All Forum Posts by: Simcha Davidman

Hi @Matt Ten and welcome to BP!

I think your repairs and capex are both very low. How old is the house? Often, I see approx 13% for capex (5%) and repairs (8%) combined. But you could also do a flat amount, such as $50/month or $200/month, or whatever. My concern would be that you're not leaving a whole lot of room for error.

Also, vacancy may be low, but that depends on the market.

What are your investing goals? Are you looking for cash flow? 5-6% with relatively aggressive (in my opinion) expense projections is not a good investment for cash flow purposes. On the other hand, if you're looking for asset appreciation and loan paydown - I don't know this market, but this could be a great play, and you may get 5-6% cash flow to boot!

Feel free to shoot additional/more specific questions over if you have any.

Good luck!

@John Pearson congrats on the wedding to the young couple!

What price is she selling it at? Will there actually be money changing hands?

Just to be sure I understand the scenario - Let's say she paid $100k for her house and now it's worth $200k. She sells it to him with a tax deduction for primary residence for $200k, and now he owns it with a basis of $200k, in case he ever wants to sell. Added benefit that he'd now get depreciation on an investment property worth $200k (less the value of the land, of course) instead of only $100k.

My concern would be whether this would constitute an arm's length transaction. Even thought they're not married yet, if the IRS could prove their close relationship at the time of the sale, I'd think it could be an issue, on the off chance that either of them is audited. To help with the issue, I think they should have the sale's price tied to a third party appraisal, and money actually changing hands.

But a qualified tax professional (assuming this is really the issue at hand) should be consulted. My response is not intended to be legal advice nor form an attorney client relationship.

@Yonah Weiss may have a good answer for you. He's a pretty smart dude.

Hi @Tanya Andrade welcome to BP and good luck/congrats!

Usually, a letter to the tenants explaining that there will be a new owner (and new management?) will be taking over on x date is appropriate. Are leases in place, or are the tenants mtm (month to month)? Do you plan on keeping all the tenants in place?

Also, note that a lot of owners prefer to have some sort of buffer between them and the tenants. Whether that's an actual third party property management company or just the owner introducing herself as property manager instead of owner or saying that she represents the owner without actually stating that she herself is the owner is a decision you should consider.

As far as reading, Brandon Turner's rental book is great and there are others, of course. If you google it or search the forums for something like "tenant books" you may get some good hits.

Good luck!

Hi @Chris Mackinlay good luck with this decision!

Please clarify what the issue is - are you concerned that you will use a significant portion of your savings to buy this new property?

Do you have any alternatives, aside from not making this investment? How about tapping into your home equity, since you mentioned your primary residence. Can you take out a second mortgage (home equity loan) or a home equity line of credit (aka HELOC)? This would allow you to have a certain piece of mind by keeping your savings intact.

Alternatively, how about using the savings that you have, but at the same time opening the HELOC so that it's available for a rainy day, and all it costs usually is like $50/year to keep it open?

Hi @Vikas Chug welcome to BP!

As far as I know, that might be it for your Fannie Mae loans. But you should be able to refi a chunk of those into a larger commercial loan, freeing up your 10 slots again.

You could also go the private money route, for example, offering friends and family 6-10%.

@Jason Thomas Are the fees and closing costs that much on the refi? I'd be more comfortable with that option, unless I'm also concerned that I may not be able to actually put the money to use for a long time.

That right there is super critical! You need to define your comfort zone.It's very, very rare that an investment which you think is past a certain risk threshold is worth your overall well being even if it might be more financially lucrative. And you may or may not expand your risk tolerance with time and experience - there is no right or wrong answer, just so long as you're progressing.

And the same would apply to using "all" your capital to invest instead of having a reserve. It is not necessarily the right decision, and even if it could be, there are ways to do it smarter and ways to do it in a more risky manner. For example, if you had equity in a home already, you could open a line of credit which would presumably be more than whatever reserve you have set up now. If you needed to tap into something which was greater than cashflow, you could just cut a check or use the debit card or however your bank would handle it. It's like having the reserve without actually having it. But, don't forget to consider the interest rate you'd have to pay on anything used, what your plan to pay it down would be, and the alternative rate of return you'd get by being more invested without actual cash reserves.

One other point. It might be beneficial to post a little blurb in your profile about what you're up to and include your location, so that other people in your city/town/whatever can find you. Not sure if you're aware of the keyword notifications, but you can include cities and towns so that whenever a post mentions them, you'll be notified. In that way, you'll start to see some of the players near you. For contrast, just because you're on the East Coast does not mean that I would think to reach out to you for any location-specific deals or details, because I don't know where you're from.

@Account Closed my pleasure. Sounds like you got your head screwed on right; I'm sure you'll be fine. A couple of additional points.

You say you have an emergency fund. That's good - and smart! But, strictly from an investment perspective, there is value to that money not going out there to capture more dollars for you. If you have $5k sitting in a bank account and theoretically expect to earn as high as 26% on some deal (e.g. this one), that $5k sitting there means you are potentially leaving over $1200 on the table - every year. Now, I understand that everyone should have reserves for a variety of things. And I'm certainly not telling you not to have that. I'm not even telling you not to have that and that you should raise your maintenance number. My intention is only to make sure you've considered this point. A possible alternative would be to scratch the reserve and have all available dollars working for you - and budget in an extra amount for r&m (repairs and maintenance, for those new readers out there). I'm not recommending you do that - but you should be comfy with your decision somewhere on that spectrum. And it seems like you have thought this through and have attained a comfort level of sorts, which is important.

Regarding the leasing fee - do you mean that you factored it into the report or your own calculation? I didn't see a line item for it, which is why I brought it up. Either way, the fact that you're budgeting for it even though you plan on taking care of it for the time being is great! This way, if you decide you want to pass that off to someone at a later point, it's already baked into your numbers.

Are you using a property management company? I think that may be where I'm misunderstanding you. You'll do the management and the leasing - is that what you mean? Because otherwise, the pm company should have leases ready to go for you.

In any event, it's super exciting and I'm happy for you. If you're satisfied with those returns (I'm not at all implying that you should not be - everyone's got their own game plan and criteria), I think your numbers are reasonable enough. This will be great for you!

Any other questions, please do not hesitate!

@Mary Jay does the pm company already own the car, or you're going to purchase one? I'm not sure that you need to put the car in the llc at all. Of course, I don't know the structure/size of the business, but you should be able to get the tax advantages of the business vehicle regardless of whose name it's in.

Regarding liability, the difference I see is, if the car is in your name and an employee is driving it for the business, you can be liable. This is opposed to a different scenario when someone (other than the owner) is driving the car not as the "agent" of the owner - then if the driver gets into an accident, liability generally cannot be imputed to the owner. But if you're going to be driving the car, liability can fall on you and the llc even if it's in an llc.

Does that make sense? Let me know if you have any questions. I'm sorry, I don't know whether this would require commercial insurance.

Also, this is not intended to be legal advice.

@Troy Nonnemacher good luck!

Who owns the home now, the hml? You've probably already thought of this, but does your wife work?