All Forum Posts by: Andrew Reyes

@Ian Tvardovskaya Thank you for the advice. We generally carry a 20% overage in our rehab budgets when underwriting a property given our lack of experience.

Thank you for the thoughts. Sound like we should look to get interest for about 4x our budget to account for back-outs and inexperience. We are first telling close family tat we are talking about putting deals together and will be engaging an attorney soon to better understand the legal considerations. Our initial thought would be to offer convertible debt, which will provide our investors limited risk during the rehab period and an opportunity to participate in future cash-flow by converting the debt balance to equity at refinance at the appraised value. Have you structured any deals with this type of product?

Hi All:

I am in the process of working through a business plan with my partner to execute on the BRRRR strategy. We have limited funds ourselves but family and friends have expressed interest in investing with us. If we expect to need $200k for our first deal, how much money should we target to raise?

How much capital should we have committed in excess of our project budget? Assuming this capital will only be called in the event we end up going over budget.

What is a good assumption for % of money we will actually have available to us when we find the deal? I assume not everyone who expresses interest in the idea of investing in real estate will actually pull the trigger when it comes time to write a check.

Thank you in advance for your advice and experience!

@Michael Fliderman

Thank you for the notes. Any advice on rental friendly towns on LI? Any thoughts on Babylon and Huntington?

@Craig Schneider

Thank you for the notes, Craig.

Hi All:

I am getting serious about REI and have a goal of making my first offer on a property on Long Island by June 30. I have been analyzing one deal per day and have found that this strategy will be difficult at listing price with minimal rehab. I analyzed this deal assuming I could convert this SFR to a tri-plex. Please share any feedback on the many assumptions I made in this analysis (described in further detail below).

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Assumptions/Methodology

Listed for $500k, this SFR in Farmingdale, NY (Nassau County) has been on the market since December.

Offer: $350k. Zillow indicates that this property was lasted sold in 2006 for $454k. Assuming 3.5% down and 6% interest, this should cover the sell's mortgage

Estimated repairs: convert this SFR to a tri-plex by adding a kitchen to the basement (currently 2 rooms with bathroom) and 2nd floor (currently 3 bedrooms and a bathroom). The first floor currently has 2 bedrooms, bathroom, kitchen, living room, and dining room. Assuming 3 kitchens ($20k each) and 3 bathrooms ($5k each) plus a 10% over-run the rehab would cost approx $82.5k. The basement has an outside separate entrance and the 1st and 2nd floors would need to be split. Assuming (BIG ASSUMPTION) the stairs face the front door this can be accomplished sheet-rocking the entranceway leading to the stairs and adding 2 interior doors. Does anyone familiar with this area know if/what permits are required and what the might cost?

ARV: $570k. Based on Zillow comparable homes model.

Time to refinance: 6months from purchase. assumes 3 months rehab one month lease-up and 2 months to stabilize.

Acquisition: private lending from friends and family accruing 6% interest payable upon refinance. Is 6% a fair rate?

Monthly Income: assumes HUD FY20 Fair Markey Rent for the Nassau/Suffolk, NY Metro. Basement - 1 bed/1 bath ($1,624). 1st Floor - 2 bed/1 bath ($1,992). 2nd Floor - 2 bed/1 bath ($1,992) Is anyone familiar with Section 8 housing in Nassau County? Are there additional considerations if the plan is to place a tenant with Section 8 vouchers? (@JosephAsamoah his is based on your strategy discussed on episode 356 of the BP Podcast). Presumably, the first floor should command higher market rent as it has a separate living room, kitchen, and dining room and the other units would have eat-in-kitchen.

Monthly expenses: assumes insurance and property taxes based on the realtor.com listing as well as 10% vacancy, 5% repairs, and 5% capex.

@John Mezzapesa also consider the 163(j) limitation on business interest expense. The portion that is allocable to the business of renting the 2 units may be limited by a computation similar to EBITDA. I suggest you hire a knowledgeable tax adviser so that they can look at all of your facts and provide tailored advice.

@Abel Curiel @Joseph Piazza

I would be interested in connecting with you both. I am looking for small multi family properties on Long Island. As my family is growing (baby boy due on February 3rd) One of my requirements would be a top school district. I have looked at a few in Suffolk County and Nassau County however the property values seem to be too high to work for a rental strategy. One of the areas I have looked at specifically is Stonybrook. While this is far from New York City, my thesis is that the university and hospital would provide a reliable tenant base. Would love to hear your thoughts. Thanks!

@Eli Fazzo I agree with both @Ashish Acharya and @Eamonn McElroy for tax purposes an LLC is more flexible and usually preferable. I would be interested to see any real estate attorneys comment on the legal implications.

@Michael Wagner you raise an excellent point that depreciation deductions are recaptured when the property is sold. The Note that the recaptured depreciation is taxed at a lower rate (25% max as of 2019) compared to the ordinary deduction (37% max as of 2019). This is true tax savings of 12% on operating income and the added benefit of deferring the tax until sale. Additionally, the gain on sale (including depreciation recapture) generally is not be subject to self-employment tax. If you have tax losses during operations and taxable gain on sale it is likely that none of your profits would be subject to self-employment tax and the operating losses could reduce other income.

@Christopher Smith I believe that the business fundamentals of a deal should be the deciding factor in making any investment. Tax is an added cost to be analyzed and should be properly planned for. Ultimately if the fundamentals do not make sense tax costs or benefits do not matter. Again, I would let the business fundamentals drive the train. This may result in taxable income on an annual basis. However, I personally would not have that as a requirement. All else being equal, paying less tax is better than paying more.