All Forum Posts by: Donald F.

Are you and your partner contributing the land into the JV agreement where the developer will build on? Answer: Yes

Is there a JV agreement or an LLC agreement. Answer: JV Agreement between Land Member LLC and Developer's LLC

Who are listed as the members. Answer: Developer and Land Owner

is it you and your partner individually or the LLC that owns the land. Answer: The LLC that owns the land. My partner and I are the members on the LLC @Basit Siddiqi

I am a member of an LLC just created, which is a JV partnership between myself/my partner (land owner) and a developer.

For any distributions to us (the land owner), the distributions will be sent to the account of another LLC where my land owner partner and myself are the sole members. Should I personally sign as a member of this LLC? Or create an LLC that only I will own, which will be an owner of this LLC that my partner and I own?

FWIW I also have an scorp LLC I use, separate from this, to pay myself a salary. I can use this as a signer of the land owner llc too if makes sense.

Will ask my cpa and atty. Just curious if BP has any thoughts on this. TY

Hi all, I'm looking to invest in my first property -- looking to see if this passes litmus test. Here are the owner's/broker's self-storage numbers..:

Rent: 51,780
Maintenance: $260
Water: $730.92
Electric:396
Taxes: $6,128.53
Insurance: $0
NOI: $44,264.55
Price: $840,000
CAP: 5.3%

Units: 40
13 vacant (68% occupancy)
Average Rent $/SF/Month: $.84
Market rent seems to be appx $0.94-$1

If I were to fill the vacant units up to $.94/SF and bring the under-market units up to rent, the gross rent roll would be >$85k.

The owner says the market rent is $1.25 but that's not what I was able to tell. I'm also not sure about those taxes, not sure how much they would go up after a purchase.

He's willing to offer seller-financing at 5% amortized over 15 years (no prepayment penalty). This would make the debt service $5,457/month. He says he needs the mortgage payment to exceed the current income stream in order for a sale to be worthwhile. He also wants me in at $100k+ his broker fee, closing costs, etc. Therefore, he suggested $150k. I think I could negotiate the down payment a little further.

Therefore, my cash flow after debt service at the current #s equals negative ($21,219/yr). If I got the rent roll up to $85k, the cash flow would be $40,736. This would represent a 27% cash on cash return. However, again I'm not sure how much those taxes would go up and I think there's other OPEX #'s missing. However, I also think that $.94/SF in rent seems fairly doable and that may be even a little conservative.

Additionally, I like the location a lot. It's in a gentrifying part of Houston where it's historically been low/middle income but now the homes around it are trading for $500k-$1M. It sits on less than half an acre next to a gas station, auto dealer, etc. However, the owner claims the best and highest use is resi apartments. Therefore, I was thinking if this were true, it could also be a covered land play.

In short, I like the deal because it seems to have a decent shot at having good cash flow AND appreciation. I'm hesitant because of the negative cash flow going into it and the risk of what if I can't rent out the units like I think I can.

The owner answers all the calls currently to prospective renters and does all the leasing. The broker says it's not fully occupied because he has it at a low basis and just uses it primarily for storage for his cars/his friends, etc. He has a sign in front of the property with his phone number to attract renters, but he does not currently have the property listed anywhere on the internet (no yelp, google page, etc.). 

What are your thoughts?

@David M. Thanks for trying to help. I think you need to understand bonus depreciation to know what I am trying to ask though. With bonus depreciation I’m able to accelerate a bunch of depreciation to the first year.. the accelerated depreciation would create a paper loss for the property for that first year. Typically you can only use passive losses to offset passive income. However, if you are a real estate professional and meet the material participation requirement, you can use the passive loss and use it to offset your active income. The material participation requirement is very strict, so I’m looking to understand if it’s even possible (and if so, how?) to have multiple partners use that against their active income. If it’s possible to have multiple partners meet the material participation requirement, it seems very tough. Yes, meeting with CPA about this — figured I’d ask if anyone knew the answer in the meantime though.

@David M. Yes but my question is whether or not it’s possible to have multiple GP’s qualify to use that depreciation to offset ACTIVE income

If my brother and I hypothetically invested in an income producing property together, would only one of us be able to claim material participation in order to allow us to use bonus depreciation to offset our active income? we are both RE professionals as defined by IRS. If so, what would be the requirements that we would both need to fulfill in order to do this legally? I’m afraid that if one of us were able to meet the requirements, it would eliminate the other to be able to fulfill the requirement.

I've been looking for deals for my first commercial property and I’m speaking to the owner of an RV Park that is considering selling. 

It's in a tertiary area, has 48 pads on 5 acres, amenities include cable/wifi, and full hook up access. There's a clubhouse, laundry, kayak rentals, bathrooms/showers, some recent renovations (new plumbing, electric, landscaping, etc.). It's managed by tenants who live on site.

The ask is a little over $1mm and the cap rate is 13%. The owner is looking for $500k down and offering 4.5% interest only financing with a 5 year balloon. The after debt service cash flow gives you a 22% cash on cash return in the first year. 

 I’m thinking I should do a deeper dive as it looks good, what else should I look for? Thoughts?

@Ronald Rohde who said anything about managing your loan, money, deal, etc.? I’d want to be partners in everything… if you are able to secure financing or some other value, you should be rewarded for that in the deal somehow.

All I said was that I’d like to manage the property through the end of the year for tax purposes. I understand that some people may or not be open to that because they would want to hire a professional management out of the gate, maybe manage the property themselves, etc.

@Rick Pozos thanks for the feedback. Yes, that's on purpose. I’d rather not show my name/profile, etc., on a public forum like this and have all my posts from this forum showing up on Google for anyone to see. 

I’m happy to share my LinkedIn/social media, work info, zoom call, etc., if anyone interested would like to PM me. If not, that's fair. Thanks

@Lane Fisher thanks for the message. I don’t want to pigeonhole myself but I suppose ideally within a 5-6 hour drive from the middle of Atlanta (where I am currently) would be best. I certainly want to/need to be hands on through the remainder of the year. I’d want to hire management for at least most things after that.