All Forum Posts by: Ashly B.

@Will Kenner @Tristan Gardner Fair points. I'm not new to real estate, and hired someone 5 years ago starting when things got really complicated with splitting properties after my divorce. I've been struggling with finding someone knowledgeable about real estate. I switched to someone new last year who claimed to be proficient in real estate and they didn't have any great advice and didn't save me any money over what I was able to do myself in Turbo Tax. I'm struggling to see why I'm paying $500-700 for what appears fairly straightforward data entry. Neither of my last two tax preparers spent more than 30 minutes with me when I filed and when I ask questions in between filing times they respond with "let's talk about it when you file next year". I wouldn't hesitate to spend the money if I were seeing value, and to top it off, things are exceptionally tight this year as I've not had W2 income since November so while a good tax preparer isn't exactly where I'd typically choose to trim expenses, I don't have a good one.... I've asked local real estate boards and not had any luck.

I am hoping to do my own taxes this year but got a little stuck as I was finalizing my books. I purchased a SFH in Oct. 2021 with owner financing that is still under renovation. I understand that any renovation expenses incurred prior to the rental being put "in-service" must be capitalized and depreciated over a period of time. Two part question: 1) how do you account for the payments being made to the owner? Do I figure out the interest and just include that piece in "other interest"? Are the principal payments accounted for at all for tax purposes? If so, what category? 2) Can I still deduct other holding costs such as utility bills and if so are those counted as renovation expenses as well?

Appreciate any guidance or resources you can point me to!

Currently contemplating my next real estate move and I'm torn between finishing the attic space to turn Unit 2 (pictured from my original post) from a 1 bed/1ba into a 2-3 bed/1-2 ba vs using the funds to purchase a new property all together. Anyway, thought it would be fun to do a before and after update since I now have all the units updated. When I purchased, the gross rents for all 4 units was $1,925/mo. Currently all 4 are renting for a total of $3,230/mo. Also in the time since these updates were completed, I purchased a small SFH and lived in it for 2 years while doing minor updates and just last August turned that into a rental that is cash flowing about $500/mo after mortgage, taxes, insurance, etc. Not growing as quickly as I'd like but I do appreciate looking back at these old posts and seeing how far I've come. Additional reno pics below!

Unit 1

Blew out the wall between the bedroom and this weird wide hallway to create a studio style apartment.

Inside the old and new “bedroom”

Originally considered a 2 bed unit, the rooms were so small they didn’t have closets or real doors. Took this one out to enlarge the bath and create a dining space off the kitchen.

MUCH larger and updated bath

Unit 3

Entry and living room

Same as unit 1, this had a weird wide hall to create a bedroom wall – blew the wall out and made it a studio

This kitchen may possibly be my FAV transformation in the whole place. It was incredibly disjointed and dysfunctional. Now its beautiful and spacious and we even had room to enlarge the bath still.

Bath

Unit 4 - moderate overhaul on this one, mostly because I got burnt out. Amazingly, this one with a small kitchen make over, some fresh paint and a new bath vanity still brings in $750/mo as opposed to the $815-840 the others bring in. Just realizing I don’t have any renovated pics of it, probably because I’ve never had to list it… always goes by word of mouth.

Nice! Excited to see the before and afters. What is happening with that foundation where you tore the back porch off?? Looks like a pile of rubble is holding the house up. Is that just in front of the block foundation?

$10k would make me really confident you know what you're doing and can close the deal. I would probably consider $5-7k depending on my need/want to sell and the length of the agreement - ie less would be ok for 12-24 months. 

I personally haven't done a lease option, only a contract sale which is just a little bit different. Overall I think either can be a good strategy but when you read articles on what to look for they're going to say to collect a large down payment, take tenants with good credit and clean background checks... of course you should screen and of course you should ensure they have some skin in the game, but the reality is if the prospective buyers had all those things, they'd just buy and not lease option. I'm sure there are some exceptions but my experience is that you have to be a little lenient or at the very least realistic that most buyers aren't going to be perfect in all 3 categories. 

IMO the biggest risk from a seller perspective is what happens if the buyer chooses to exercise the purchase option and the house doesn't appraise for the agreed upon purchase price. Be sure that's addressed in your agreement. Definitely have a lawyer draw up the paperwork to ensure all your bases are covered. 

Come in with a decent down payment. Many owners flat out can't afford to owner finance. If you're lucky enough to find one who will, they need reassurance that you're good for the money and that you have some skin in the game. Offer a good sized down payment, offer asking (assuming the market justifies the asking price) and let them know how long you need to get your own financing established. Usually 2-5 years is typical. 

Some. I'd definitely hire a real estate lawyer to do the contract if you go that route. As long as the terms are in your favor and you can float the mortgage, I don't really see how you can lose. If they leave, you made $20k on top of any additional rents and you still have a property to sell. Some things to consider would be:

-Charging fair market rent. You'll want the monthly price to be at market rent, not just enough to cover your expenses. Have you researched what other condos are renting for? How does that compare to your monthly costs?

-16 months is a very specific time frame. Are they expecting to come into some money at that time? Don't be afraid to ask personal questions - this is more than a rental application

-Will a percentage of their rent go toward "principal" every month? This is common for owner financed deals, and sometimes for lease options as well 

-What happens if they decide to exercise the purchase option and can't get financed? Have a clause that defines that situation

I've been actively searching for my next rental for a *LONG* time. Long story short, my market got really hot both as an investment location and also is growing rapidly. Great for my existing rentals, not great for my next acquisition. For a number of reasons, I've just purchased a new primary (close in 2 weeks) and I'm really conflicted about what to do with my current SFH. Compared to my multifamily, its just such a small cash flow that I'm having trouble convincing myself its worth it to keep and I should cash out my equity to invest in something else. On the other hand, the market is so high that the equity wouldn't go far toward purchasing a multi or anything else for that matter. Trying to play the mental game and convince myself that if I view both properties together as a portfolio, the numbers make a lot of sense even if the SFH doesn't do a lot on its own. Both my current rental and current primary are on 15 year mortgages with 12.5 years left. If I sold the primary I'd be looking at walking away with about $30k after realtor fees, etc. Keep current primary or sell? I'm also open to the idea of owner financing but don't really know where to start with that - I don't want it to sit empty for long regardless of which route I choose. Appreciate any feedback

Good lesson in prioritizing. Bottom line is in this scenario you're spending $30k+ on financing every year and losing thousands of dollars in income to interest and PMI. If your goal is cash flow, you're going to need a larger down payment. I understand why someone would be tempted to put down as little as possible but mathematically you don't come out ahead in the the long run - the bank does. I'd strive to put down 20-25%. In this case if you put down 25%, you'd be financing $411,750 and only spending $24,984/yr in debt repayment thus putting an additional $6,727 back in your pocket. Real estate can be a great investment but its not easy or a get rich quick scheme.

What are your long term goals? For me, I've been investing for 7 years. I have 8 years until retirement. So every time I evaluate a property its focused around building equity now (ie quick payoff) so that they will be mortgage free and at maximum cash flow when I'm ready to quit working.