All Forum Posts by: David M.

I am not a CPA, but as I understand it, if my heirs inherit my portfolio, the basis in each property is reset to the value at my death.  As such, if my heirs decide to sell the properties upon inheritance, they have little or no gain to pay in taxes because the sale price and their basis would be very close.  Does depreciation follow the property multi-generationally?  Seems to me that's a taxpayer burden and not a property burden, but I don't know.

At any rate, assuming this is correct, my plan is to hire a kid or two to manage properties as I get older. I'd now have expenses to offset my increased income later in the portfolio life, and could teach my kids "the business" before they have to know it. If they hate it or can't get the hang of it, we can decide they should liquidate upon receipt, however if they do get it, they will have a turnkey business enterprise at some point. If I have 8 properties free and clear in 20 years, and can gross $36,000 per property, per year, that will return $288,000 per year. Assuming 10% vacancy loss and 10% capx, thats still a net $230,400. I could pay my genetically obligated property managers whatever seems fair, $70,000 per year? $80,000 per year? I still clear $150,000 per year, own 8 properties outright, and have what should be trusted advisors managing the assets for their own best interests. We didn't even talk about my IRA or Social Security yet, either...

That's how multi-generational wealth works I think, although I have no experience personally :(

This thread has pretty well dried up, but for anyone interested I will share a quick follow up.  Tomorrow I'm taking a look at a Zillow owned property.  I didn't even realize it was "Zillowned" until my broker told me.

The subject is located in North Phoenix and listed for $190,000.   Zillow closed on 2/1 for $185,000.  The Zestimate is $223,456.  6,351 views on Zillow in the first day.  What a strange business model, although touting a self-defined built-in equity amount on a high traffic platform has to be good marketing.  Makes sense to be buying and selling for a piece.  However, It is only 2/2 in a 3/2 neighborhood, and doesn't have any sq ft today to add another bedroom.  Busy investor neighborhood, I can't wait to see what it's all about!

A cash out refinance will set a new interest rate.  If the loan is 4-5 years old, the current rate might be 3.5 - 3.75%, while the new refinanced rate may be more like 5.5%.

Also, I am not a mortgage expert, but a cash out refi is a recourse loan I believe, not sure where all that is exactly today, but definitely something you should check FIRST.  Basically you can be personally liable for the amount cashed out but not repaid at the time of default, not just give back the house.  Not that you'd expect to default, it's obviously the worst case scenario, but that is a whole heck of a lot worse.

An alternative to refinancing is a line of credit secured by the property, a HELOC. With a HELOC, the historical first mortgage stays in place, and a second mortgage is recorded to the property. Costs vary, but a HELOC is generally lower cost to close than a refinance. Interest is not accrued until funds are borrowed, and then only on the amount used, not the total amount available. A typical HELOC is 75% LTV less the first mortgage. The primary drawback of a HELOC is a variable interest rate, which today could be double a fixed mortgage, as much as 10%.

The best choice really comes down to a personal decision for what the plans are for the money, and how long the funds will be needed.  Good luck!

There was a time in my younger days when paying rent by the first of each month was a challenge.  When I paid late, I was embarrassed that I received special attention from the landlord more than anything.  I gladly paid any incurred late fees to make the problem go away as quickly and with as little fanfare as possible.  The last thing I would've wanted was the apartment complex coming to me to see if I needed something financially.  That's me, I understand not everyone may not feel the same, this individual may welcome a conversation, however you just don't know.

Your tenant sounds like he is aware he is paying late, as is including any penalties for his tardiness without issue.  He hasn't mentioned anything about a grace period to you, so I wouldn't mention it to him.  He knows where to find you if he wants to discuss timing.  His check comes like clockwork, albeit a clock running a few minutes slow.

If YOU would like to proactively extend the grace period for late payments, I'd handle it at the next lease renewal.  Something like, I like to relax the late payment timing after I develop at least 12 months of payment history with a tenant, or something similar.  If he is month to month (sorry, don't remember if you said), I'd pick some milestone he's approaching (40 months, 6 years, whatever is soon), and offer the same relaxation of late payment timing due to that milestone.

Good luck!

Congrats!  That sounds like a fantastic start!

Hi Everyone!  I invest in Arizona where ownership records are public and quite easy to access.  As such, I get phone calls, letters, and even text messages asking to buy my properties for top dollar and cash.  Quick sidebar, if the same prospect receives 25 postcards from different sellers all saying the same thing, the message begins to lose effectiveness, and it might be time for the savvy marketer to move to something new.  But I digress...today was my favorite unrequested solicitation.  Quick second sidebar, since AZ property info is so open and widely available, I invested in a UPS Store mailbox for a "real street address" years ago.  Since switching to the UPS box, all property recordings point to that mailing address on public records.

So, long story long, today I received a 4" x 6" bright yellow card.  The front had the mailing and return addresses, along with a quick intro to his goal of buying houses in my 'hood.  Even a passport photo and phone number.  The back was a mail merged script addressed to my full name, and stating his interest in buying my property.  I'm sure some of you can see what's coming next, but Mr. Cash Investor wants to buy my UPS Store suite.

While this is obviously hilarious, after I stopped laughing I felt really bad for the guy.  He spent money to buy the list, print the card, and mail the card.  How many other UPS Stores did he offer to buy, or worse, how many times did he offer to buy the same one?!

As I take tongue out of check, I offer this as a learning lesson for anyone trying to break into the mailing list game or automate their existing manual mailing lists.  Often raw data includes many fields, and knowing which ones are the valuable ones is pretty much of paramount importance.  He misidentified mailing address as property address, and however many cards were in that same batch all suffered the same error, if not all time.

If you are running a business with infinite upside and potential life altering downside, take the time to make sure your data is right.  Whatever it is.  If this guy can't identify my property, why would I think he even knows what top dollar is?  Does he mess up proforma workups to evaluate purchases?  Etc.  If you are truly interested in building a brand, spend the necessary time on the details.  That's what differentiates five star properties...

Good luck!

@Heidi Kenefick, seems like you've gotten a ton of advice.  My $0.02 is simply it's a numbers game.  I don't mean in the sense of a low enough price to cover the repairs, I mean who bats 1.000?  I would guess even the most gung-ho investor doesn't close 100% of their inspected properties for myriad reasons.  As such, you need to be confident in your comfort level with each inspection, and at what repair level you'd take it as-is (basically), where you'd take it but based on a lower negotiated price to repair/renovate items, and where the cost is to great to proceed.

When I walked from my first cost/benefit analysis, it stung a little.  Why couldn't I get it to work?  For me, it just wasn't in the cards, and it wasn't worth stepping that far out of my comfort zone for this one when the next one would be along any minute.  And it was.  I think I'm about 50/50 proceed/walk after inspections these days, as I know where I'm comfortable, and that's really all that matters in my investment.  These various risk tolerances are what keep real estate inefficient, and allow investors of varying levels to all find opportunity.

Good luck!

My day job is property tax consulting, which involves a lot of cap rate, market rent, and vacancy loss analysis.  The go to solution in our industry for this information is CoStar COMPS.  However, as I mentioned above, they know they have the market cornered, and charge like it.  At my 200+ person national firm, our CoStar license was a top five annual firm expense.  CoStar even went so far as to acquire LoopNet a couple of years ago, which had previously been an autonomous company.  Almost seems like they can now control which information is "free" through loopnet, and which is only available through a data subscription at CoStar.  I'm sure that is merely a coincidence.

At any rate, the only other option I can offer is to speak with a commercial broker.  They ought to know what cap rates look like for their comp set.

Good luck with your deal!

Check loopnet.com for comparable listings and see what the stated cap rates are.  Not ideal as they are listings and based on the seller's unverified information, but at least comparing enough properties should point you in the right direction.

CoStar COMPS is the best product for market rents, vacancy rates, etc. but also a not inexpensive subscription service.

Good luck!

I have a nearly half acre residential vacant lot in Prescott, AZ.  It is in a fully recorded, developed subdivision.  My lot just made it through the years undeveloped.  The neighborhood has more than appreciated to comparable values which make development now seem very worthwhile, especially since I own the lot.

My bank said no problem to financing the construction with a lien on the lot.  I had a W2 then, so I guess I need to figure that part out...

Moving right along, my question is this, what does the BP community think about buying and constructing from one of the log cabin "developers" online?  It seems like that would be a great solution to my need, a sloped mountain lot, needing back-fill or a walkout most likely to build, plus an alternate septic.  Seems like a log cabin at $130/ft is a much better deal than a custom build at $160-180/ft, especially if the log cabin will assemble their product.

The subdivision CCRs require site built homes only, so my next question is would the log cabin company designs meet that requirement?

If there is some other option that would be much better, please let me know.  I'm 100% open to styro-concrete design, or maybe even hay bale if it made sense.

Thanks for your input/feedback, I really appreciate it!