All Forum Posts by: Andy Sturm

1. My concern with this strategy is it sounds like they're just taking the cash out to have as spending money. Doing this to the extent that debt service washes out all cash flow seems very risky. I know you said they feel cashflow will increase in the future, but I would think thats a gamble. Really gambling to close for comfort. If anything out of the ordinary should come up expense wise sounds like there would be no money to cover it unless the owners used their personal money to pay for it. I really like this strategy if the cash from the refi is used to make more money through other investments. Have them refi, go buy another building and combine the cashflows!

2. There are no tax implications

3. If you take the equity out think of it as already the owners money. The owner contributed the funds to buy the property now the owner wants to draw the funds out. Its isnt an expense like a salary employee it is a reduction in equity therefore you pay no tax. An accountant could probably explain it much better than I am.

I'm sure all banks have their own specific rules so I would shop around for the loan product that fits you. From what I have found banks will lend on APPRAISED value after you have owned the property for a year. They will however do a cash out refi on the home immediately based on the purchase price. This can be used as a purchasing strategy Offer cash (more desirable to seller) then close on a refi the same day or just after you close on a property to get your cash back for the rehab. They wont do a 100% LTV, most likely 70% LTV. You could do this to have free cash now to expedite the rehab, move a tenant in and then refi that mortgage after a year when the property is rehabbed and been seasoned for full 1 year requirement. Down fall is you pay more in closing cost but weigh your options and if you're making more money even with 2 closings it may be worth it.

If your looking to find a partner with investment skills and money most likely that person has everything but a deal. Bring that investor a deal and he would be much more likely to work with you than if you just came offering nothing but the idea of a partnership.

I have never installed one of these systems personally. I use an HVAC contractor who has installed them and I have asked him about them. Said they're kind of a pain to install and over priced. But you are paying for the convenience of easy duct work. I'm guessing the problem is its a 2 story home and it would be difficult to get duct to the second floor. I would suggest looking into having 2 Units installed rather than 1. One in the basement controlling the first floor and one in the attic controlling the second floor. This way you don't have to cut open walls to run duct except for registers and returns. Both units would be smaller than 1 unit for the whole house. The duct would all be relatively easy to run depending on how the basement and attic are. A lot of newer homes are built this way. In the long run it is more efficient and less wear on each unit individually. I have done this set up in one house and we chose to do electric in the attic and gas in the basement. This would require you to have availability in your electrical panel to support the new load. Electric just because it was easier to run the wire than gas line. An electrician can do load calcs for you or you may be able to find something online. Here in Cincinnati our inspection bureau (inspectionbureau.com) has a load calculator online that you can figure the load yourself fairly easy.  I would expect to pay between 10-15 thousand for this depending on the size and how much duct needs to be run but that includes labor rather than you doing it yourself. There are a lot of what ifs in this idea based on what I think your situation is but if anything maybe just a new idea and way to think about it. I would also consider the price of repairing the plaster if you installed HVAC one unit a traditional way. Drywall/plaster repair is annoying/messy but inexpensive. Good Luck!

This is a link to a great roof exhaust vent. I have installed a few. Easy access to clean them and 0 air resistance. Dont put one with wire mesh it will just clog with lint.

http://www.dryerjack.com/roof-vent.html

In my opinion PVC isn't normal and would use 4" metal duct with foil tape not screws. If you live in a area where there are winters insulate the duct as it runs through the attic. If not when the warm dryer air heats that duct up in the cold attic it will condensate and can create moisture issues.

Does anyone have experience in expensive multi's. I was wondering if the 1-2% rule of thumb can still apply. I'm not concerned on number of units as I am the initial cost. If the purchase price was $1,000,000 (no renovation needed) is it realistic to still demand at least 1% of purchase price to equal one months gross rents? Maybe a million dollar building isn't enough of a difference and could still get 1%, but what about a $10,000,000 building. I feel that all tasks could be delegated out easily with the money coming in, and that the ease of owning it would increase greatly therefore driving demand up and your return down. I know all this applies to the area and many other factors I am just asking about a rule of thumb and your personal experiences.

If the carpet is good I would leave the carpet and replace it the next tenant turnover. Just have the carpets cleaned.

I have never installed carpet in the living areas of my rentals. My rentals are what I would consider high C's and low B's. I feel carpet will need replacing too often. A hardwood or a durable laminate flooring is a great option. Laminate floor durability is rated on a AC scale 1-5. 1being least durable, 5 most durable. 1-3 is considered residential, 4 and 5 are considered commercial. I found a good 5 laminate that works well for rentals.

For a bed room if the flooring is bad I usually replace with carpet. I dont like to do it because I know it will wear out faster than other flooring, but bedrooms are usually small and not too bad to replace. To install hardwoods and laminate the cost isn't worth it because I believe people prefer carpet in bedrooms. 

http://www.homedepot.com/p/TrafficMASTER-Pewter-Fl...

Here is a link for an example transition strip easily installed with some metal snips to trim it to length and a hammer to nail the nails in with. I would remove the tack strip theyre not meant to be installed along transitions like that.

Paint it with a floor paint and then home depot sells a flake that you throw up and let land in the paint while the paint is still wet to give it some design and dimension. Nothing too fancy but its cheap and looks better than a dirty concrete floor. I usually use the grey floor paint.

You could also install a motion sensor switch. I feel installing a dimmer wouldn't accomplish the goal of saving utility costs. The tenant could leave the dimmer turned all the way up and just turn it on and off all the time just as they would with a regular switch. The motion sensor would at least make sure the lights turned off when no one was around. 

I believe the idea behind this is the dimmer switch is to reduce your expenses, therefore increasing your NOI, which raises the value of the building. The year you buy all new switches and install energy efficient products your expenses may be higher but the following year your accounting should reflect a higher NOI based on you saving more on energy costs. I would consider motion sensor or timed switches in public areas and replace all bulbs with LED. leave the regular switches the way they are. The more units the more exponential the cost reduction could be. I would do my research and really see if this could pay off. Also to receive the benefit of increasing the value you will need to do a cash out refi or sell the building.

Not sure if you listen to the pod cast, but in Ken Mcelroys podcast (not sure on what number) he talks a little bit about how to add value to multi families. Ben Leybovich also talks about valuing multis and how to add value in his pod cast.