All Forum Posts by: Jim S.

I'd say that's a steal - don't think you'll find much better than that @Aaron Briggs.

Originally posted by @Aaron Briggs:

@Jim S. I didn't realize that lenders made meaningful distinction between SFR and live-in 2-4 plexes. Thank you.

There certainly is, it impacts which insurance products you can get as well.

I'd recommend you start talking with a mortgage broker who can help give you a rundown of what products might be a good fit for your situation. 

For your own reading it might help to look at the guidelines from Fannie/Freddie, one page I have bookmarked is the Fannie Mae lending criteria matrix: https://www.fanniemae.com/content/eligibility_info...

It amortizes it over the course of the loan which is lower payment for the first few years, which is great for helping you to compound your returns. I just got a 5% down, LPMI @ 4.125% on a house hack (SFR w/ rent-by-the-room) using a HomeReady mortgage from Fannie Mae.

If I had to pay the PMI myself my effective rate would be substantially higher until I hit 20% equity, the overall rate is so low that it ends up being a substantially better option because even with the slight uptick in my mortgage rate for the life of the loan I can invest that saved income at far higher rates than the resulting difference in interest rates.

Only program I know of with LPMI & 5% down for a MFR would be Freddie's Home Possible mortgage - like the homeready mortgage it only works if the property is in a specific area (or you have very low income). HomeReady would be 15% down for a 2 unit, 25% for 3-4.

@Lance Lvovsky Completely agree! I'll probably do my taxes again for the last time this year and then start using a CPA thereafter.

@Nicholas Aiola Awesome, thank you for the detailed response! I had a suspicion that it would be bad if I didn't at least make a visible effort for getting the place rented so I'll definitely go that route. Realistically I want to talk to people in Dec anyway so I can start the year with some income.

For background I recently purchased a 5bd/2ba in Denver which I plan to live in myself (got a 5% down no PMI HomeReady loan for it) as well as rent out the remaining 4 bds by the room. Plan is to rent 2 unfurnished/6 mo leases + 2 furnished short term/AirBNB.

My house just closed last week and now I'm in the process of fixing it up cosmetically (drywalling over old 50's ceiling tile, ripping up old carpet + refinishing the hardwood underneath, painting, new floors everywhere that doesn't have hardwood). Overall after $7500-10k in fix-up expenses I expect that I'll be able to cashflow on the property while living there for free (PITI = $1400/mo, projected avg monthly income w/ vacancy = $2,100).

The plan is to continue fixing it up for the next 1-2 years then rent it out in full (either still by the room appointing a roommate as a PM or just rent the whole house). I expect I'll accrue a bunch of tax losses which I can start taking (using the $25k rule) once I start renting the property for a full calendar year.

Now for my actual tax questions:

1. Will I regret doing the repairs before actually getting a renter, i.e. should I post it on Craigslist before I start paying for these repairs so it doesn't get classed as start-up expenses? 
2. Can I claim that $5k first year startup cost deduction if it's for future rentals but is also my primary home?
3. If I don't expect any rental income for 2017 but all of my repairs happen in 2017 will that cause me to lose any of these deductions given that it's 100% my primary residence for that tax year? If I'm only using one room of the 5 I plan to rent and the others are vacant due to work being done should I consider my "personal" usage to be 20% for the first year?
4. I assume I can count all my mileage as expenses (driving from my current apartment to the house to do work, trips to home depot, etc.)?
5. Tools for DIY projects, i.e. paint brushes, ladders, drills, etc. used specifically to improve the property. Can I call it a repair/operating expense? Will still be cheaper than hiring contractors to do it all.

I know I should probably start working with an accountant but I just want to make sure I'm not shooting myself in the foot tax-wise with anything I do in the next month.

If the appraisal is that far off it would be throwing huge red flags for me, even your own calculation puts it as a negative equity investment after rehabbing it. If the property needs all this work is it actually up to code, does it have current certificates of occupancy? Are the tenants in any way related to the owner, i.e. how sure are you that the property would continue to get those rents if you had to turnover the tenant base?

Personally I would never buy a property that far off from appraisal for the simple reason that I'm not going to get that money back. Based on your report even after you put into repairs in you won't be seeing that $40k again. I'd prefer to use that as a downpayment to buy another whole investment property out of state.

Based on those numbers (which also don't appear to include maintenance, vacancy, capex, property management) you'll be doing all of the work to flip a multi-unit property, and then keep it running with 4 tenants for <7% COCR? That just seems like a lot of work/risk to get a lower return than you'd get putting that cash in a REIT ETF and calling it a day.

I would run away and never look back if I were in the situation you posted. I honestly believe you'll end up with a ton of work just to get negative equity vs. your investment and a breakeven cashflow at best as you're not accounting for a number of major expenses in your pro forma.

Originally posted by @Bill S.:

Originally posted by @Jim S.:

Awesome, thanks Tyler! Do you mind sharing which carrier you use? I talked to Geico + Progressive and they both wouldn't underwrite it so now I'm looking to the independents.

It's in Adams County so I should be good as far as I can tell (somewhat hard to find regulations specifically for it - reaching out to the county) 

 I am way late to this party but will add my 2 cents. You need an insurance broker. Insurance brokers are found under the moniker of "independent agent" That means they don't work for a specific company like State Farm or Allstate. They have several companies that they can place policies with. Safeco is an insurance company that uses independent agents to write policies for them. They have the best rates I have found in Colorado. There is an independent agent insurance company with an office on Kipling around the W Colfax area that specializes in investor insurance. Check them out.

Hey Bill - 100% agree but in this case I was getting pretty high quotes from the independents (i.e Safeco)

Ended up getting Esurance to cover me at a screaming deal - $650/yr on a $300k property + no issues with up to 4 paying roommates.

Have you only been calling GEICO, etc? There’s a reason your local independent insurance brokers exist. They have more flexibility and can do the deals the major carriers aren’t interested in. Think of it like a local bank w/ a portfolio lending arm vs. going to Chase for a mortgage. If you’re an investor you should have a good relationship with a local independent.

I feel this depends on the type of destination & how people travel to it. 

If it's a place that most visitors travel to via plane you'll get hit pretty hard during a downturn. If it's within driving distance of a large metro then you won't see too much of a hit.

If it's an activity like skiing that also requires a $600/yr ski pass + gear rental you'll probably see a bigger downturn than if it's an area people go backpacking/camping for nearly no $$. For "budget activity" destinations you might even see an increase in traffic as people cut down on more expensive trips.

I'd expect my ski condo in Summit County (near Denver) to get hit 15-25% by a 2008-like crash.

Reasonably priced MFRs are very hard to find in Denver right now. Anything on the MLS goes for dumb amounts and plenty of people trying to get off-market deals as well.

My current strategy is SFRs in Denver, MFRs out of state (Upstate NY for me).