All Forum Posts by: Adam Tafel

Congrats, man! What part of MN? 

Doing my best to put together a win-win-win...

I have a client who would like to sell his triplex and 1031 funds into a larger apartment building. He has the triplex financed on a 30 year fixed @ 3.75% with a balance of 390,000. Asking price is 550,000 which is fair market value and building has the rents to support this. He will be purchasing the new property on a CD, likely 5-10 year term. 

Question:

If we find him a buyer who can assume the mortgage and pay him the 160,000 difference in cash at closing, and he takes the cash and puts it down on the CD purchase - can he avoid paying capital gains through a 1031 exchange? 

Yes we are contacting our CPA, I just thought I might get a more creative answer crowd sourcing this unique situation. 

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $884,000
Cash invested: $176,800

Luxury triplex in Class-A St Paul neighborhood. Mix of mid term and short term units. Self-represented in the sale, financing with Lowell Collman with Citizen's Bank.

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

We needed a new family home with our growing family, but didn't want to buy a single family and pay our own mortgage.

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

One of my clients sent me to the building because they were interested in buying it. I walked the property with my wife during an open house, we were both so impressed. We had been renting down the street after converting our SF home into an Airbnb rental, so we were able to walk to the open from home. Anyhow, I strongly advised my clients to write an offer, it was everything they were looking for. They decided against it - and so we threw out hat in the ring - and we got it!

How did you finance this deal?

20% down owner occupant, portfolio loan with Citizen's Bank, 3.7% 30 year amortization fixed for 15 years.

How did you add value to the deal?

We re-plumbed the upper unit, replaced most of the windows, and a handful of other fixes. The two rented units were bringing in 2600/mo when we bought the place - now those same two units rent for a total of 4995/mo, with the third unit renting for 3300/mo.

What was the outcome?

We now live in a single-family home in Highland and this triplex pays a good chunk of our mortgage. We will continue to make little improvements but have no big projects planned - maybe a studio space above the garage if the city would allow it.

Lessons learned? Challenges?

Go with your gut. We weren't planning on making a big purchase, but it felt like the right thing to do. We didn't inspect the place (not that I can professionally advise that) because we just knew the type of seller we were buying from. We were correct in that assumption, it's the most solid building we've ever owned.

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

Repped myself, Lowell Collman handled the financing and did a spectacular job.

 We've been managing furnished mo/mo rentals all over the Twin Cities metro for years. We get lots of interest in larger family homes in the western burbs throughout the year, many for 30-120 night stays. My advice would be to have a 3 night minimum in the summer to maximize revenue, and switch to a 60 night minimum during the off season. If you are priced appropriately ~sub 5500/mo you'll find a solid mid-term tenant for the winter, families are always moving to the Twin Cities. 

Citizen's Bank in MN has a product for this, if you'd like an introduction send me a PM. 

If not at the showing you can definitely get them inside during the inspection period. We do this all the time and I've never once paid a contractor an hourly fee. Finding a contractor with the time is the tricky part.. you can also get pretty far shooting detailed video and taking measurements. 

@Stacy Helman it's easier than you'd imagine when you have the right systems. Plus, a PM needs to be managed, if the house is across the street you'll probably sleep better at night if you're in control, the extra cashflow will be nice as well! 

Use an agent and inspector you trust. Get quality video if you won't be present for inspection. IMO a little broad of a question to get much help in the forums, but when you have a property under contract and have specific questions about certain issues/maintenance items re-post and the Midwesterners will chime in our two-cents! 

At least we have no wildfires, hurricanes, earthquakes, etc..... 

@Charlie Miner - from what I understand, you can't Airbnb your own half. I remember this question coming up with with a client a while back - although this was according to one specific lender with their own underwriting guidelines. STR related regulations used to be a huge grey area across the board, most industries have gotten hip to the times and have their rules. James is spot on - they are going to be changing all the time.

On Airbnb you have two types of properties - entire residence and shared residence. There is no regulation (to my knowledge) prohibiting you from renting a portion of your own residence on Airbnb, the lender should see this similar to renting a room on CL. I've personally done this on a few properties in the past, I call it "getting paid to live for free", haha. 

Also, as someone who has rented his personal residence on Airbnb many times in the past, don't underestimate the annoyance factor. It is very very time consuming. Best of luck! 

@Stacy Helman - This is only my experience, so take with a grain of salt.. 

STR management fees will almost always erase any gained cashflow vs. LTR. Add this to additional utilities, paper goods and other amenities, cleaning fees, and extra repairs. STR management is perfect for folks who can afford a lake home or ski chalet and want to make some cash on the side. I can imagine a STR rental cashflowing as a pure investment under management within the scope of luxury/waterfront rentals.

I generally price my STR revenue by doubling market rent. Once I subtract additional expenses (see above) I'm left with an average of 25-35% net gain over LTR. Considering that most STR management companies charge 25-50% of gross revenue, you can see my point.

I'm sure that Evolve has helped plenty of folks maximize their occupancy and given many many hours of life back, which can in turn help their clients make more money. Nothing against the company, I'm sure they do great work based on their reputation. 

If you'd like to share more about this particular property I will give you my two-cents.