All Forum Posts by: Will Barnard

Plutopia,
Like Jon, I have been very busy with other things so I too have not researched the answer to your question #1.
Question #2. If you pay off the debt financing from your SDI account, and hold the property for at least 365 days, UBTI is wiped out completely.
Question 3: Depreciation is not applicable in IRA accounts since these are already tax advantaged entities.
Question 4: 1031 Exchanges are also not applicable here as the SDI is an already tax defered/tax free entity (account).

If anyone can answer question #1 before Jon or I have time to, please do so.

Just food for thought.
In addition to HML, there is private investors such as IRA holders (self-directed), people with $ in CDs earning tiny returns (compared to RE), family, friends, associates, etc. Private money lending is another great avenue of funds for you to invest with. Make sure you follow the laws and always pay the investor back or you could easily find problems with the SEC.

I need to do some more research on how LLC's are taxed in contrast to S-Corps, and figure out which one will best suit my situation. This is a great forum, and I look forward to contributing to it in the near future.

LLC entities are "pass through" entities meaning the income/losses are passed on to your personal return. They do not file seperate returns like S-Corps. As a general rule, LLC entities are best suited for rentals (buy and hold) and S-Corps are better suited for flips. Again, this is a generality and you should consult a tax attorney/CPA for your individual situation.

As for reducing your taxes, one thing that was left out is the depreciation deduction you recieve on rental properties. The improvements (not the land value) on a residential property are allowed to be depreciated over 27.5 years. This will benefit an investor you has W-2 income. Of course it is not the sole reason to purchase, but one of them.

Somehow, my original post to this question was placed elsewhere so here it is now. AND Mike was correct as this same question is now posted in starting out, hence the de-ja-vou!

A few posts have suggested you get some actual experience in RE before purchasing a multifamily unit of this size - I agree.

Others have mentioned that deal is not good - From the figures you have provided, I too agree. Not sure what state this prop. is in, but judging from the $350 per month rents, a good deal will be at a 10 cap or better, not an 8 cap. That is a retail price you would hope to get on the back end when you sell.
$700 ask price for 24 doors is just over $29k per door (too high for the rents).

Other things to consider or look for in this or other deals of this nature: Upside potentials 1.can you increase rents/decrease expenses 2. Are there multiple buildings on one tax parcel that could be divided and sold individually for profit. 3. Can the management company be changed out for positive results, etc.

There are many many ways in which a rookie mistake could ruin you for a long time. I do suggest you take the advice of the other posters and "get your feet wet" first. Although there can be more $ in commercial deals, there can be more $ lost as well and starting out small would be advisable.

Good luck to you.

Somehow my answer to another question posted here.
I have removed it.

Nice job avoiding the soap box grandwally, seems like we all have to tread lightly on that subject.

To answer the question, most experienced investors do shoot for a minimum of $100 per month, per door in cash flow. This is after all operating expenses (taxes, insurance, prop. management, repairs, vacancies, etc.). The mentioned OE are some of them, not all of them, just to be clear.

As for condo vs. sfr or multifamily, cash flow is cash flow. What you do have to consider on the condo is potential association dues, possible rent wars/competition with other landlords in the complex, possibly lower future appreciation values on the condo vs. sfr, etc. (just to name a few).

Ultimately, you need to do your due diligence, study the area, make sure the numbers work for your situation, and always keep reserves (cash, line of credit, etc) for raining days.

Good luck to you.

Realtor.com can be a source to find deals. They mix both MLS listings from agents as well as FSBO. In a lot of cases, you could have better results dealing with the homeowners in negotiating deals to purchase/wholesale. Of course, not all Realtors are RE savy either. Practically everyone and their Mothers became Realtors over the past 5 years and many of them do not price properties correctly or know how to negotiate, so deals can be found there as well.

Keep in mind that it is not the website and property you are looking for, but the "desperate" seller! This is where the deals are hiding. Desperate can be job transfer-need to move, divorce, death, behind on payments, jobb loss, etc.

Good luck.

I hear you. I too like to meet face to face with the pros on my team. In fact, I do fly out and meet them when I am able to arrange enough items of business to accomplish to make the trip worth the money "cost effective".

As for your deal, I looked at it. Can you send me all the figures so I know how you arrived at the cash flow figure? What about the subsidised monthly payment for two years? Is that how the property cash flows or is that extra "gravy" for 2 years?

Jon, Thanks for your input as well. As you, I am also not a CPA or tax attorney, but I have studied this subject and have been taught by competant professionals. I too want to clarify the specific calculation to be sure I am correct (as my calc is more beneficial than yours). I received my information on this calcualtion from a CPA/tax attorney named Mark Kohler. He has extensive knowledge on this and many other RE subjects as they relate to taxes, etc., however, laws do change often and perhaps mine is outdated. If you get positive confirmation of which formula is correct, please post it and/or email me and I will do the same.

One thing I understand is that there is no depreciation tax write off for RE investments held in a tax deferred/tax free retirement account. Since they are already tax advantaged, the usual depreciation is non-appplicable. Again, I may be wrong here, but that is how I understand the IRS rules to be.

As Mike said, it does not matter if the tenants are section 8 or standard, you can have the good and bad in both. The real key here is knowing how to screen your tenants. Just as you would for a regular tenant, it is necessary to screen section 8 tenants (even more so in my opinion).

You are ultimately responsible for your business and as such, you should take the necessary precautions and steps to reduce potentially problematic tenants.