All Forum Posts by: Pete Harper

Quote from @Eliott Elias:

come down to the south. Killeen Texas and Oklahoma have some hidden gems 

That was true for Killeen two years ago. We bought a 4-plex for $205k that rents for $2800/month. Same property today sells for $430k and rents for $3200/month. 1% deals are hard to find. 

Quote from @Bill B.:

When you did the exchange your cost basis was your old cost basis plus the added price and buying costs. If you sold a $500k property you paid $200k for and depreciated it down to $100k. The property you bought was $1million. Your basis isn’t $1million, it’s $100k from sold property and $500k added to make this purchase ($600k) So you would owe taxes on $400k if you sold tomorrow. (All prices are said to include buying/selling costs.). Plus you would also owe 25% taxes on that $100k you depreciated.

As far as states chasing you down, I THINK only California and for some reason a unique east coast state like PA have strange  taxes/laws regarding 1031 exchanges. 

I'm not sure you understand my question. I understand the all cost basis. My question is what triggers the IRS if you sell the second property?  How do they know when you sell?

First property was in CA, the second property is in TX. How would CA know if I sell in TX? Assuming I hold in TX for 10+ years. 

How far can you string 1031 exchanges into the future?  If I do another 1031 exchange into a 2nd, 3rd, or 4th time do you break the chain?

 

I recently closed a deal using 1031 exchange. I was wondering when it comes time to sale how is the IRS notified?  It's not like there is a tax lien on the property is there?

If the 1031 originated in a state with income taxes and you have moved to a state without income taxes, do you still owe taxes in old state?

Thanks

Quote from @Alex Olson:

Great work on your 1031 exchange. That's how you are supposed to do it. Congratulations! 

This is our second 1031 exchange. This is a really great strategy. We will likely do a cashout refi in a year and pull the equity out for another deal. 

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $1,100,000
Cash invested: $700,000

10 unit stand alone apartment complex. All units are 2 bedroom 1 Bath with washer/dryer hookups, and dishwasher.

What made you interested in investing in this type of deal?

We were looking for a property for a long term hold property for 1031 exchange. We are long term buy and hold investors looking for cash flow.

How did you find this deal and how did you negotiate it?

We looked at a number of MLS and off market deals. This particular property was found on MLS however we looked at and made multiple offers prior to securing this deal. The current market has been super competitive with everything going for over asking price. Nothing was making sense from a cash flow perspective. We liked this property because of recent 2018 remodel and stable growing rent history. Conroe also checked the boxes as a fast growing suburb of Houston.

How did you finance this deal?

From prior deals I had a relationship with a small local bank willing to make portfolio loans. We shopped around other brokers but no one was competitive. Since we had a good loan history with this lender the process was quite painless. No paper chase for tax returns etc. High downpayment helped too.

How did you add value to the deal?

The property is in excellent shape with a 2018 renovation. All the units have been updated with granite counter tops, tile and LVP flooring. The biggest opportunity is going to be in improved property management. Current PM is out of town and it shows. Multiple lease violations; everyone has pets but only one tenant has a pet lease agreement, pit bulls and other large breeds, major fire hazard with BBQ grills under the front porch roof. Multiple complains from tenants on maintenance issues

Lessons learned? Challenges?

I need to do a better job screening agents. We had one of the worst agents I've ever worked with. Very weak in negotiations accepting buyers agents BS as fact, little to no follow through. We got it done but I had to step in and go around my agent on numerous occasions. Her only duties were submitting contracts, that needed numerous corrections and one showing. Didn't even bother to show up for closing.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Would not recommend the agent we used.

BP has discontinued the IOS version of the mobile APP.  I had this early version but lost it when I recently upgraded my iphone.  I've asked BP why several times and never received an answer.  While at an ATT store and noticed the APP is currently available on Android. 

Using your numbers at $190/sqrft for 2000 that's $380k. To cash flow you'd need to rent for $3500+ a month. Sounds a bit lean to me  

Have you priced out new construction for comparison? Classic Make vs Buy. 

Quote from @Allan Smith:

A good attorney could likely show that the llc isn't truly operating as a separate entity and thus crack open lawsuit to personal assets or insurance. 

llcs are kind of a waste of money, insurance policy largely does the same thing. In my state the llc taxes are massive. Not worth it.

I hear this same sentiment often quoted but have never heard or met anyone with first hand experience. Recently on BP they interviewed a risk mitigation lawyer. He highly recommended having an LLC for asset protection. The combination of an LLC and good liability insurance was the best protection. In my state there is no added cost to maintain an LLC and no state taxes. There are some federal tax advantages that more than make up for the LLC cost. 

I'm looking for advice on liability insurance coverage.  I've posed the same to my insurance broker, seeking a second opinion.  

I currently own a duplex. I first purchase the property in my own name and signed for the mortgage. We were just starting out and I didn't have a credit history in the LLC name. I was able to get better financing terms using my own personal credit. The loan is conventional FHA. About 9 months after closing I was able to transfer title for the property into the LLC. However I could not transfer the loan without refinancing. This leaves me with the property held in LLC name with property insurance and a Million dollar umbrella policy in LLC name. My question is do I carry direct liability exposure from the loan being in my personal name? Can I be sued directly without the LLC to buffer? I carry a Million dollar umbrella policy in my personal name. Will that cover me in the case that I'm sued?

Suggestions on better liabilty coverage?

I just wanted to give an update on my latest search.  After watching the crazy prices and bidding wars in Killeen-Temple I decided to look elsewhere.  Killeen-Temple just didn't feel right.  Only time will tell if I'm right of wrong.

You might ask where did I go?  I just put a property under contract in Conroe, TX.  Here is my reasons why; Conroe is a rabidly growing suburb of Houston.  The population has about doubled in the last 10 years.  Conroe was the fastest growing city in the USA 2015-2016.  Population is predicted to continue to grow as Houston expands Northward.  Conroe has a more diversified economy. I'm concerned with Killeen's dependence on Ft Hood.  Rents are higher for a given price point.  I was able to land a 0.9% deal while in Killeen everything was closer to 0.5-0.6%.  Two years ago you could find 1+% deals in Killeen but prices have out grown the rental market.  A 2BR/1BA that rents for $750 in Killeen is getting $950 in Conroe.