All Forum Posts by: Nathan Gesner

Any time you evaluate a property, you should consider why it is a good deal for you. Even if it appraised for $155,000 and she is willing to sell it for $115,000 doesn't automatically make it a winner. You need to investigate and crunch the numbers. What is the actual after-repair-value (ARV)? If you finance it, will it cash-flow as a buy-and-hold rental? It sounds like she needs the money, so she'll probably require you to buy it outright rather than owner finance. Do you have necessary funds to close and renovate?

From what I can read in your profile, you own a lot of property. If that's the case, you should already know the answer to your own question.

If the seller carries the note, they are only taxed on the money collected that year. In this case, it will be 5% down and the monthly payments. Next year he will receive the balloon payment and pay tax on that.

If I pay the full amount and he sells one other property, it will bump him into a higher tax bracket and he'll pay an additional 5% of all income. If I pay the full amount and he sells two other properties, it bumps him up two brackets and he'll pay an additional 7% of all income. If he sells everything in one year, it will bump him up to the top bracket and he'll pay an additional 11.6% in taxes.

We decided to do a NNN lease so I can take responsibility and control immediately. We will also complete the sales contract with a closing "on or before" January 31st. If something changes, we can always move the closing to an earlier date.

@Jerry W. has good advice. 

A turnover is generally an expensive event so you want to try and keep tenants in place as long as they are paying and not damaging the place.

THE SMOKER: if he's paying on time and not causing any other problems, I would keep him. You can deal with the smoke now or in 5 - 10 years. Make sure his rent is up to market rates and warn him that he's walking a thin line but you'll keep him as long as he is good.

THE OLD TENANT: If they are decent, keep them but try to get them up to market level in the next six months. I like to give tenants 90 days to catch up or move out. They've already proven they are loyal to the location so try to hang on to them but make sure you want to keep them.

In my experience, tenants stay in one place a long time because it suits their lifestyle or because they can walk all over the Landlord. Make sure they are sticking around for the right reasons.

Thank you, Sherman. I'm aware if the potential for increases but I also don't expect them to be very significant in one year. That is probably my greatest concern with not getting a loan locked in now.

I'm purchasing a commercial apartment building and the short version is that the Seller is willing to close immediately (which I prefer) but has asked to carry the loan through December. His reason is that we are helping him sell other properties and he will be bumped into a higher tax bracket if he sells everything this year. This is a good friend and a 100% transparent, honest transaction.

Questions: Should we purchase with owner financing now and then refinance with our lender in January? We have no problem with that except we are a little concerned that the rates could jump between now and then. The second option I've considered is to construct a NNN lease-option where we act like owners but he retains the deed until we complete the purchase next year.

We are buying at around 50 - 60% of market value. We want to do some minor repairs, get rents up to market rate, and generally improve the property then have it appraised after a year and refinance to cash out some equity. For this reason, the owner-carry option seems best but maybe I'm missing something?

I appreciate any advice you can share.

@Chadd Chase I don't own any that far away. If I did, I would have someone manage them for me because it's difficult to keep an eye on it, handle showings, drive-by inspections, cleaning and maintenance, etc. I'm considering the purchase of a 5-plex just 30 minutes away and may not even want to manage that because my time is worth more than it would cost to take care of it.

It's easy to bash Property Managers because there's a decent supply of them just like there are plenty of bad tenants. You can avoid them the same way you avoid bad tenants: educate yourself on what a good one looks like and then screen them until you find a good one. There are plenty of resources on BiggerPockets or other web sites that explain what a good manager looks like, what they do and don't do, etc.

First, I'm concerned that your mentor hasn't taught you how to evaluate the value market. Zillow is inaccurate, at best. The tax assessed value is typically lower than market and the assessor has little - if any - knowledge of the sales market. The tax assessor's office may not have assessed the property for years! 

Second, if he's an experienced investor looking to move up to nicer investments, that should set off a warning in your head. If it's in good condition, providing a good return, and the neighborhood is improving, why would he dump it? Do you want your first property to be a  problem? I'm not saying it is, but you should seriously investigate.

What kind of experience does your mentor have? How long have you known him? Are you testing what he says against other reliable sources? If this purchase went bad, could you absorb the loss and still have a healthy life or will it impact you financially?

There are far too many things to address here so I'll end with this: if you have not purchased before, educate yourself using sources other than the person trying to sell you something.

The VA loan can only be used for up to four units and it must be owner-occupied. Anything with more than four units is considered a commercial property.

For anyone that doesn't know, the VA loan allows military veterans the opportunity to purchase a home with favorable terms (low down-payment, lower interest rate, no mortgage insurance) as a benefit for having served their country. The program is supposed to be used only for a primary residence, not a vacation home or investment property. They allow up to four units because that can still be considered a primary residence as long as the Veteran occupies the property (house hack). This is why Veterans can only have one VA loan at a time (there are exceptions).

By the by, I probably come across as harsh and I don't mean to. My response is based on very limited information so I'm challenging you to think it through and ensure you are making an educated, wise decision. For every successful investor, I can find you dozens that over-leveraged themselves in high-risk deals and they lost everything.

On a bulk purchase, I would personally evaluate each property individually to verify value. If something is "scary" enough that you wouldn't buy it on its own, remove it from the package or seriously devalue it and then sell it at the first opportunity.

I'm concerned you are "cash poor" despite owning four rentals for eight years. You have over $90,000 in equity in a duplex so why aren't you producing a strong cash-flow? If you are cash-flowing, why are you cash-poor?

Let me explain. If you take an equity loan of $90,000 against your duplex, it will increase your monthly payment by around $450. If you are already cash-poor, how will you handle a payment increase of $450? And how will you handle an additional 10 - 20 rentals that are 100% financed plus the renovations plus the apparent vacancies?

Based on the information you've provided, I would recommend against you taking on the additional debt and putting yourself into a heavily leveraged, high-risk deal. One wrong move and your entire life comes crashing down.

This sounds like a deal worth investigating, but not for you. My recommendation is you help find an investor and take a cut.