All Forum Posts by: Barry Collier

Hi everyone!

Do any of you have any recommendations for a CPA that has experience with tax strategies specific to notes? Ideally it would be someone experienced with both active note and passive note fund tax considerations.

I'm in the Los Angeles area, but the location isn't super important.

Thanks in advance!

Barry

Hi Daniel - did you happen to get any good CPA referrals? :/

@Chad Moore The issue with selling (or buying) it at a premium is that if the owner refinances the note, the person who bought the note at a premium, i.e. bought it above the UPB, just lost whatever amount they invested above the UPB. Is there a prepayment penalty attached to the note?

Just to clarify - you currently hold this note and are looking to sell it and want to know what a fair asking price is, or are you looking to buy this note?

There are many ways to structure deals, each with their own pros/cons, so the short answer is... it depends.

Jordan's recommendation on seller financing is a good idea, especially since you said they have quite a bit of equity.

Barry

I just wanted to second this book recommendation. I just finished reading it, and given the potential landmines with SDIRA's, this book should be required reading for anyone going down that path.

@Phil Christian Yeah, you are correct. True one-time CapEx is always below the line, e.g. going in and adding new kitchens isn't going to impact your NOI. I've been meaning to come back and correct my earlier post, but I just hadn't found the time. :/

I think where it gets muddy for me is differentiating between CapEx and Replacement Reserves (which I have seen lenders include for underwriting purposes).

I think you will likely get varying opinions on whether capex goes above or below the line. And both can probably be justified. I personally use the capex as an above the line expense, as it is attached to the property.

The reason you don't include debt service as part of NOI is because the debt terms will vary depending on the investor's situation. Capex, however, is part of the real estate and doesn't (or generally shouldn't) vary from investor to investor. Whether I purchase the property or you do, we will likely encounter the same capex costs, so in my opinion it needs to considered as an above the line expense and reflected in the NOI, since that is the main driver in price.

Now whether the seller will agree with you is another matter entirely. :/