All Forum Posts by: Steve Morris

Who do you think gets the biggest benefit from cost segregation?

Well, whoever gets the CFBT off the property.  Realize, just because you accelerate the depreciation on stuff, you'll still need to pay for depreciation recapture at about a 25% rate - Unless you do a 1031 for deferral.  If I was a long'term holder, probably not since there is a small risk the IRS challenges it.  If I'm a syndication and trying to juice returns the first 5 years - Every penny is worth it.

I own a REIT, IIPR, in the business. Best thing I've had the past 3 years. So I think MJ is going to get legal soon as we get a more liberal (if that's possible) Congress and WH.

Am a apt broker, so may experience:

1) Brokers want listings, so to get it, they may have to "buy" it and fill the seller with unwarranted hope.  I think the strategy, is to tell a buyer to write at asking, tie it up for that valuable first month and then do a retrade (price adjust).  Just say the books suck or there's some mechanical issues.  After the first listing month, props become less shiny and shopworn.

2) If the property has been sitting a while and still listed, the seller does want to sell.  Then I would prioritize those for low-ball offers.  Sometimes, props are fine, they just get tied up by a less-than-serious seller and once it's listed for a couple months and not moving, people assume it has some warts.  Of course, it may have real undisclosed issues also, so be aware - But that's the case with any listing.

"when would it make sense for me to refinance? should I wait a little longer? Would it make sense to cash out refinance? "

1) I usually tell people that if you're holding the property for a while, if you can pay back all the fees thru saving within 2 years, I'd do it.  If you're going to sell in six months, that's different.

2) Right now, at under 3%, you're getting close to the bank's margin, so I think that's it.  By margin, if the bank pays 0.5% on deposits and loans to you at 2.75%, margin = 2.25%.  Sorry to say, banks need to make a profit

3) The reason you may want to wait is the banks are nervous.  So while rates are low, they're getting lot tougher on underwriting and making it harder to qualify.  I closed a prop (am an apt broker) and FMAC is getting tougher than 6 months ago.  I think things with Corona and the economy will sort out in a few months, but that's up to you to decide.

4) On cash-out refis, first thing to consider is LTV. They'll need an appraisal, but (being extreme) if you took out an I-O loan 2 years ago (principal bal hasn't changed) at 70% LTV and the value hasn't changed, odds are you won't get cash-out. This is one area lenders are getting pickier on is exposure.

5) On cash-outs, it varies, but if you're using the money for something outside the prop (like kid's college or something less noble, like a Porsche GT3 RS - I drive a Mazda so may be biased), I'd think hard, since it'll affect your tax-shelter cash-flow negatively.  If you're taking out $100K to fix roofs on the property, that effectively adds $100K of value to the property, so I don't have a problem.

Ask your lender since "surprising" them with a new recording may affect recourse for them.

Even if you do set it up as a LLC, you'll need an operating agreement and they'll want you as a member since you are the borrower and personally guaranteed the loan if you signed it that way. They still have recourse against you. Better to do the LLC and sign as an officer BEFORE funding.

I think I'm right, but if anyone disagrees, since I'm not a CPA or atty, I'd love to hear.

"How do I protect myself making an offer on this house so that I do not buy an eviction and not know it?"

Well, if there is no lease, then upon payment on the 1st, it becomes a M-T-M lease.

In your offer, you could write a contingency that at close, the tenants are gone.  But the seller may not want to take the risk since closing is NEVER a 100% guarantee until it's recorded and money changes hands.

"Why do REagent or even FSBO listings sometimes have "All Cash Only" rules in their listing"

1) Quick close needed.  Do NOT let that preclude you from INSPECTION

2) Property is NOT financeable.  Something like a roof with <5 years life may preclude some types of financing

3) The seller should realize that means a discount from FMV

If you want to DM me, I can send some info on submeters.  They're not expensive (like <$200/unit), but you do need to install them (that usually means a flow meter inline with the main feed or, if not available, feed to the H/W tank).  If you get the ones with a remote parallel meter you can install the "read" meter in an outside-the-unit lockbox.  If you use a wireless connection, you'll need an Internet connection onsite.

I send the tenants the separate bill myself.  I have nothing against 3rd party guys, but make sure they do collections.  Charging $5/unit to send a bill and then if the tenant doesn't pay, make you do the work doesn't seem worth it.  Especially if you can do a XLS for the prorates and then a mail merge to generate the bill.

There are 3 parts to risk:

1 - What is at risk = Cash

2 - Who is at risk = Lender

3 - Who is the risk = Borrower

I'd disagree.  In Oregon, we're a lien-theory state.  If the event that creates the risk, a default happens, the lender effectively controls the property.  This may mean they can sell it to pay for the amount due + fees.  This often means a shortfall, which, if you hold the property personally, can follow you or your recourse assets.

Reason you should hold property as a LLC and get non-recourse funding - Even if at a higher rate.

My questions when looking at finance would be:

1) If I go with high LTV, do I have POSITIVE CFBT in case of an emergency? You want your investment to stand on its own and not suck up money from outside of the investment.

2) If I do borrow money, for each $1 I borrow at x% rate can I make x+% return?  There is nothing wrong with debt if you manage it and use it properly.  

I understand the Dave Ramsay fans totally about ZERO debt and the "sleep" factor- That works for 80% of the population that doesn't manage debt well.  However, to grow wealth, your best tool is the leverage of OPM.

I think the whole goal is to make any unit legal on your property.  The downside, depending on your state, is that it would flag the county and prob raise the tax assessed value.  Of course, the inspector may find something they don't like and make you do it over.  Might be worth it to have a licensed plumber and electrician familiar with local code to take a loo for any glaring mistakes.

On the plus side for getting it approved, in case something happens and you need to make an insurance claim, it's another out for them not to pay.

I don't think use as a temp rental has much to do with permitting since you usually need the local municipality's permission since they're all setting quotas.  So they may ask if it's legal, but maybe not since they primarily do this for control and tax generation.

Another thing is when you sell.  Depending on your state rules, it may be required for you to disclose whether all work or structures on the property that required permits were permitted.