All Forum Posts by: Dan Kelley

I learned of this deduction at a real estate training. It may be common knowledge to you all, but I mentioned it to my accountant and she had never heard of it. Let me know what you think!

Rather than using the "home-office" deduction that is less than stellar and can throw a red flag to the IRS (no personal experience, just hearsay), an alternative is the following:

Rent out your entire primary residence to your L.L.C. for 1 FULL DAY every month for the year. Your L.L.C. will use the residence for conducting a monthly meeting to discuss potential deals, run numbers, etc. The amount you rent your home to your L.L.C. will be determined by calling 3 local hotels and inquiring the price to rent a conference room with catered meals. 

The reason it works is because your L.L.C. can deduct the expense of the rental of your home 1 day every month, but you personally don't have to claim the rental income because you are not renting your home for more than 14 days of the year.

Anyone tried this or have any light to shed on it?

Is this going to be a primary residence for yourself or an investment property? What are you trying to accomplish?

@Elizabeth J.  Thanks so much for all the details! Very helpful! You definitely gave me some more points to consider as I hadn't thought through the laundry very thoroughly (hence why BP is awesome!) 

@Brent Coombs I do not have the $48,000. That whole $240k is my creative way to get the seller to finance the entire deal for me. That would enable me to 100% finance the deal, yet still create enough equity upon completion to pay off the seller and pull a hefty amount of equity via a cash out refi or line of credit to fund future deals. In theory, my financing plan would allow me to get into the deal and rehab for no money down. It almost sounds too good to be true, which is why I posted here for all you wise investors to look over. 

I'm still just getting my feet wet with all this creative financing stuff though, so I certainly could be missing something or not fully understanding some concepts. 

Thanks for the insight thus far!

@Austin Faux Thanks for the input. That's a good point. I'm thinking maybe if I put together a proposal that breaks down how much they'll make in interest over the 2-5 yrs before the balloon and lay out plain and simple how it's a "win" for them, maybe they'll go for it.

Hey all, hoping to get some input about a potential deal I came across.

The property is a 6-unit brick building located downtown in my city. The building is entirely vacant and is need of rehab. The company who currently owns it started the process by re-doing the front staircase (approx. 20ft wide concrete entrance- looks spectacular), installing a new roof, and purchasing all new windows and installing maybe 10 of them. They also began sanding the floors. I spoke with the property manager and he informed me that the company also owns several other multi-family buildings (a 12 unit right behing this 6 plex and several more) and they are selling all of their Dubuque, IA properties in order to focus on their larger investments in Chicago. They just recently sold a few others in Dubuque.

The property looks to be structurally fantastic. I've rarely seen a brick building with as nice an exterior as this one in my town.

Here are the details:

1. Asking price: $99,000

ESTIMATED ARV: $270,000-300,000

2. Rehab Details:

- HVAC duct work has been roughed in but every unit will need furnace/AC installed. Units were originally boiler heat. Boiler has been removed but radiators are still in every room.

- Every unit is nearly identical- all 2/1. 2 units per floor, 2700 sq.ft. per floor.

- Each unit has nice original hardwood in good condition that can be refinished.

- Paint is peeling of the walls and a lot of plaster is broken. Will need to be checked for lead paint. Much of the plaster will need to be redone/replaced with drywall. There is the opportunity to expose a lot of interior brick walls which is HUGE in our downtown area these days. Everyone is rehabbing old warehouses and making apartments out of them.

- Every bathroom needs gutted and redone.

- All the new windows are sitting in a room waiting to be installed.

- Needs full kitchens installed in every unit

3. Plumbing/Electrical- Currently utilities are not split, however the basement houses separate electrical boxes (fuses) for each unit. I should be able to have new breaker panels installed an a 6-gang meter socket to split electrical. Water is currently on 1 meter, however there are six seperate shutoffs in the basement, so it should be easy to feed each shut off from its own meter.

The numbers: I'll attach a PDF of my excel report.

My concerns/What I need advice on...

My goal is to do a lot of the work myself/ hire college and highschool people to help with the grunt work. I will hire out the electrical and major plumbing work. I will do kitchens and bathrooms, floor refinish, drywall work myself.

I'm estimating

$6,000/unit for furnace/AC install (still need to get estimates as I get closer)

$2500-4000 for new electrical panels wired

$4,000-8,000 for the water meters to be split/installed

Other than those major items, I've figured around $16,000/ unit to get them up and running.

I feel like I've gone through and covered all the bases, but I don't want to end up surprised and that I estimated way short. Does this sound reasonable as far as rehab costs are concerned? I can certainly provide more information as to how I came to these conclusions, but just looking for some rough ideas right now.

FINANCING: After talking with a mentor of mine (owns over 100 units in my city), he suggested I consider seeking financing from the seller. Here is my idea:

I seek seller financing for $240,000 at 5% (or whatever we negotiate) am.sch. 20yr, 2 or 5yr balloon. 

Subtract $48,000 as my down payment

Subtract $75,000 as  the building purchase price

Remaining: $117,000 as my rehab budget. 

So basically the seller carries a $240,000 not but my balance is $117,000. They cash out the $117,000 to me- I do the rehab and get it rented. Then as soon as I can after rehab, I refinance with a traditional lender for close to my ARV ($300,000) , pay off my remaining $117,000 with the seller's note, then cash out my equity and pursue other properties while cash flowing the 6-plex.

Am I crazy to think that a seller would even consider something like this? My thought is that being that they seem to be a rather large enterprise with big projects in chicago, money shouldn't be an issue. They also may be able to get a rather large some of money at a nice low interest rate, so it's an opportunity for them to earn some interest. Obviously 5% is very low compared to a hard money lender, so I can certainly offer a higher interest rate.

What are your thoughts? Go easy on me! Am I way off in thinking that I can deduct my down payment and purchase price from that 240k note? Am I way low on rehab costs? This would be my first real rehab. I have a lot of people in my life that will be able to help and guide me, but I wanted to come to you guys first and to my homework before I use the time of my local investors who are running their own business.

Thanks for your input!

Nice to meet you Jason. I'm from Dubuque, however I have family who live in Des Moines. There seems to a be a huge market for rentals there. Good to see some other Iowans on here!

Wow, looks great! Did you get the cabinets locally or from an online source? What do you expect to rent the unit for? Great work.

Thanks for the replies everyone. @Matt Clark , I checked that link you posted- for my state (Iowa) there is a state-specific certification instead of the EPA certification. I called a company and I can become a certified 'Lead Safe Renovator' for $180 and an 8-hr course. The certification is good for 3 years. It sounds like they cover everything from how to identify lead paint in a home, how to perform renovations without creating a dangerous environment, and how to eliminate or make any affected area safe. They also have a lade abatement contractor license, however they said that is generally only needed when you're getting HUD money or are doing a major conversion. She said there are contractors turning an old warehouse into loft apartments- That instance required full lead abatement.

Hey folks, my first post here!

I'm looking into a 6-plex that needs a decent amount of rehab. I've never dealt with lead paint so I'm not even sure if what I'm dealing with is lead paint. The walls in the building are all plaster and the paint is flaking/peeling just about everywhere. Keep in mind the place has been abandoned for several years with the Iowa cold (-20F) taking a toll on it. 

Do you have any suggestions as far as how to tell if it's lead paint or what the cost is to have it tested? Can I do the lead abatement myself? What does it cost to have someone else do it?

Some of the plaster will be removed to expose interior brick walls, however a lot of it will remain, assuming I can make the wall look nice enough. UNLESS: The cost to remove all the pastor and install sheet-rock is low enough to justify the job.

I plan on doing a lot of the work myself/ hiring friends or highschool/college kids to help. I will be hiring out the installation of new electrical panels and water meters.

Any thoughts?