All Forum Posts by: Edward Liu

For schedule E from seller, did you remove depreciation, interest payment, when calculate net income?  Key for me from seller schedule E is look at utility cost, insurance, property tax, or maintenance items that are unique.  

You should ask for cap Ex sheet in seller tax return for this property and see if seller has tried to shift normal maintenance cost into Cap Ex to make net income look better.

You can definitely walk during due diligence period for any reason.  It depends on how strongly you feel about this deal.  The good news is at least you have seller schedule E - many sellers don't provide them.

If you don't have any rentals yet, my suggestion is purchase cash flowing SFH or duplex out of state first. There are more issues with 6+ units and CAP numbers published are usually not real.

Your repair cost from graph is only $10k while you state the property needs major renovation.  $10k is very low renovation cost for 32 units.

Your maintenance seems low, if you have mostly sec 8 tenants.  What will be utility cost?  What about management cost?

Anyway, most of your expenses estimates seems very low.  I owned a 35 unit building for about 2.5 years (sold it recently).  Its operating expenses are much higher vs. your estimates.

Tax and rent increase are related to location and type of property you buy.  I have a condo-ized building in Hartford and its property tax is pretty low vs similar buildings I have in other cities outside of CT.  From 2017 to now, rents for 2 bds has increased from around $800-825 per month to $900 per.  I consider that healthy increase in rent for this period of time.

You can find good deals in Hartford with great cashflow, just need to know where to look and what to look for.

South End and West End of Hartford are okay.  Definitely avoid North Hartford.  Try to avoid 3 bed+ units as most likely you will get sec 8 tenants.  I only have 1 or 2 bedrooms in Hartford and able to get market rent tenants, which are much better. 

I don't believe you can rent them out legally nor should you try due to liability.  Your insurance company will only cover it as a duplex.  If you rent out more than 2 units and something goes wrong, your insurance will not cover your losses.  

- Look for properties online or through contacts or agents or whatever channel you use

- Request all the numbers and have someone local (ideally property manager) to walk through the property and give their impression of property condition, location, tenant base, rent upside, etc.

- If above look good and numbers can work, submit offer and get under contract.

- Order inspection, etc. as part of due diligence.  I don't bother to travel if deal is small, but will travel if deal is sufficient large or have a serials of deals around similar time frame

- Close the deal if satisfied with due diligence

Key is get good local property manager (maybe through reference) who can be honest - they will manage the property once purchased. 

I never trust the pro forma numbers.  Can you really get $4k per month in rent for these 2 units?  Seems the unit that generate most rent is vacant (probably for a reason).  You need to know the area and have good feel of the local rent.

Given this is duplex, you should be able to run comps to see market value. We can not say if this is good deal or not without knowing all the expenses, such as insurance, property tax, etc. $495 HOA will eat into any profit, but it also depends what HOA would cover.

Recently I had to file an insurance claim on one of my buildings:  

There was a break in and vandals cut away copper pipes throughout the utility area/basement.  A lot of money had to be spent to restore water service as it was difficult to trace what was cut and identify all the breaks.  Also, hot water boiler was damaged beyond repair.  Many other things had to be done such as clean up basement due to water flooding, place tenants in hotels given water service could not be restored in certain period, etc.

Early indication from insurance adjustor is that my insurance does not cover stolen property - cost of install water pipes and restore water service is NOT covered (water pipes are treated as stolen property).  While they think the damaged boiler is covered (still doing final determination).

I have fairly standard insurance.  I see water pipes as part of the building (similar to doors and windows).  If they are cut away, why it is treated similar to a stolen TV?  Has any one had similar claim with insurance and how are those claims treated?

I know insurance has financial incentive to deny as much claim as possible.  What are options to fight it if I disagree or have some insurance expert to review the coverage?

My wife handles tax for many international, mostly Asian, clients (not sure about ones with travel visa).  

First of all, there is no such thing as tax free for 3 years.  It is only possible by act of congress or state or city specific for these investors (such as Amazon HQ2).  Many unscrupulous middleman/realtors will promise the world to foreigners who don't know much about the US.  

2nd of all, all US based income are taxed (no matter nationality of owner), thus as long as there is income, these investors must file state and federal tax returns every year.  Even if they are losing money, they still need to file returns so gains/losses can be captured.  Note that given they are foreign nationals who do not reside in the US most of the year, their tax can be different.  Their tax rate is based on tax treaties between US and their respective country/residency.

Without SS#, foreigners can get ITIN (Individual Tax Indentification Number) from IRS to file returns.

If 2018 is first year they brought the properties, then likely not much issue.  Simply get tax accountant who is familiar with international tax.  Being 1st year, good accountant likely can get IRS to waive penalties.

If 2018 is not first year, get good tax accountant and file for previous years.  If properties always lose money throughout, then likely not much issue given technically they don't owe tax to the government.  In this situation, actually losing money is not a bad thing.  If they do make money, then likely lot of penalties and interest, etc.  High accountant bill also.