All Forum Posts by: Andy D.

First of all I'm a firm believer that everybody should use the setup that is fitting their individual situation. As an "outsider" I find that many people here have a "standard" situation due to the fact that they operate their real estate business in a "normal" way simply because they are resident in the US and might actually do things on their own simply because they can. This results in a "standard" approach. Don't get me wrong: nothing wrong with that! And good for them as it's fairly simple. Then there are people like me where many of these aspect do not work as I'm not physically in the US.

I therefore thought I'd chime in @Brandon Turner, even though I feel a bit "puny" when reading the numbers that are thrown around (56+ units, etc). Then again, I do have some 9 doors in 6 buildings now, and ultimately the principle is the same. Also, I have a mix of what's been described here, I think:

@Curtis Bidwell and @Simon W.: this is what I do too. However, since my operating LLCs only own 1 property each in praxi I therefore do have 1 account per property (for those owned by an LLC). The LLC owning a multi-family consequently also (only) has 1 account. Having one bank account is really required for the LLC to have any effect with respect to it offering liability protection.

Now, since these LLCs are all owned by 1 parent LLC (Holding, or whatever you want to call it) and this parent LLC being a single member LLC, the accounting ultimately is, in relation to tax matters at least, for me as a private person filing 1 tax return. So one should consider the individual situation with respect to that. If the LLCs were partnerships or S-type then this would be very relevant and somewhat different.

From a practical point of view: Since the parent LLC has a bank account as well, I can simply open the accounts of the underlying individual "children" LLCs as sub accounts of that parent's LLC bank account. Makes it very simple to open (or close) an account, I only have one login (yes, still different checkbooks which I never use anyway as I do everything online or my PM takes care of it) and still everything is separated legally with respect to each LLC having its own bank account. No co-mingling funds there, especially not with my private ones.

In addition, my LLC units are all managed by a property manager. Yes, that poor chap has to account for everything individually: Rent for property A goes into checking account of property A LLC. Bills are accounted to the individual property, i.e. LLC, and so on. Just as he would have to if these units were owned by nine different people.

And my properties are financed (= property and insurance taken care of by bank). So for me there are basically none of the practical issues described by @Justin R., who does, however, have a very valid point when looking at his individual situation.

Now when it comes to units held in my own name: I see no real reason to keep separate bank accounts as I'm on the hook personally anyway. That does not mean that I don't keep separate accounts in relation to the operating aspects. I need to know what the figures are for each individual unit. And the latter has nothing to do with a bank account. For this situation I can really see the practical issues pointed out by some here. However, maybe 1 LLC with a master bank account could make sense then, simply to facilitate your account, ehm, accounting. :-)

How do I keep track of all this? I love Excel. It's my work horse when it comes to numbers. As I'm a cheapskate ;-) I didn't want to buy no fancy (= expensive) software. Since I started with 1 Condo a couple years ago, I simply created an xls file with appropriate sheets to e.g. calculate cash flow while factoring in the individual monthly expenses of the property (really: the unit) and whatever else is necessary. This is all automated thanks to references within the xls file. Heck, I can even consolidate these individual xls files in another overarching file to see the overall figures of my "enterprise" (just make sure you got your folder setup figured out before doing this, otherwise references turn into a mess...don't ask me how I know). With this I was simply able to scale for each new unit: copy xls file, name it after the new property and set up sheets depending on the amount of units in the property. Yes, the details will change depending on the type of transaction and the amount of units and so on but changes are minimal, especially once you have run into that situation once (like going from 1 unit to a multi-unit: a bit of work, but from there on you can simply copy that particular multi-unit excel and use it for another, new property). Very simple. And cheap. 

Now, would this excel thing work if I were to do several deals a month and/or hundreds of units? Probably not! I would have to find something that takes away the need for adjustments in that regard. But this is currently not my situation and I cannot envision it to ever come to that. And if so, I would also have a lot more time to deal with this as I would then not have a job anymore as an employee but would do this full time.

I found what (currently) fits me. Maybe some of the aspects are of use to others reading this.

And now I shall apologize for this loooong post...

I'm not a CPA but have been doing this myself for quite some time until I got myself a CPA just to be on the safe side. CPA so far has to yet correct anything that I'm doing/preparing so I think I'm doing it right. ;-)

Anyway, why don't you take a look at Schedule E (to from 1040) to derive at the answer to your questions: https://www.irs.gov/pub/irs-pdf/f1040se.pdf

Starting with line 3 you will see all the relevant parts that are to be considered when figuring out your taxable income (emphasis on "taxable" as this is ultimately what counts with respect to this particular discussion here).

The form is fairly straight forward IMO. It also makes it rather obvious that the higher e.g. line 12 is, the smaller an amount will remain on line 21 (the same, obviously, goes for the other lines 5-18). As this amount is transferred into line 24 it ultimately ends up in line 26 which then is copied over to line 17 of form 1040 --> taxable income from real estate investments (to keep it simple; Schedule E is for some other forms of income as well).

Having said that: with a 15 yr mortgage vs a 30 yr mortgage your monthly mortgage payment for the 15 yr one will contain much more going towards the principal than with a 30 yr mortgage (you have only half the time to pay it off!). I'm not saying that the principal percentage will be higher than the interest percentage (in relation to these two figures); that depends on the details of the loan and is not the point here. The point is: you are paying much more every month without really increasing the amount for line 12 of Schedule E (heck, you might actually decrease the interest portion that way). The details should be very, very obvious when looking at the part of the payment for both types of mortgages.

And when you look at Schedule E you will nowhere find a line where you could enter the principal amount (and no, it does not go on line 19 ;-) ). Getting or paying off a loan (not talking about the interest!) is not tax relevant.

Finally, when calculating NOI one does not consider debt service. The latter has nothing to do with your income situation related to the property. Details of the debt would only be considered/become relevant for e.g. cash-on-cash return or, and here it goes again: for your taxable income (see above).

Maybe this answered your questions (and possibly misunderstanding of NOI). You may want to do a search here on BP for the explanations of NOI, COC, IRR etc.

In any case, good luck with your first investment!

@Dave Toelkes This is excellent info, thank you! Would never have thought of that. However, it appears that at least for the San Diego county this is associated with a fee. Then again, what a surprise: it's CA...

Thanks @Nicole Graves for your feedback! I have, indeed, not yet run the numbers as I figured it to be a waste of time as the chances of me making that deal are so slim. But maybe they are not, if people would indeed be willing to finance a deal like this. I still have my doubts, though.

I'm familiar with BRRRR which, however, would not really apply to this deal as it's turnkey with leases in place (from what I'm seeing). So it would only be the "second and third R" that I'd be doing. Which, really, is even better as the whole renovating part (with its unknowns) is out.

However, what you said made me do a real quick calculation using your 9% on the purchase price. The monthly assumed gross rent income wouldn't even cover the interest payment, not to mention any costs with respect to Management etc. So from that analysis alone the deal - on its own - would not be sustainable during the time of the private loan / HML. I could still finance the interest due by subsidizing it from other rental income and if push came to shove I could put my own money into. Cash-flow is not the issue. Just not sure this would make sense. Then again, it depends on the interest rate (7% would already work) and also, obviously, on the final purchase price and on how much I bring into the deal.

Just curious if anyone has ever done it that way. In the longer run I'd still be making money. I would sacrifice positive income for a while for an interesting property that in the longer run should, in all theory, make me money (leaving aside unforeseen repairs and the end of the world and all that).

Dear BP community, this might sound like a bad joke but I'm honestly asking about how I could go about this, if there is indeed anything that I can do.

Following simple situation: I found what looks like a great deal and I would like to look into this closer and buy the place (if all pans out). However, I don't even have the cash for the required down payment when financing, not to mention for paying cash.

So I thought of a hard money lender (hml). My problem is that I don't want to flip, but buy&hold (for cash flow). So there will be no quick win for the hml in that respect. Also, I would ultimately put a mortgage on the place eventually (also to be able to pay back the hml), but that will probably take at least some 6 months before I can get the cash together (reserves will the issue, as I already own a bunch of mortgaged places; obviously no down-payment needed as I'd be pulling out equity).

In addition, I could only bring about 10% of the purchase price at the time of the purchase. So in essence I would be looking for someone who is willing to give me pretty much the full purchase price in cash (or more likely, wire it to the seller) to buy the place, then have me pay him/her interest (need reasonable rate) and waiting for me to pay him/her back. Timeframe, resonably, at least some 12 months. At least.

My main concern is the fact that even if I ultimately get a mortgage on the place I still don't have enough money to pay the hml back in full at that time as the equity will be some 70% only (lenders require me to "bring" 30%). So that means that I need, till then, have to have gathered the difference in cash via savings. That's why I am more looking at a timeframe of 18-24 months. I do have a steady, good paying job, so getting the money is not the issue. I just need time.

Has anyone ever done anything like this? It would be my first experience with a hard money lender - have no idea what can be reasonably expected. Property, btw, would be in UT, multi-family.

Also, I have not even looked at any figures yet. Depending on the interest rate for the hml this could be unprofitable, at least for the time during which I have the hml loan. Yeah, the place might appreciate, but we all know that this is not a given. NOI/cash-flow needs to be the driving factor as far as I'm concerned.

Curious what you'all think about this?

@Jacob Passmore thanks, this would be most helpful! Will await your colleague request.

Thanks for the feedback, Kathryn! So it sounds like there could be an opportunity then. Are there many townhomes/Condos at all? Or is it more SFH? So far I have refrained from buying SFHs as they typically - in my regions, at least - do not yield as good a cashflow as e.g. a Condo (yes, even factoring in HOA). But this might be very different in your region so I shall look into this.

As an out of country investor my situation is slightly more complicated compared to a person residing in the US. For starters, I don't have car insurance in the US, nor a primary residence etc.

But I own real estate in the US and need proper insurance. I'm looking for someone independent who can advise me on the insurance I should have for the individual buildings and then an additional umbrella policy. LLCs are involved.

Can anyone here give a reference to such a person in St. George, UT or at least in UT and being familiar with that region?

Thanks a bunch,

Andy

Dear BP members, been lurking around a while and just registered to be able to also provide some input here and there. I have been a long distance investor (from Europe) for some 7 years now and own 9 units, located in SoCAl and SoUT so I do have some experience with financing, property management, real estate agents, etc.

Looking for some pointers in regard to investing in the Port Angeles area. Anybody would have some insight? Renters market, likeliness of potential appreciation, price range for your typical 3/2 (or whatever the demand is), rents etc.

I have been up there and, at this point, actually can't imagine that many people rent up there. Seems more likely that they own as prices seem to be fairly low? Then again, we all know how few people can manage their finances and get approved even for a $70k home...

Why that area? I have some family up there that could help here and there, even though I plan on using a PM. Then again, depending on the property, family could do that, really.

Looking forward to your input,

thanks,

Andy