All Forum Posts by: Brian L Dowler

Saw this on another post:

https://www.amazon.com/dp/B00V69GJOU/

Thank you Jeremy and Gary. This would be self-managed (like my other local SFR's) and the $1,600 a month rent gives me, after making $1,000 monthly payments to principal, enough for taxes, insurance, a 10% maintenance holdback, my normal 92% occupancy estimate for 3-4 BR homes, and just a little extra cash, say $100 a month.

The UDFI or UBIT/UBTI taxes are another issue - I am currently paying those already on another property where I have a bank loan.  But, since in effect I am leveraging the owner's as financiers, it could be that the majority of the $60,000 I gained in equity, on sales, would be subject to taxation - perhaps 90% if I am only paying 10% down - time to chat with my accountant.  That's a downer, but would apply to any leveraged property.  That makes the equity build not as attractive, for sure.

I am a Pittsburgh based investor, focused on high quality SFH. I have an opportunity to use my self-directed IRA to buy a house at $240,000 (likely less) with 10% down and paying the owners $1,000 a month with no interest. In 60 months I have accrued $60,000 in equity on $24,000 down, but with only about $12,000 cash flow with a starting rent of $1,600 per month. I am not currently looking for cash flow, so am fine with taking the equity build as a retirement fund builder.

This would NOT be a good deal without owner financing - in fact the cash flow would likely be negative. But saving $750 a month in interest makes it interesting if banks are not involved.

After 5 years, I could refi through a bank, but would then again have low cash flow even with the equity build. So I would likely sell - or look for a LTO buyer.

The question is, do you feel this is a decent deal?  If I sell in 5 years, the Cash-on-Cash return is good. But it is sort of a dog after the initial 60 months. Any ideas?

I have been here five years, and still can't figure out why so many major roads have to change their names every time they hit a major intersection.  You can drive five miles on the same highway but be on five different roads. :)

Wow Jim, awesome information, and it makes a lot of sense.  Thank you so much for the detailed response!

I will check in to the local municipality as I am evaluating the opportunity.  As I am living in Cranberry Township, I am focusing a lot on the "North of the rivers" areas, such as Brighton Heights, Marshall/Shadeland, Avalon, Emsworth, Ben Avon, etc.  These have "Pittsburgh addresses" but each local region/municipality has its own flavor.

Pittsburgh PA has  alot of grand old houses in need of rehab - I have found many of these have third floors with room to add a bedroom or additional bath - in some cases there is room for a complete apartment or efficiency.

I have found that if adding a third floor apartment, you must have a fire escape.  however, my question today is in regard to adding a third floor bedroom to a single door unit - what codes are in place?  Do you need egress windows?  Escape ladders?  Fire escapes?

Can anyone point me to the right website address to review codes?

First year investor; I have one rental and two in rehab.  My two rehab projects have had pretty steep rehabs, because we have fixed everything up as if we have to pass inspections/codes to sell to anyone buying.  That means all wiring up to code, new plumbing, fixing just about every known defect in the house.  One house was a hoarder house and we pretty much stripped it down to the studs and redid everything but the furnace blower unit.  

That is OK for an A/B class flip - but I have started looking at some less expensive homes as cash flowing opportunities.  In the Pittsburgh market you can get a lot of house for a little money - but it seems that every house has issues such as old wiring, plugs without ground, dated plumbing, etc.  The thing about Pittsburgh is that nearly every house has a basement - and it seems like 95% of the basements have water issues.  (That's why I love the two I have in rehab now - slab houses, no basements.)

Here is my question - where do most Buy-And-Hold investors draw the line on rehab to rent?  It seems that if we fix all these issues now, the return is greatly reduced, due to the rehab cost.  When you fix electrical issues, plumbing issues and leaky basements, the average person walks in and does not see the money spent there, like they would on a new kitchen.  Obviously any safety items or roof leaks etc. have to be fixed.  But it seems like a dilemma - if you let some things go to reduce your up-front costs, then when you go to sell someday, you will either have to fix them on the back side or sell to an investor "as is".

Some renters would live with a small amount of water in the basement, especially in B or C class neighborhoods.  But go to sell that house, and the first time buyers might be scared, or any buyer not be able to get a loan because it might not pass inspection.  Do you have to have top notch wiring to rent - can people live with two prong outlets in bedrooms, for example?  What is common practice?

Advice?

Anthony, your note says 7:00 but the official meeting notice is 8:00...  Assuming 7:00 is right?

Investment Info:

Single-family residence buy & hold investment in Cranberry Township.

4 BR ranch house in Fernway area of Cranberry Township (North of Pittsburgh). Full gut rehab from a borderline hoarder - the house had 19 cats at time of purchase (and had as many as 40 at one time according to neighbors). Slab house, no basement, converting from a 4 BR/1.15 Ba to 4 BR/2 full baths. Will keep as a buy and hold rental.

What made you interested in investing in this type of deal?

Slab house - no basement "issues". Brand new roof, soffit and gutters at time of purchase. Up and coming area - lot of rehabs going on. Good cash flow. Close to my house so I can self manage.

How did you find this deal and how did you negotiate it?

This one was on the MLS. Bought it while on vacation in Florida. Drove past it but did not go in. Sold fast, so did not do a walk though.

How did you finance this deal?

Conventional loan for the purchase. Combination of HELOC and 401K loan for down payment and rehab.

How did you add value to the deal?

Full gut rehab. All walls, ceilings and insulation are out - flea infestation. All new just about everything. Hoping to pave driveway, open interior, adding garage access (door to the house), new kitchen layout, landscaping, etc.

Filling six 30 cu-yard dumpsters with "stuff" from the house and yard.

What was the outcome?

Still ongoing. Did not take possession until August 2019.

Lessons learned? Challenges?

Never underestimate the potential of damage caused by too many animals in a house, or poor construction work that leads to hidden water damage around windows. I bought this house based on my realtor walking through it while I was out of town - so, "sight unseen" except for photos. Rehab will be well over estimate, but will still be a good investment. Our second deal, so still learning as we go.

Jerry, if I purchase the house and finance the rehab from the self-directed IRA, all costs and income have to go back into the IRA. I cannot pull the house out of the IRA until I hit 59 1/2 years old, and if I pull it out then I would be subject to paying tax. So the refinance has to be to the LLC in the IRA.