All Forum Posts by: Daniel Zapata

@Travis Hawthorne you should definitely have money in reserves as a backstop until the property can build up it's own reserves. I invest in the Sacramento area and haven't found a BRRR deal yet where I get 100% of my money back. I'm ok with leaving some money in a property if I'm getting a good enough return on it.

Travis,

I factor in the reserves as part of the cash flow analysis when the property is stabilized, typically 6-12 months after acquisition for me. Hopefully you've addressed most of the potential issues during your renovation, so you're just filling up those reserves for a while after stabilization.

The 1%+2% 'rules' are merely a guide for quickly telling if you may have a good deal.

As long as you're sure about your numbers and account for vacancies, small repairs, large repairs (capex) you should seriously consider taking the next steps.

I recently purchased a 6-plex in downtown Sacramento and these are some of the things I've learned to look out for:

• Make sure the foundation is solid; some inspectors don't like to go under the house if the opening is too narrow. Find someone who will check it all out.
• Old houses may not have insulation in-between the walls. You may want to add it, especially if you're paying for the utilities.
• Check if your house is in a historical zone. Even if it's not designated historical, it may be in a zone which limits your ability to change the windows, or require a permit to paint. In my case, the building needed all new windows and some of the windows were illegally replaced with vinyl. The city required us to replace with wood-framed windows which were twice the cost.
• There may be a provision to get lower property taxes on old buildings. Here, it's called the Mills Act.

Like @Account Closed I'm big on the Cash On Cash Return number. I want to be making a decent return on the money I have deployed.

As others have mentioned, make sure you are accounting for all expenses including setting money aside for vacancy, small repairs and capex. It's easy to fudge those numbers to justify a bad deal.

Another thing to consider is the inherited tenants. It may take you a long time to get the rents to market, especially with the tenant-friendly laws in CA. Does the deal still make sense if it takes you 6 months+ to get the rents to market? Are you coming out of pocket until then? Do you have an emergency fund if water heaters break in the first few months of ownership?

Congratulations on taking action, even if you didn't get the desired result!

Regarding the accepted offer, it's possible that this experienced investor saw something you didn't in the property, i.e. opportunity to bump the ARV more than you thought. Maybe they could do the repair work themselves, saving the cost?

It could be a great learning opportunity for you to go to the property and chat with the investor and see what they will do with the property.

@Anisha Mehta you should also consider that by not using an EIN+DBA you are not taking advantage of the level of privacy an LLC can provide you. Also, it may be easier to pierce the corporate veil if it's just under your name.

@Jessica Piff it sounds like you are looking to be a sweat equity partner. Disclaimer, I'm not an accountant/lawyer and you should check with yours before pulling the trigger on anything.

I had a similar situation where I was bringing in the money and someone else was putting in the sweat equity. Assuming you're looking to do a buy and hold: one of the simpler structures is a Joint Venture where your money partner buys the property in their name and they pay you like a contractor and issue you a 1099 at the end of the year. Another option is to set up an LLC where you define the percentage ownership. There is some special terminology for sweat equity partners in an LLC which would prevent triggering a weird tax event since you don't have any money in the LLC but are eventually getting something for it.

Always get everything in writing, including details on what happens if you want to sell, someone dies, etc.

Good luck!

Sounds like something the tenant should be paying for. You should let them know in advance that they will be billed for it so they are not surprised.

Hello Brendon,
Based on my research:
* You need to check with your 401k provider to ensure they will do this.
* You need to self-certify that you are affected by covid-19 (work hours cut, you or a close family member contracted covid-19, etc);
* If you pay it back within the 3 years, you can claim back the money you paid in taxes.

You also have the option of doing a 401k loan vs withdrawal.

Good luck!