All Forum Posts by: Steve Morris

From what it sounds like, it's not an arms-length transaction.  I'd ask your CPA/atty, but if you used it to exempt income, you'd probably lose with the IRS and your state.

That depends a lot on the severity of a downturn.  MY SWAG - In order, most likely to be delinq (NOT default):

1) Shared office

2) Hotels and self-storage

3) Entertainment venues (movies, gyms, concert halls, restaurants)

4) Office (if there is a shrink in the econ and WFH catches on)

5) Industrial (since it's shrunk pretty much)

6) Multi-units (same number of people and same number of apts need a place to go). Remember in apts 10% vacant = end of world, any other type of CRE would kill for that.

I think there's enough delinq and there's hope, banks will do work-outs.  If it gets real bad then you'll get defaults.

Find a good broker at a house that specializes in hotels.  He can answer most of your questions and help you prepare.

"What are the pros and cons of putting only about 15k as a down payment for a house"

PRO

- You do leverage your money since (in OR) most conventional finance is 70% LTV

- It can help a seller, if you do a carryback, sell a property not conventionally financeable

CONS

- You have less equity to use for re-fis

- You have less CFBT (=Income-Expense-Debt).

- If it's a problem (i.e. needs repairs) you may not have enough CFBT for emergencies which means you feed it from your pocket.

Depends - Is this tenant causing damage or threatening other tenants?  You can use addiction as a defense for bad behaviors.  Give him a WRITTEN well-documented (place/time/date specific) notice.  See if he's breaking the lease otherwise (like drunk friends NOT on lease staying there).

In OR, get an atty and see if you can get a 24-hour notice if nothing changes.

"I wonder if it just makes more sense to find good buy/hold cashflow multi-unit properties."

Unless you want to be a general contractor or have an equally skilled brother-in-law, it's better to buy something turn-key and hire a manager if you're already busy.

You won't get the max return like people that do the BRRRRRR thing, but that takes sweat equity and time locating and fixing a property.

If you do hire a manager, understand the operating numbers since you need to make decisions. The conversation you want to have monthly with your prop mgr is: "What are the x things we're going to do this month to increase NOI."

Disclaimer - I have ZERO clue about how Canada treats investment income.

Not clear on why your accnt would ask about depreciation.  You need to take it over a 27.5 year schedule on investment property.

When you sell (IF YOU DO NOT DO A 1031 TAX-DEFERRAL), you'll need to recapture the depreciation you took at a 25% (someone can correct me) rate.

Some capital expenditures (i.e. things you can't expense), you can do a cost segregation and depreciate them faster, but that's a CPA question.

The idea with depreciation (and mortgage int deductions) is to tax-shelter your income.

Why depreciation?  If you pay $1M for a building improvements (you can't depreciate dirt), they won't let you expense that all at once and force you to take it as a "cost"  spread over 27.5 years (approx. $36.5K/year offset against income).

I'm a broker so consider that bias.  Yes, there are a lot of bad brokers in it without a lot of respect for buyers/sellers.

However, I'll give you some of the issues I face and questions I ask:

1) Not enough money - Do you have proof of funds sufficient and are you clean enough to qualify for financing

2) Non-specific - What do you mean by a steal?  Define it for me.  If you want $45K/unit and everything sells for $100K/unit min, I wouldn't spend time with you.  Not saying well below market stuff doesn't happen, but you need to do a lot of leg work to make it happen and move quick

3) Decision process - If I bring you a good deal, what keeps you from writing an offer today?

4) Sight unseen buyers - No one (or their unbiased rep) closes (nor would I recommend writing on) a property they haven't seen.

5) KNows nothing about the location - What part of town do you like best?  PHX has such a wide range on pricing based on location, you need to know where you're going.

Anyways, most brokers are not real good, however, getting the attention of the good ones happens when you show a little preparation.

"I was just wondering would I be marked as a 'dealer' by the IRS if I was to buy distressed properties, renovate them, rent them out and sell them in a year or two?"

Get with a CPA (I married mine).  It'll depend if you hold your property as "inventory".  It affects tax treatment since you may not be able to use depreciation and have to treat the gains at a higher tax rate.

In the simplest terms, did you buy it solely with the intent of selling at a higher price and that is the only way you'll make money (i.e. no rent collections)?

"is there a general rule or formula investors use when estimating repair costs on larger scale commercial multifamily buildings."

What do you know about the condition of CapEx things (roods, windows, siding, pavement, structural) will they make it for 5 years? Otherwise, that's an upfront cost.

On regular maint, get books for expenses.  Isolate the maintenance and turnover (they are different).  Come up with a number of $/unit/year and use that + 5% (inflation).

If you don't have books, then it really tough since a property may be old/new, high turnover, existing poor design, etc.