All Forum Posts by: Will Barnard

First off, never assume anything. Get the facts on the repairs needed in order to represent an ARV of $350k. Second, what is your goal here? Flip, or hold as rental property? If you flip, I suggest you line up a buyer before closing on this deal and make sure you include all costs involved. Many leave out holding costs (interest, taxes, incurance, utilities, etc.), RE costs on the front and back end, possible value loss duirng hold time, possible necessity to fire sale below the $350k, etc. After all said and done, make sure the profit left over is worth your time/effort/risk.

If you plan on holding for rental, you will be negative cash flow with the numbers you provided. $2000 in rent with a total cost of $285k (235k+50k) is far below a 1% rent to purchase ratio.

Of course you may also be a speculator in "hopes" of holding out for appreciation while carrying a negative cash flow, certainly a well known strategy, but "risky" in this market and you better have capital and reserves to carry the losses.

If you are after your first deal, I suggest you look elsewhere for better.
Keep it up. This business can be very discouraging at first (a big emotional rollercoaster), but with persistance and dedication, you will get there!

Mike, I see you quoted me and took what I said out of context. I was in agreement with both you and Jon on this matter. My 1-5 properties with a 9-5 job example was sugggesting that anyone could get some rental properties using a partner who put up all the $, not just for acquisition, but also for reserves. I did not mean that $100 would get them 5 properties and of course over time cap expenses occur requiring cash reserves.
I started in the business that way. My first 8 deals where all done with partners who put up the cash and I found the deals, managed them, etc.
Certainly they still have to do the cash flow analysis, etc. etc. to make sure they are buying right. That is something we all agree on.

Although I do not agree with a lot of Mike's statements, I certainly agree on these points above. $100 or even 1,000 will get you nowhere in RE investing. You must have $/credit or find partners who have this in order to suceed in the landlording business.

Jon, nice response. You shot down the standard guru generalizations with one shot. :shoot:
I also agree with Mike on his response too. Yes anyone can do a deal with OPM and no $ out of his/her pocket, but if you plan on establishing a full-time landlord business like Mike does, you will have to have capital not only for acquisitions, but for maintenance, misc. capital expenses, etc.

Now if your plan is to simply buy and hold one or two or even 5 properties and continue your 9-5, then perhaps your no money strategy could be used with partners, etc.

Not only is it a great startegy for the investor, the buyer can control when and how much in cap gains taxes tehy pay by selling via owner finance.
WIN-WIN for both parties.

Tim, the IRS will have a huge problem with this and a Chattel App. will not be accepted. According to the IRS, a cost segragation analysis requires a site visit and Chattel App. are done over the phone in most cases. A true cost seg analysis should be ordered to accelerate (itemize) depreciation deductions and the other benefit is that some of the standard depreciation recapture can be avoided with a cost seg anal.

This is a great strategy to increase profitablility on rental properties and the standard cost ranges from 2k-3k which will be gained back the 1st year on depreciation deductions. There are some instances where a cost seg should not be done such as an investor who already has maxed his deductions and does not need any additional.

Passive income losses can be used to reduce earned income up to $3,000 per year. If you had 10k in passive income losses, you could deduct 3k each year for 3 years and then 1k in the 4th year. Or, if you had 10k passive loss year 1, and 7k passive gain year 2, you could deduct 3k loss from earned income year 1, and year 2 would be a wash.

There are other ways to create unlimited passive losses against ordinary income, however you need to be a real estate professional (as described and recognized by the IRS) which means you have to meet two requirements: 1. you spend 750 hours per year minimum on your real estate business, and 2. Your RE business generates more income than any other income source.

As opposed to depreciation which spreads deductions over 27.5 years (residential only), you could do a cost segragation analysis on your property (cost is between 2k-3k) which always produces larger tax deduction benefits and partially avoids the depreciation recapture when you sell. It is a viable strategy for all investors.

Exo,
All excellent questions.
I find it hard to believe that the larger house will not receive higher comps, and if it does, you will have more value when you sell it due to the increased sq. footage. Also, you should be able to get a bit more rent for the larger house. The 12k difference in cost would result in an increased mortgage of approx. $70 monthly (IO) so as long as you can get $70 more for the larger of the two, you will be fine.

Also, the larger house needs less repairs according to your figures and is newer (better resale value down the road & possible less capital expenses).

In the end, it is a personal decision you must decide and above are only my observations. Ultimately, you should do a cash flow analysis on each and make sure the numbers work, then you can make a more informed decision.

Good luck.

Jason, your response hardly answers this question. We all know that competant professionals should be consulted on legal and tax matters as they pertain to our businesses, however, there are many RE investing experts here on BP who could give immediate answers to questions such as this. If you do not have one, simply move on to a question you can answer.

To answer the question, if your partnership is under a DBA rather than a business entity, and you want to create an LLC, you will need to form the LLC (preferably in the state you do business in) and each partner (BOB & JANE) would own respective %'s of the LLC. The DBA would be closed. If you intend on keeping the same business name, you do need to run a search to check availablity of that name in an entity. If it is already taken, you will have to choose another name in most cases.

And of course, consult with your attorney to properly structure the entity and perhaps create it.

Good luck.

In addition to Jon's post, creating a Partnership LLC would also be a way to structure a deal. The porperty is held (or properties) in the LLC and both the $ guy and the work guy own an agreed upon share of the LLC.

Jason,

That is precisely what I was getting at and is also written by Mark Kohler in his book.
Well said.

The lesson here for any newbie or even seasoned investor is that gurus almost always promote "secret" strategies and the like which are not cookie cutter items for all investors in all situations. Always get competant legal and accounting advice and seek professionals who are experienced and proven in their respective industries.