All Forum Posts by: Michael Seeker

@John Kaspar - I typically reinvest all of my proceeds, however there are numerous ways you can pay yourself.  The best way to do so will depend on your business structure as well as your personal tax position.

If you operate an LLC, then you'll use some combination of a salary and distributions. I do not take any salary from my businesses (typically results in higher taxes) so any payments I receive are via distributions from the LLC.

Here's an example:
I own ABC LLC which has net cashflow of $50K during 2017. ABC LLC has taxable income for 2017 of $15K after taking into account depreciation. Regardless of whether I take a distribution, the $15K of taxable income flows through to my personal return and I have to pay taxes on it. Let's say I'm at a 30% rate, which means I'll owe $4,500 in taxes for 2017 which have to be paid to the IRS regardless of whether or not I get paid from the LLC. Note, the LLC is not paying taxes, they are passing the income tax liability to owners even if cash is not distributed.

From here, I could decide to "pay myself" enough to cover my tax liability...I would then have ABC LLC distribute $4,500 to me. If I also happened to be in the market for a nice used car, I might have ABC LLC distribute $24,500 ($20K for a car and $4,500 to pay taxes).

There are scenarios where you may want to explore a salary, but it's unlikely that would benefit you as you are just getting started.

@Donna Sommers - If tenant pays their rent on 1st of the month, how should I expect it to take to deposit into bank account using Dwolla?

Hey  - this is really going to depend on the type of properties.  If they are low-income, crime-ridden areas, spread out with lots of deferred maintenance, you might be lucky to get 50 units managed by one person.  If you've got a new-construction captured community in a high-end part of town, you might be able to get 200-300 units managed by one person.  

It also depends on the person and how you incentivize them.  If you can pay top dollar you should be able to attract better quality managers that could handle quite a bit more than somebody who will do the job for "cheap".

My second call is an out of town lender that I have a longstanding personal relationship with.  I don't know that they have as much of an appetite for Louisville as they do for working with me.  My third call, currently, is to Jason Stuecker at Forcht

@Ray Loveless - I actively invest in Memphis and Louisville and both are great.  If I had to pick one of them, no doubt about it, I'd go with Louisville.

That being said, I think most of the mid-major midwest cities will offer similar dynamics with the ability to lean more towards growth or cashflow depending on the citiy and/or neighborhood you invest in.

Feel free to PM me if you'd like to talk specifics of either market.

David Buchannon at Republic bank is always my first call

@Paul DeSilva - we order all of our checks, personal and bussiness from SuperValueChecks: http://www.supervaluechecks.com

We get the cheapest basic blue checks.  No need for anything fancy or oversized!

@Ben Granja - Depending on the bank, they'll most likely give you up to 80% of the lesser of the value of the property and the purchase price.  So it depends on what the property is worth and what the contracted sales price is.

If you've got a $1M property that you're buying for $500K, the bank will most likely only give you about $400K.  If you've got a $500K property that you're buying for $1M, again the bank will most likely only give you about $400K.  It all depends on the appraisal.

@Josh Huber - many of the new construction developers I know of do not build to hold, they build to sell to an investor. The CAP rates one new construction are much lower and a lot of times builders will offer move-in specials to get higher rents than the market will support (ex. 3 months "free" rent at 1.25x market rate). This makes their pro-forma numbers look better on the exit.

In addition to this, there are lots of incentives for new development (tax credits, grants, TIF funds, etc.), so depending on the project there could be some degree of subsidization.

ROI does not take into account time/effort. I would rather get a lower ROI on brand new construction than a higher ROI on apartments built in the 60's. You'll have a much different tenant base (think collection rates, vacancy rates, damages, etc.) and a much different expense profile. Different investors have different risk/reward profiles and that's what drives the whole range of the market. The guy buying $20K SFR's in the hood has very little in common with the private equity group buying 300+ unit new construction communities, other than they're both investing in RE.

@Juan Rubio - we often buy properties that are underrented.  Our approach is to offer existing tenants to stay at the rent we would get after renovating or let them know to move along.  As an example, if unit is currently rented at $500, market rent is $600 but we could get $700 after renovations.  We typically offer to let them continue renting at $650-$700.

Keep in mind, you cannot make any changes to existing leases/rents until the lease expires.  If the current lease goes through 1/31/19, you're stuck with those terms for roughly another year.