All Forum Posts by: Brett Peters

The capital improvements depreciate over a residential schedule of 27.5 years, taking your original basis and allocation of improvements to land into account. This is something you will not be able to calculate on your own! It gets very sticky, especially because you would have to take into account mid-month convention, as well as the fact that the total allocation to improvement (building) has most likely changed since the cap-ex.  The max 'interest' you can deduct on a residential loan would be up to $10,000. So to be direct, the answer to your questions is yes, but. This is something to be done by a CPA. If you do it and your wrong, Uncle Sam may interject. 

The truth behind this is that "Residential" Lenders cannot lend to LLC's. You would have to find a lender who does "Commercial" lending, the transaction itself is commercial but not the property. Certain lenders can only work with what their license allows. This is why if you attempt to do the same deal with a residential lender, they will try to convince you of the virtues of not using an LLC. Just shop around, you will find one quicker than you may think.

@Jimmy O'Connor, I know Chad personally. Very good guy. I was in the investment sales division at Slatehouse for some time.

"Areas of importance"

Do they analyze quarterly?

How do they manage risk?

Plans to maintain strong capital levels?

"Payment types"

Is their fee based on gross income?

Are there hidden fees above hourly maintenance costs?- should not be a profit center

Is there an asset management fee?

@Russell Gronsky, I don't prefer IRR over PV per say. I prefer it over cap rate for sure, but even more so in an environment where cap rates aren't clear. If we are purchasing to hold in this scenario, the cap rate would only represent the first year. Unless this was directed towards a flipper?

@Ayat Suleiman, it really depends which portion of the noi you're using. Trailing 12, trailing quarter, current quarter, projected 12 etc. I would try to steer the conversation more towards IRR. That holds more weight. Even more the case that due to the pandemic we don't really know where cap rates will fall yet. It is entirely possible that it could raise cap rates in the multi family sector. But to be more direct, I think you can get your target cap, depending on how you approach the noi.

@Ellis San Jose, I have used Info USA in the past. It's pretty flexible and affordable. They also have great customer service. It's really all a numbers game though.

@Reed Meyer, The bank will begin by analyzing firstly the property and secondly your financials and experience. If your financials are sound you can find a lender willing even if you do not have a partner. However, the underwriting of the loan will definitely cast according to their perceived risk. Perhaps a higher LTV, interest rate, or a different term. It isn't uncommon for the lender to also stipulate that the property be professionally managed. In regards to a proposed partner, a strong om definitely goes a long way. However, if they know you and trust you personally it's better.

@Jack Fernandes, Very true. Originally, this was part of the reason I got my license ie. to skip transactional costs. So I can relate to your mindset. It is definitely not a straightforward topic! My advice is to sit down with a broker in your area and explain your approach. It can work if you are very active in investing. But their are alot of fees, annual dues, and liability that comes with the license. It can get up to a few thousand per year in my area, so if your active you can possibly out pace the cost.

@Jack Fernandes, Good topic Jack. As for the seller who is a broker, he would not receive a commission. His compensation is, if you would consider it that is actually a savings if that makes sense. He or she may still have to pay into the brokerage depending on how that situation is structured. For example, if I sell one of my personal properties I have to pay a $500 flat fee to my company. The other situation is quite different. If the broker is selling a personal residence he can not and should not represent the buyer purchasing it since it is a conflict if interest. If the buyer wants representation then it is up to to both parties to negotiate who will compensate the buyers agent. I have been in similar situations and common practice is for the buyer to pay his or her agents fees.