All Forum Posts by: Michael Seeker

Thanks for the mention Pavel - you've set the bar pretty high!

Lindsay - As Pavel mentioned, I love the Old Louisville neighborhood and own several properties there (and always have an eye out for more).  There are a lot of bad properties in the area that will be nothing but headaches due to poor maintenance/ownership practices for many years.  The property you're looking does not appear to be one of them.  It's on a nice, quiet street and looks to have been completely updated very recently.  It appears whoever did the work ran out of money and fudged on the cabinets and some of the appliances to save a buck.  The cabinets are probably good for 5-10 years, but they are cheap, low quality and will not weather very well.  That being said, it's got all new mechanicals and most/all sheetrock.  You will be hard pressed to find another multifamily building in this area that is for sale, at a reasonable price and in such good shape.

Duplexes in this area and/or the Highlands don't usually look good on paper due to the high comps and low rental income (compared to a larger multifamily).  You'd probably be able to push rents up to $900 range or maybe even a bit higher if you put in nicer appliances and both units have access to laundry and offstreet parking.

Overall, you might be hard pressed to find a better owner-occupied property than this one.  If you're only planning to live there temporarily (0-2 years), then you might want to find something where the numbers crunch much better.  If you'll be there a while, then I would say the personal appeal and ease of ownership should weigh more heavily than the bottom line.

You may also want to play with the numbers you are using in the BP rental calculator.  Maintenance and upkeep expenses should be much lower on this property than many other multifamily properties in this area.  If you're using a flat amount (say 25%), then a poorly maintained property with lots of deferred maintenance will look better on paper than this one but you'll likely not do as well with regards to net income.

Feel free to PM me if there's anything I can help with

@Jonathan Woodruff - that's a beautiful house (except for all the snow)!  I'd say the extra $25K is worth it at that price point.  Doing a major renovation and then leaving something for the buyer to do has never made sense to me.  If they wanted to DIY, then they'd buy a fixer upper.  As long as the layout and finishes are nice in the extra space, I would think most buyers at that price point would appreciate it a lot more than the money you have to spend finishing it out.

Interesting article, thanks for sharing!

I can't imagine this would cause a major change to the market for an average investor as it seems like it's just a connection platform.  I could see it resulting in more out of town buyers connecting with out of town sellers and eliminating some of the local people that make money in the middle of a transaction, but probably not enough to make anybody sweat.

Seems like a good opportunity for local PM companies to get additional business by getting on their PM company list.

@Andrew So - Are your ceiling joists exposed?  When you say built in the 1900's, that could be anything from 1900 to 1999 which is a very wide range.  Are you meaning it was built between 1900 and 1910?  If so, then you've probably got knob and tube.  You should check with your local building inspector or permitting department to determine if you are allowed to leave the dead wire in the walls or if it has to come out.  If you are using a reputable electrician they should know the answer already.  If you aren't using a reputable electrician you should consider looking for one!

@Jack Smith - I invest in KY through an LLC and live out of state. The state of KY requires the LLC to file a return of non-resident partners and the LLC pays the tax directly. The result of this is that any out-of-state partners do not have to mess with a KY return and actually get to deduct their KY tax on the federal return.

If you're investing through a partnership using form 1065, then I would expect other states to have a similar process.  If you're investing on your own (not using 1065) then you may or may not have some additional legwork to do.  It's worth consulting a tax accountant regarding your specific interests to see what the tax implications will be.

@Dallas H. - definitely go with the 30 year fixed if it's an option. 5/1 ARM's caused a lot of pain during '08-'10 when investors (using the term loosely) could not afford new payments after the teaser rate disappeared. Property values were depressed so they could not refinance either.

If you can lock in a reasonable rate for 30 years, that's definitely the way to go!

@Tavaris Little - I'm having some new business cards made up right now and also deliberated on what to put on there (even though I've done a lot of deals).  In doing some research, the best advice I found was to convey who should contact you and why.

If your plan is to wholesale properties, then put on your card that you're a wholesaler so that when you hand it out somebody knows to contact you with a deal or if they're looking to buy.  If you want to flip houses put rehabber (or similar) so contractors know you'll be back for repeat business and lenders/wholesalers know you'll be looking to do deals regularly.

There are a variety of things you can use, but I would not go with "Investor" as that does not really convey any useful information to the person reading it, particularly if they find it on their desk 3 weeks after meeting you!

@Ben Winchester - I've been in the same situation and have tried placing some money in the stock market.  I would not repeat and would recommend an alternative solution primarily because it forces you to be a short-term investor in the stock market which is no better than being a short-term investor in real estate (not a rehabber, but somebody who banks on appreciation/cashflow over 3-6 mos instead of 3-6+ years).

If a good property comes along you have to liquidate stocks immediately.  This will likely produce a short term capital gain OR lock in losses if the stock market happens to be down when you need to sell.  Taxes and transaction costs will take a huge toll on any gains, and that's assuming you're lucky enough to be able to sell for a gain when needed.

I do keep money in the stock market, but it is not earmarked for RE transactions except as a last resort.

@Matthew McConville - If you are not putting down 20% and have PMI, will this be owner occupied? If so, that changes how you look at the numbers considerably.

Regardless, PMI would be part of your mortgage payment which is NOT included in the 50% rule of thumb. As a quick recap, if you are using the 50% rule, you would take the gross rents, and throw away 50% of that for expenses. The remaining 50% would be what is left over to pay your mortgage and produce cashflow. A simple example would be a $100,000 property with $400/mo mortgage and $1000/mo rental income. You'd have:

$1000 - monthly rent
$500 - monthly expenses (est. using 50% of gross rents)
$400 - mortgage
$100 - cash flow

If you have $25/mo in PMI, you'd add that to your mortgage amount ($425 instead of $400) and your net cashflow would be $25 lower.

@Kimberly Garrido - what's better will depend on the current interest rate environment and your personal goals.  If you want to continue growing, then having cash available to do so will be more important than paying down loans quickly.  If you have 10 units that could generate $1000/mo each and your goal is to have $10K/mo in income so you can retire...then it might make sense to start paying the loans down aggressively.

Having fewer units paid off will result in much higher cashflow per time spent.  But leveraging allows you to purchase more property and grow more quickly while somebody else pays off your debt.

If you are in a situation where your interest rate exceeds your CAP rate (very unlikely unless you bought with hard money loan and cannot refinance) then you'd be much better off paying down debt than buying more property.