All Forum Posts by: Allen S.

@Jay P.

Look up “Anderson Advisors”... the tax and asset protection structures they recommend are set up very similar to this.  You shouldn’t have to pay the $800 franchise fee to CA if all of the pertinent entities exist and do business outside of CA.  PM me if you want me to put you in touch with our business advisor at Anderson.  I have been very pleased with their services so far...

Hi @JJ Grogis...

The concept you're getting at is increasing the "value" of the real estate that the business operates out of.  The appraised value of that asset doesn't help your franchisee make any more or less money, it would just change the column on his balance sheet.  That might affect his net worth (on paper), but because he owns both the franchise and the building, it's essentially a robbing Peter to pay Paul situation.

If you really want to get advanced then you'd need to get a high speed CPA involved because the best you could do was shift some income from one tax rate to another.  Without an in depth look at his books it's impossible to tell whether or not this even applies to the owner or not.

@Conner Sparks AirBnB will be VERY seasonal up here.  They usually do great in the summer, and (obviously) are much more slow in the winter.  Fairbanks isn't nearly as busy as Anchorage or some of the tourist hotspots.  You're also buying yourself or your wife a job... so if you're looking for extra hustle in your side hustle, it can work out.  If you're looking for passive... the AirBnB is not it.

Also - make sure you can still cover your payments with a regular tenant. If you need that rent bump from running it as a STR you're asking for trouble...

@Tom Gillotti  If you were basing your offer on advertised rents that were significantly higher than what it is producing, I would ABSOLUTELY put the inspection on hold, and renegotiate.  You're looking at missing the revenue target by over 10% and that is not acceptable to you as the investor.   You do not need to be paying for what rents "could be" after YOU spend a bunch of money to renovate.  You should pay for the current performance of the asset.  I would also recommend getting a few years' copy of their schedule E and compare actual expenses to whatever pro forma they gave you.   Reality is often not anywhere near the same as the numbers provided by the seller or their agent...

@Matthew Madrigal while deducting your mortgage interest is handy,  it should not be the only reason your investment works.  I submit to you that if you "need" mortgage interest or depreciation to make an investment function then it isn't an investment after all.  Remember the purpose here is to MAKE money, and when you do that, you owe taxes.  Yes there are ways to mitigate the excessive taxation that exists (through cost segregation, 1031 exchanges, other deductions and writeoffs), but the PURPOSE isn't about looking for write offs.  It is about making a return on your time and money... and sometimes you'll end up paying taxes.  Which is generally a better problem to have than losing all of your money on bad or over leveraged investments and not owing taxes because you are broke.

@Kai Sato-Franks to be clear, I do not think you've made a mistake... you've just bought a nice place to live.  When you move it will be time to sell and I strongly recommend against managing something like that from out of state.

House hacking is great, so if that works for yo on your next step that's awesome.  As @Keenan Fitzpatrickknows, I've looked over tons of 4-plex options as a strict investment and not a single one (in Anchorage) has penciled out when you are honest about your numbers.  Run your numbers like you are the investor and charge yourself market rents.  If it doesn't work, then it's just another flavor of "nice place to live" and not the "investment" you are seeking.

@Ronald Laurion is exactly right about the current economy in AK right now.  We have a rough year ahead of us.  Be careful, be conservative, run your numbers and stick to them.  Don't be in such a rush that you buy a bad deal and kill your opportunities before you get started...

Hello @Kai Sato-Franks! Welcome to BP... I have looked at some condos in Fairbanks that have almost the exact same numbers as you are describing, and as an investment they were not good at all. Terrible actually. Nice location and layout, but terrible investment. Your HOA is likely high because they use a ton of heating oil in the winter, and with such a large expense, I would also have questions on how the rest of the property and all of the roofs were being maintained. In your situation, my guess is that you're paying as much in HOA fees as on your mortgage, and that's an expense that will never go away!

What I think you're really wanting to know is what makes a good investment. Everyone is in a different situation, but I recommend that do not use "minimum $$ down" as your metric for success. There will be times when that happens, and that's great, but you should be looking for cashflow, appreciation, value-add (which leads to both cash flow and appreciation), rate of return on your investment (ROI or IRR), etc... whatever your metric for success is, just getting to the closing table with as few dollars as possible is not applicable for your long term success.

Best course of action at this point is to enjoy living there, sell when you move, or plan for some monthly losses to cover management and routine rental repairs. While you're there you might also consider getting involved with the HOA to see if you can't get the dues lowered or at least under control...

Good luck!

When you run your numbers, be sure to price in the cost of management (even if you’ll do it yourself) and be conservative with your savings for maintenance and capex.  I recently looked at a 4-plex in Mountain View where the owner had to move and he was so underwater he couldn’t afford to sell it.   That doesn’t necessarily mean the building will never make money, but he had over leveraged it so much it was a nightmare.  If you keep your debt load low enough you can find cash flow in any neighborhood... that being said we chose to invest in a different part of town..

@Account Closed How did you take title on your sub-to purchase?  Did you leave it in the seller’s name and just keep making the payments or change the title and hope the bank didn’t care?  I’ve heard most banks don’t care as long as they get paid, but it’s still their option to call the note...

@Skye Penland - You can have a maximum of 2 VA loans out at any given time. We recently went through this with my VA loans as we were looking at some options in Anchorage. Regardless of if we have eligibility left (below the maximum loan cap) we would have to pay off or refinance one of the houses we have under the VA program. Then we would be eligible to do another VA loan. But no more than two would be active at a time.