All Forum Posts by: Benjamin Aaker

Go with the 1099. You've proven by now that you can make it independently. Remember to save at least 10%. Others on the thread have said the rest.

It took me about a year of listening to podcasts and reading until I fell into it when my wife wanted to build a house. We needed a place to stay and planned to rent but I was able to convince her to buy a fixer-upper. Once the wife was on-board we were a great team. Investing ever since.

Why not use the profit from the first condo to pay down the HELOC? The interest rates on those are higher than many commercial mortgages. If you are in a hurry to get #3 then refinancing might be the way to go, but you will essentially be using that money to pay the down payment on #3 anyway. When refinancing, you take equity out from whatever you have built and your cash flow goes down. Just be careful you don't over-leverage.

Talk with a few bankers in your area. They will be able to give you interest rates for the property you are looking. The interest rate won't affect the cap rate for your current purchase. Debt service is factored in after the NOI, which is used for the cap rate.

Movement in the interest rates will have an effect on the market cap rates in your area. If it becomes cheaper to borrow money, investors will pay more for a property, prices rise, and cap rates will depress. I don't recommend trying to predict either into the future. 

On a 12-unit you will need a commercial loan. You will need at least 20% down for that. I raise money through syndication but on that size of property the cost might outweigh the benefit, although I see you are an attorney. Perhaps you have an attorney friend who helps with syndications. At that point you will need to find some other friends to invest. The alternative would be to partner with these friends.

Hi Alice,

I'm doing this very thing but on the kid side of the deal. My folks have a 1031 and they are looking to purchase a property that we will own together. They will stay there 2 months of the year and the rest will be short term rental. The biggest issue is with banks right now. You have to be clear with your real estate and agent about what type of property you want. If you are going to legally do short term rentals, in many cases you will need a commercial loan and there are few banks willing to do these for rentals right now due to the pandemic and their fear that hospitality is in the red. The detail is on the classification of the property. Many places in that area are condo-hotels, and banks are very tight on that. I recommend to discuss with your agent and carefully examine the property to see if it fits your requirements.

Issue two 1099s. The purpose of this is to tell the IRS that the individual or company had income and how much and where it came from. Since it came from two different entities (you and your LLC) there needs to be 2 1099s.

I used The Millionaire Real Estate Investor by Gary Keller. That book is fantastic from cover to cover. It'll tell you how to build that spreadsheet that you will use to analyze properties.

I'm in South Dakota but I recommend to talk with your bank and insurer. The bank might let you escrow funds (that come from the seller at closing) in order to do the repair. This money is only released by the bank when the repairs are completed and after closing. Insurance might be willing to take a risk for a higher premium with the requirement that you make the repair. Have the seller credit you the premium increase at close. You may need to talk with a few insurance companies and banks to get this worked out. 

I agree with @Gary Mazzarella, those old beat up apartments are perfect for doing some repairs and bringing them up. Find a bunch of those and check their rents to compare with the market rents in the area. If you see one of these with much lower rents, then you have an opportunity. 300K can get you a down payment on a nice multifamily building and get you started in the market. I also recommend staying at home to start out, especially if you will be doing repairs. You need to keep an eye on all the work.