All Forum Posts by: Daniel Hofmeister

Hello Mindy, thanks for taking all our questions!

I'd like to understand the tax implications of the "Refinance" portion of the BRRRR method. If I refi my duplex and get 20k out to pay for the down payment of my next property, how will I be taxed on that? I'd hate to have to pay the man 30% every time I complete a BRRRR cycle.

Hi @Tom Lipps,

Thanks for your reply! I think you have a great point about being less likely to be sued early on. I will most likely go the same route for LLC's as you are.

If I may ask, which insurance group are you with, and what kind of policy do you have with them?  I received homeowners quotes from State Farm and Nationwide so far, with one being around $1000/year and the other being around $700.  That's only for $300k personal liability though, so I might bump that up.

@Christopher Phillips

Thanks for your input.

I didn't dig into specifics in my original post, but I have done extensive analysis on the property. Assuming I use FHA 3.5% down, I expect a 20% cash on cash return, 30% 10-year IRR assuming $86,000 ARV, and expect to cashflow $106/unit per month.

Currently I rent an apartment in downtown Cincinnati, so even if I live in one and have 100% vacancy in the other unit, I still pay less than keeping my apartment.  Rent is relatively high in the Central Business District and Over-The-Rhine areas of Cincinnati.

Good point about the max allowable rent in the area.  The rent in the area around the duplex averages $1/sqft for mid- to upper-tier finishes (hardwood, solid surface counters, SS apps, tile bathroom), so I'm on track for that.

@Craig H.

The duplex is actually in Newport, but most people recognize Cincinnati much easier than Newport.  The specific neighborhood is up-and-coming, with newly built houses creeping up the other side of the street.  It doesn't take much to be competitive there right now, but I have a feeling it will require better finishes to remain competitive within a few years.

I think I'll take both of your advice, and hold off on the LLC. Thank you both!

Hello everyone!

Long time BP lurker, first time forum poster.  A little about me: I'm a 25 year old engineer from Cincinnati who's become steadily more excited about the housing and entertainment renaissance happening in the greater Cincinnati area.  I'm ready to make the jump into real estate investing! 

I'm in contract for a duplex in the Cincinnati area, that needs some much needed updating and repairs before I move into the top half.  The bottom half is leased until April.  The house specs are as follows:

Duplex:

Upper/lower 1BR/1BA each, ~550sqft per apartment

Contracted price: $65,000

Estimated repairs/renovation (cash): $10,000

Rent: $550/month/apt, I'll pay rent for myself into the duplex bank account

Seems like a pretty solid deal, I'm sure it will cashflow nicely.

So now that I'm going down this path, there's a few things I'm not so sure about. For those who have done BRRRR method, does it pay off to renovate to a higher quality finish? I'm considering going for solid surface or granite instead of laminate, pretty nice bathroom fixtures, etc. Does it pay off? Or do nicer/more durable finishes ultimately make little difference in lowering upkeep costs?

Secondly, I'm setting up a new bank account for duplex use only. I have enough income from my day job to live off of, and won't need the paid rent for anything, so the only thing that the duplex account will be used for is putting back into the duplex for repairs, etc. I'll be talking to a CPA soon but in the meantime, I'd like to know if creating an LLC would be in my best interest to not have to pay a bunch of taxes on money I won't personally be touching anyways.

Thanks for your insight everyone!