All Forum Posts by: Ben Morris

Does anyone have any insurance agents they'd recommend in Southeast WI that can offer full replacement cost on a 1929 duplex?

I am purchasing the house for 131k and I'm now in the process of shopping around for insurance.  The mortgage company is requiring full replacement cost.  So far I've called AllState and USAA.

AllState: won't offer full replacement cost "due to the age of the home".

USAA: insists that that it be insured for 424k for 1500/year

I budgeted 900/year in my analysis.  Lesson learned: get insurance quotes during the inspection phase!

I am a Software Engineer by day.  I made some accidental money early on, made a couple bad choices, but it's now looking up again.  I wish I knew about BP 10 years ago!

This is all good advice.  I like the idea of including all utilities in the rent as simplifies the accounting and minimizes any tenant-tenant squabbling.  This should be simple enough to do since the upper is most likely moving out and the lower is empty.  The rents have been below market as it is.  I might include birthday cake, too :)

I am in the inspection period for a 2-family where the owner lived on the lower level and rented the upper.  The electrical is split per unit but there is a single furnace and hot water heater for the entire house.  The lower unit controls the furnace, and thus the electricity required to run the furnace blower gets billed to the lower unit.  This works fine when the landlord lives in the lower unit, but I am planning on renting it out.

I am fine with covering heat and water which is pretty common in my area, but I am having difficulty coming up with a way would be to account for the electricity required to run the furnace.

Here are the average utilities for the last 24 mos:

• Lower electric - 86 Paid by tenant, but includes some electrical for whole house
• Upper electric - 45.  Paid by tenant
• Gas - 60 (hot water + furnace)  Paid by landlord

@Account Closed @Dave Foster @Steven Loveless  You guys all make very good points and a couple of years ago, I decided to keep the property specifically because I figured equity is better than giving it to the taxman.  I think 1031 is out of the question since the timing would have to be unbelievably perfect for it to work and I risk having to pay the tax anyways.

I spoke with the realtor and then I spoke with my accountant again, and I think I'm going to just sit on it for now.  I'm trying to decide if I should stay the course and keep paying the 2nd down (6.125%) or go for one or more cash-flowing properties to alleviate some or all of the bleed.

@Mark Creason, yes he is including the recaptured depreciation.  I seem to have forgotten to include that

@Account Closed You're absolutely correct, it has paid me a ton in appreciation but I cashed that out 10 years ago.  Since then, I've only been paying interest on that which has eroded much the benefit I took.  Unfortunately, that benefit is gone, but that's another story.  I think I'm better off right now doing as others have suggested and dump the property and stop the month-to-month bleeding.

Also, I don't see that rate of appreciation continuing into the future.

@Ben McMahon I think you're absolutely correct.  It's been taking up so much headspace that it's been a virtually paralyzing, keeping me from experiencing better deals.

BTW, I talked with my realtor this afternoon.  We're going to list the property next week.  This forum was exactly what I needed.

Thanks for all the responses and questions.  

Financials:

• Purchase price (2001): 155k
• Market value: 305k
• Mortgage balance: 300k (1st 132k, 2nd 168k)
• Mortgage (P&I): 2100
• Rent: 1795
• Mgmt Fees: 142
• Pool Maintenance: 120
• Taxes and Insurance: 190
• Cash flow: -800

And how my CPA is calculating taxes (this is assuming net proceeds of 296k):

• Basis: 125,600
• Gain: 170,400
• Rental activity loss carryover: 15k
• Taxes: 39,200 (Fed: 31600, State: 7600.  50k in my original post was incorrect.  I added the state twice.)

I have justified keeping it because the -800 cash flow is just about the principal payment every month so I figured that if I just keep paying more principal, the net result is forced savings + future appreciation + some tax benefit.  I'm having a hard time justifying paying the closing costs + taxes because once I pay them, that money is gone.

I have a property should have been a winner but ended up being an ugly monkey on my back for the last 8 years.  It currently loses about $1k/month which is about what the principle payments are (yes, there are 2).

I bought the property in 2001 for 155k.  In 2005-2008, I pulled all of the 180k in equity out and put it into a business that ultimately failed, leaving me with a property I owed more on than what it was worth.  I ended up moving out of state and turned the property into a rental.

Fast forward to today.  I am fed up with paying interest and waiting for the market, so I have been paying 2400/month towards principal and I'm finally at the point that I can sell it.  However, I'd be hit with a pretty large tax bill (fed + state around 50k) due to the equity I've pulled out.  

In my head, I have 2 options: 1) stay the course and build up equity until I can get enough to make a 1031 exchange into one or more cash-flow positive properties, or 2) sell it and pay the taxes.

My issue with #1 is time. In a few years, I can a serious amount of equity, but at what opportunity cost?

My issue with #2 is that I don't want to pay the man. In my mind, that puts me out of real estate altogether, and I want to make real estate a serious component of my portfolio.

Is there a creative option #3 that doesn't entail foreclosure (I'd have to pay those taxes) and my income is sufficient enough that I don't think they'll forgive it very easily.

Thank you!

Ben