. Unless you are looking a property where owner financing would be an option. Then that would check the box of a long term loan with reasonable interest. 

@Daniel Dube I hate to say this but, you are probably going to have to evict some of these people. If there aren't current leases, how have you verified they are in good standing and pay their rent on time? Do you know the seller's motivation to unload the property and are you purchasing it at a discount? If all 10 were paying and there were no issues, he probably wouldn't be looking to sell. Even if you did have current leases for all 10 units, the seller could have placed anyone in there just to make the building look more profitable.

Not trying to rain on your parade by any means but, if I were you, I would NOT issue new leases to anyone until you know what it's like to manage them and collect rent from them. Wait at least a month to determine if there are any bad eggs. Especially in these times of covid, it would easier to evict someone for not holding a valid lease than it would be for non-payment of rent.

Of course consult your attorney and be sure you understand your local and state laws.