All Forum Posts by: Jonathan Taylor Smith

@Alan Held - I purchased my dream waterfront lake house via my LLC using a hard money loan. It was initially unfinished, but once it was done we refinanced it into my wife's name, moved in, and sold our prior home. Then after living there for the required year, we found another distressed house, bought it via my LLC using another hard money loan and we're currently doing the rehab. Once the rehab is done, again we'll refinance it into my wife's name and move in - keeping the lake house as a second / vacation home. There are also certain tax benefits from the time they were owned by my LLC. This works even better for us because my wife has sufficient W2 income to qualify for the loan by herself.

Welcome @JMar Williams - and CONGRATS on deciding to get into REI! I'm in Chapel Hill and invest mostly in the Triangle and Triad. Let me know if I can answer any questions or be of other assistance.

@Yoel Peyamipour  - OK, just wanted to make sure we're talking about the same thing... You'll want to go to: https://www.huduser.gov/portal... and see what HUD/Section 8 will pay for X bedroom rental units in the county you're targeting to acquire properties. Then determine if you can obtain properties in those locations for a price that will make them cash-flow positive at the indicated Section 8 rental rates. Then investigate the housing authority in that location to learn if they are a well-run organization - or a train wreck. How many employees do they have? How many inspectors? How long does it take for them to approve a request for tenancy approval? How long after tenant placement do they begin paying rent? Can you get someone on the phone? And if not, how long (or how many days) does it take to get an email response?

A poorly ran local housing authority can single-handedly make Section 8 not worth the effort. About half my rentals are Section 8, and while not perfect, I find the housing authority in my location to be decent and I'm glad to be part of their program. But I would advise you to find rentals that would work with Section 8 and/or non-subsidized tenants alike.

First, what do you mean exactly by "section 8 properties"? I invest in rental properties and I choose to rent some of them to persons with section 8 vouchers when and where it pays near, at or above what a non-subsidized tenant would pay in rent for the same property. But there is nothing special about the property that makes it "section 8" prior to obtaining it and placing a voucher holding tenant.

@Michael Kotylo - Everything depends on your situation and the specifics of the property. For me, when I first got into REI, I was paying ~$14K year after year in ADDITIONAL federal taxes beyond what was already being deducted from the paychecks of my wife and I. We bought our first two rental properties (one on December 30th of the year) and upon filing our taxes in the following year, we got a refund of $6,000! So that is a $20K difference in our tax situation. Now they didn't - but would they not have still been good purchases for us on taxes even if they had negative cash-flow? And we also got a state tax refund on top of that. Plus, both of those properties currently rent for about $600/mo above what they originally rented for... Now I am by no means telling you to IGNORE cash-flow or to proceed with a negative cash-flow deal. I am simply suggesting that year one cash-flow should not be your only determination of what is or is not a potential good deal. There are also other aspects that should be considered. I missed out on a LOT of what today would be excellent properties to own because the YEAR ONE cash-flow was not good enough for my calculation at the time - and today they would all be strong cash-flow performers... Just my $0.02.

I can't speak for certain on every state/housing agency, but I believe it is a general HUD rule and per the HAP contract that you cannot take any amount above the maximum payment standard as approved for that market/tenant. So, if they approve $2,500, that must be the rent - and taking anything above that from the tenant "on the side" is a violation. Now the part about utility deductions, in my market that has never been subtracted from my rental income, but it is used to determine the overall affordability of the home on a tenant-by-tenant basis. So, if the max approved rent were $2,500, and utilities deemed to be $200/mo, I would still get $2,500 if that tenant is deemed to be able to afford $2,700 with the subsidy assistance, which could be anything up to the full $2,500.

Inquire with different lenders as your current lender is apparently making their loan discussion based upon what should instead be an insurance concern. What difference does it make to the lender if it cannot be rebuilt as a quad if it is insured for at least the loan amount (which they certainly will require)? And when going to alternate lenders, do not give them a ready-made reason to say NO as well by volunteering the zoning concern of the prior lender - let them determine if that is an issue for themselves.

Cash-flow is certainly important, but it's not the only way you make money from rental properties - there are at least 4 others. Also, it should be called "first year cash-flow", as you can raise rents, get better priced insurance, dispute taxes, rehab the property to lower future repairs and capex, negotiate property management fees as you bring more properties onboard, improve processes and marketing to lower vacancy expense, refi when rates decrease, etc... And for me, the tax benefits alone may still make a property worth buying even if cash-flow is -$500/mo. So, to answer your question, I do not look at cash-flow alone... I consider all 5 ways a given property makes money to determine if it will be profitable overall, along with what cash-flow is likely to be 2 or 3 years out.

Embrace the "slow" and tedious... If REI was as quick and easy as buying stocks, EVERYBODY would be doing it and you'd never be able to find a property. All those things you named are barriers to entry (among many others) that are often GOOD things for those who are in it and can deal with them effectively.