All Forum Posts by: David M.

@Ashley Guerra

Are you looking to live in this property?  If so, have one of the units vacanted as terms of closing.  Its the only good legal thing allowed to landlords in NJ at least.  

Note that conventional loans allow 5% down for multi-families now...

It sounds like even with your father's help, you still don't have sufficient funds, much less also having additional reserves...

What, may I ask, is your job?  Is it a salaried job?  A true salaried job doesn't need 2 year seasoning.  Do you even have your financing prepared?  It doesn't sound like it since there are no particulars.  You are dealing with hypothetical issues so far.

Its great you want to get "saving," but you know most people don't buy a house at 22.  From the way you put it, your father only purchased his first house 2 years ago.  Slow down, and don't push a bad position.  Inventory is tight, which means you aren't getting to see lots of potential deals.  You'd rather get into a good deal, than push into a bad deal.

Good luck.

@Ashley Guerra yeah, properties in nj tend to be very old.  To start, its really best to be nearly "turnkey."  Have you owned your own home, yet?   You don't have any experience with having basic repairs much less remodels done.  

Inspection periods in NJ as you may know are customarily 2 weeks.  In this market, trying to extend them or be provided extra time may be difficult given this strong seller's market.

Generally, yes it would be good if you have a "feel" or "inkling" of what it takes to repair/replace stuff.  That comes with experience --- basically having paid for it already.  Isn't that the stereotypical story of every homeowner.

Trying to figure out priority is almost a matter of which leads to the most damage / liability.  Roof leaks just suck because water damage is generally "bad."  But, so are plumbing leaks...  Yes, if there are lots of major issues and you can't afford them, then you can't afford them.  Sure, people will say that you should negotiate the price down, but you still need to find money to do the fixes.  Also, you need to coordinate and get those fixes done correctly and quickly.  Lets face it, not everybody is cut out to be a project manager, and not necessarily on their first or second try.

I would advise caution.  Too many have "jumped in with both feet" and gotten burned.

Good luck.

@Theresa Harris Oh do the sort of live in flip?  In the US, he'd have to stay for at least 2 years to get the capital gains tax exclusion.  Yes, very common in the early 2000's.

@James Robert

So basically, its just betting whether the property will appreciate more or less than what you can do/invest with the cash proceeds?

(yes, its your primary so you can't 1031...)

The $170k pretax (I'm just using your numbers here).. is the same post tax because of the sec121 exclusion...  You've got another ~$80k to go until you max that out since you are single.

So, I guess what is the effective opportunity cost for your $300k?  not sure what are you investment intentions or assset classes (e.g. I invest in other classes than real estate).

@Brandon Stiles

Oh, down the road..  As just mentioned above, its still hard.  Prime I think is about 9%?  So, add a few points on the spread and its the same as hard money, at least without the origination points.

Its still a loan.  So, you need to show lots of income to demonstrate that you can pay it back.  If you are really doing that well and only intend to do 2 flips at a time, its kinda a catch-22 situation.  To have income to get that much money, you'd want it to seriously scale your business.  With that much income, I'd have the vague suspicion you should have enough cash of your own to do the deals, or maybe just need a much smaller loc, say $50k, help with the float/cash flow.

Also, since you are flipping, you don't have any collateral and you are extremely market dependent on finding deals.

Try and see.  Get some business credits, perhaps amex specifically.  I keep getting offers from them to open a business line of credit.  (amex tends to operate more than just a credit card)

@Brandon Stiles

Hmm...  That's probably pretty difficult.  Lets face it, you would need to have an established history of actually making money before you could get a credit revolver like that from a bank.  As unsecured debt, I'd be guessing it'd get pretty expensive.

Why not just continue to use hard money?

Honestly, I would ask your local banks to see what they would do.  And keep checking in as economic conditions change.  This is a completely different business loan.  I've gotten offers from Amex to give me business lines of credit, but nothing like $300k.

Good luck.

@Karen Bolyard

As mentioned, being a real estate broker doesn't automatically qualify you for the Real Estate Professional Status (REPS) ---- IRS chose such a bad name.  Certainly, working in real estate can help.

REPS doesn't exempt you from taxes...  It just lets you take any passive losses that year onto your 1040.  I should add, while that's CAN be nice to take losses/deductions, its better to actually be positive and make money.

If you flip, you are considered dealing in inventory, not an investment property.  As such, the profits are taxes are ordinary income subject to self-employment tax.  Also, if you are intending to flip it and even hold it for over 1 year, its still a flip.

Knowing that, you can only 1031 investment property which it looks like you understand.

I have no idea what hainvg LLC's has to do with qualifying for anything on your post.

i wouldn't let the "tax consequences" drive your business decision.  What is the "best use" of the property / your funds / your time?  For example, for want of saving x% in tax, you have to spend add'tl time being a landlord and have your funds tied up.  Would it be better to sell quickly, recoup your funds and do another deal?

Good luck.

@Keith Hoffman II you might want to check out @Michael Plaks thread that covered this: https://www.biggerpockets.com/forums/51/topics/1167632-expla...

 @Bruce Woodruff Fair point.  I know its fine in NJ.  I get the feeling that more "westwards" they require licensure and over here not so much.  Thanks.

@Mike Mutabazi Honestly, the "tried and true" way is to keep building up more cash.  You can maybe cashout refi your property in the future, or perhaps try to utilize some of it through a 1031 exchange later.

What you see/hear about purchasing / scaling with "no money" is extremely difficult, works in certain situations, and many of the techniques entail a tremendous amount of risk.  For "seasoned" investors, its not a true issue since they would have the reserves to handle it.

One technique to try is the "brrrr" method.  Many try it.  However, its hard to really make the numbers work, and you need to be able to handle a remodel.  Again, if something goes "wrong" and you don't have the reserves to cover it.

Meanwhile, I'm part of the group that feels cash flow is over rated when trying to generate wealth.  Sure, if you can find and get those deals --- great.  I guess I just don't try hard enough.  

https://www.biggerpockets.com/forums/48/topics/1159104-overleveraging-net-worth-cash-flow-and-headache-factor You can read this long thread about what happens when you try to reach for cash flow.  One of the few, if only, thread where the investor "put it all out there."

Good luck.