All Forum Posts by: Daniel Weaver

Any update available on this @Jay Hinrichs ? Was researching the land flipping model on the forums and found this post. Thanks.

With that class of property, i.e. rental rates ~$500/month, your property manager is going to make or break the deal. One bad tenant turnover and you could have to put the equivalent of an entirely new down payment into the property with nothing to show for it. If you have a property manager lined up already, then get their feedback on the location and condition of the property, and if you don't have a PM already, I would start there. This type deal is not uncommon in Memphis, and out of state investors get burned when they focus on the paper returns and don't realize the unique challenges presented by the tenant class.

The link I posted to approved city regulations was removed, but it seemed to state the city fee was $2/night plus 3.5%. Was this changed to 5% after initial approval?

I live in the Normal Station neighborhood and own two rentals in this neighborhood as well, so this is the area of my greatest expertise. I think you should examine your projected rent amount very closely. Even though I have heard of some 2/1 homes getting that much in rent, most 2/1 homes get $900 - $1000 in this neighborhood. Those that ask more typically have much longer periods of vacancy between renters, and often do not have renters renew their lease. If the home is nicely remodeled and/or larger than the typical 900 sq ft 2/1 in the area, you might could get $1250, but I think you will be disappointed with vacancy and turnover at this price point. A 3/2 or even 3/1 on the other hand should rent at $1250 - $1400 all day long.

You can probably find comps to support the $120k price and if the home is nicely renovated it may actually sell for that much, but I believe most 2/1 homes selling at this price are the ones selling to owner occupants, such as parents buying a home for Jr to live in during college. My experience is that the investor class homes sell at a second lower tier of pricing.

All that said, if you really want to increase the value of my homes, go ahead and buy for $120k, 😜 but I personally would look for a better deal - they are getting much harder to find in Normal Station but still come up from time to time.

Hi @Garrett Masiulis - I'm currently I holding my two single family homes in my personal name. I think holding in your personal name with an umbrella policy may be similar risk wise to holding the property(ies) in an LLC but with perhaps lower overall costs after factoring minimum taxes and fees associated with an LLC.

Perhaps an atty could tell you what the process would be for transferring properties into an LLC, but I don't imagine it would be difficult.

If you don't already have an LLC set up, then I imagine the simplicity and lower up front costs of buying in your personal name would be better than going through the trouble of setting up an LLC in advance. As I grow my investments I plan to eventually look into transferring to an LLC, but just don't yet see the value personally. Your situation and risk tolerance may differ.

Your company's HR department may have info available about the tax consequences of your stock options, but perhaps you could reduce taxes by watching the timing of exercise if your household income varied from year to year. 

i.e. if your income was regularly under the Social Security wage limit of $127,200, then it might make sense to exercise multiple options in one year to get above the SS wage limit and avoid 6.2% tax on the amount over the limit. Of course, the opposite could also be true, where it might make sense to only exercise a few at a time to keep your income in lower federal tax brackets. Would be best to consult a CPA who understands your entire household income picture.

Also, the tax implications for getting a cash out refi or HELOC are in regards to the mortgage interest. Your home mortgage interest is deductible on 1040 Schedule A only if you itemize, and interest on a rental property mortgage is deductible on Schedule E, taken against the rental income regardless whether you itemize or not. If you take a cash out refinance, then this interest will be deductible on Schedule A only if you itemize. However, if you take out a HELOC and use the proceeds to purchase rental property, you can deduct the interest from the rental income on Schedule E. The second way is likely to be slightly better tax treatment, but your CPA can look at your overall picture and let you know which way is best.

@Tim Bergstrom - those sites look like they have great data! I'll send you a connection request so we can chat a bit more.

Hi @Tim Bergstrom - 

I'll be curious to follow this thread, as I've considered the short term market in Memphis as well. (Currently my rentals are regular long term rental properties.)

I've watched a house across the street from me that is an AirBnB property to see how well they do - it's a 3b/2b in the University of Memphis area, and seems to have at least one occupant most weekends, but rarely during the week.

Here is a link to the Memphis city resolution passed last year regarding a 3.5% tax on short term rentals: http://memphistn.gov/Portals/0/pdf_forms/SKMBT_C65416101710140.pdf

Interesting survey, but, as noted in the survey these broader trends could vary widely by neighborhood even within a specific city. I don't doubt that Memphis has a high eviction rate, because we do have more than our fair share of poverty-stricken C class neighborhoods. There are other areas where eviction risk is likely much less than the national average. Overall trends are nice to be aware of, but it's the details that make or break a deal.

Following - will also be interested in recommendations, though I have to deal with finding a company that will write a policy after making a large claim to repair fire damage.

Have Liberty Mutual on my primary residence, but they dropped coverage on a rental house I own after I moved out of the home and converted to a rental, even though they had initially told me they would write the rental policy when I moved out.

Then I was able to get a policy on the home with National Lloyds, but this policy was not as good. They have now cancelled my policy after I had a fire damage claim - though they still insure my other rental. Understand this is standard practice for the industry to drop someone who makes a claim, but still frustrating since the house is mostly brand new after repairs. 

Probably will be very limited in who will even quote the house after my claim, but hoping I can find someone who wants all my business and will be willing to write the policy based on the whole package, rather than just the one house. Already anticipating higher rates - but is there anything else I can do to find a good policy other than just shop around a lot?