All Forum Posts by: Chris A

We are under contract to purchase an apartment building. The seller has been doctoring his books for the past several years. Essentially he has been collecting rent in cash and then not reporting it on his corporate taxes. He's been reporting only 65% of actual revenue.

If we buy the building are we taking any risks on future tax liens after we close? I've been assuming that since we are only buying the building and not the corporation that we are in the clear but our lender is nervous. Thoughts?

Is this a question for a tax attorney or a title company?

Chris

How about a different approach:

He thinks you are "monitoring" him and is freaked out about it. How about just suggesting that since he is so uncomfortable with you that you will allow him out of his lease early. Essentially make it his idea to move out of your house.

Juan,

I doubt that people think you are outright lying. They simply don't trust you and are relying on their own background. Let's face it. You have every incentive to portray the property through rose-tinted glasses.

Based on my own personal experience, in a solid year I see expenses around 30%. Those are real numbers. The key is that those expenses are calculated when everything is running perfect. 100% occupancy. No legal fees for evictions. No sewer line problems. etc.

When I run my calculations on a building I typically use 50% though. I think the guys here are right that it's a good conservative estimate. If the numbers work based on that ratio then most of the time I should be swimming in cash flow.

That's just my perspective though.

This is a no brainer. Keep the deposit. As the owner of a property you've had carrying costs associated with the property during the time you were under contract with the buyer. I'm guessing that you did not market the property during that time because you thought you had it sold. Definitely you are entitled to the deposit.

How about compromise and get a duplex where you want to live. Then you can easily manage it yourself and hopefully produce cash flow.

Paul, are you absolutely certain that you can buy a 3-plex with FHA? I was under the impression that FHA has some very specific wording that prohibits you using their financing for any rental use. In fact, when I bought my first house 12 years ago using the program we had to refinance the property in order to rent it out later.

Check out the PROPERTIES link right under the BiggerPockets logo. It will show you several houses that fit this description.

If you are young and single then I would definitely opt for the 4-plex. In fact, if you plan to owner-occupy one of the units I would hunt around and see if you can find 90% financing and skip the partnership with your dad. I don't know if it is out there but you have a much better shot if you plan to live there.

I don't know what you are really talking about but I think I can still advise you to avoid an 800 number. Personally I would never call an 800 number related to a marketing sign or ad. Seeing that 800 tells me that it is some out of state entity and not somebody local. I would avoid it.

Curt, would you elaborate on the total finances of the deal. Specifically how much you paid for the hard money and your total return after carrying costs.