All Forum Posts by: Erik Bood

I own an 8 plex in Salem, OR and the property currently has about 1/4 acre of bare land that I am strongly considering partitioning into a sperate legal lot to build a 2-4 unit building. I spoke to a surveyor and it sounds like it's relatively straight forward to partition off that piece of land so I can build on it. 

I have two main questions but would greatly appreciate any feedback or experience you have in this area.

Question 1: What is the approximate per square foot build cost for workforce multi-family in Oregon for a single level 2-4 unit building?

Question 2: Do you know any builders in Marion County or Salem Or area?

Even if your in different markets, I'd still like to hear what it costs you to build something like this. 

Thanks for any and all help!

Erik

Situation: In 2022 I sold an 8 unit complex and did a 1031 into another 8 unit complex and I wasn't able to fully use my 1031 funds. I knew it wasn't ideal for this to happen but I was only willing to purchase a property that penciled and made sense to own with strong potential upside. I ended up with around $220k of "boot" that wasn't reinvested.

Relevant Background about me: My wife and I both have full-time W2 jobs and we are not real estate professionals according to the IRS. We also own around half of another 22 unit in the Portland area that cashflows pretty well but our standard depreciation seems to cover most, if not all, of the cashflow from this property.

Question: If I have a cost segregation study completed on my 8 unit (PP of $1.2M) that I purchased in 2022 will that paper loss reduce the tax on my "boot" from my 1031 that I partially failed in 2022? My current understanding is that the additional paper loss on my cost seg of this new property will not reduce my tax liability from the sale of the original property. Is this accurate? Do you have any recommendations or ideas of how to reduce this tax bill at this point?

Looks like I'll owe $50k or so on taxes and depreciation recapture according to my CPA and my understanding above is from a conversation with him. If you have experienced this, or are a CPA or have ideas on how to best handle this, I'd greatly appreciate the advice!

Fun fact, started with a 4 unit owner occucpied and have worked my way up to 30 units in Oregon. BP has been a great resource!

Erik

I have 10 doors between Vancouver, WA and Beaverton, OR and all tenants paid on time. 

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $292,000
Cash invested: $104,000

Purchased and completely renovated duplex. Renovation included new kitchen, bathrooms, windows, doors, trim, flooring, gutters, siding, etc. Literally replaced almost every surface in both units. After interior was renovated updated exterior with new landscaping and fencing.

What made you interested in investing in this type of deal?

I buy and hold small multi-family properties for the long term.

How did you find this deal and how did you negotiate it?

I found it on the MLS in December of 2018. I got it under contract at an attractive price due to the poor condition of the property. The rents were low at around $850-900 a side and the property had significant deferred maintenance. After inspections I was able to get an additional $17k off of the purchase price due to previously unknown issues.

How did you finance this deal?

I used traditional bank financing but was able to get them to allow me to put 20% down instead of the traditional 25%.

How did you add value to the deal?

Completely renovated the property and raised the rents from $850-900 per side to $1400 per side.

What was the outcome?

The property cash flows great and it's value is in excess of $425k. I plan to hold it long term unless a good 1031 opportunity presents itself.

Lessons learned? Challenges?

I own this property with a partner and it was my first partnership deal. The partnership has worked out extremely well overall but we both learned that we did too much of the work ourselves instead of hiring a reasonably priced contractor. We should have hired a contractor for more of the work, especially the work that wasn't overly expensive. We had a contractor help us with some repairs but far less than we should have. In the future I will do far less renovation work.

@Thomas S. at 100% financing it would have a negative cash flow and would not be an investment that I would hold. I'm going to start looking at deals in other markets and see if I can find cash flow like you're describing. Some of the top cash flowing markets make nervous due to the economic situations and the net loss or flat population growth. I've started creating a list of my target markets where I could 1031 to OR where I could purchase in while keeping my existing property. 

If I could find that type of cash flow in the NW I would jump at that opportunity if I felt comfortable with the market and its future prospectus.

Cameron Irtifa, at CPA Service LLC in Beaverton. I've used him for the past four years and he understands real estate investing well. He's helpful, generous with his time and easy to work with.

@Dave Foster thanks for the feedback. I certainly feel like keeping the 4plex might slow me down on acquiring larger commercial properties. I normally move pretty fast and aggressively go after my goals, so the buying and holding a property long term is a bit of a struggle. Especially when I'm trying to grow my cash flow and unit count aggressively. 

At this point I'll mainly consider the options that allow me to keep the property unless an amazing opportunity comes up that allows me to 1031 to great deal. 

Thanks for the thoughtful reply Steve Vaughan. I think you bring up some good points and I'm strongly considering holding on to the property and either doing a cash out refi or looking for some sort of HELOC. I'm also just considering leaving the property as is since the loan is pretty good and using a small HELOC on my personal home to gather up the cash for my next deal.

I'm not a builder but I believe $775k is still under the rebuild cost. I don't remember what the insured value is, I'm going to verify that today. 

I plan on never selling properties unless I'm immediately re-investing the money into another deal. 

My goal was to try to pick up a 5-10 unit building in the near future but that'll be a bit difficult for me in my current area due to the pricing. I'm working on optimizing my cash position so anything is possible in the next 2-3 years if I wait.

Shun, 7 years ago I was in a similar situation. I had lots of debt, no cash and credit that was in the low 600's since I had maxed all of my credit cards out. I worked out of the situation by doing the following.

1. Fix your spending. List ALL of your living expenses. Then RUTHLESSLY go through them and see what you can cut.
2. Cut all of the unnecessary expenses and re-look at your monthly income versus expenses. Start paying down your debt aggressively every month. Give things up, sacrifice.
3. Find a way to earn more money. Can you learn additional skills? Can you work extra hours? Can you find a better paying job? Hustle. Hustle and hustle. Don't accept failure, it can be done.
4. After doing the above for a couple years (less if you really get after it) your credit will improve. Then you can buy a 2-4 unit building, live in one unit and cut your monthly expenses by living in it. This will really accelerate your debt pay down and opportunity to invest in Real Estate. Coming up with a down payment doesn't have to be hard. Save a little money every month and look at borrowing from a 401k or any other source you have to get the down payment. 3.5% down on a $100k property is only $3500.

Overall you first need to get on level ground with your finances. Be honest with yourself, and start making things happen. Remember, things in motion tend to stay in motion.

Hope it helps.

I purchased and rehabbed a 4 plex in Beaverton OR in June of 2014 and now I'm unsure as to what my next steps should be. I have approximately $350k or so of equity in the property from the BPO that my agent provided me. I'm having a hard time deciding whether I should try to do a 1031 exchange, cashout refi, find a lender willing to give me a HELOC on it (non-owner occcupied) or to just leave the equity there and save up another down payment for my next property on my own. I'll provide some details on the property below, my goals and current situation. I would appreciate any feedback that you're willing to provide!

My goal with real estate is to build up a decent sized portfolio that can cash flow $5k a month or so. Doing this will be pretty difficult in the Portland, OR / Beaverton, OR market due to the pricing here at this time. To grow, I am willing to consider markets outside of Portland and would consider selling my 4plex if I could go bigger in another market that cash flows well and is relatively safe (good economics, safe neighborhoods, etc).

I currently have a job that I plan on staying at for the foreseeable future that provides a good income. If I don't do a 1031 exchange, refi or borrow from the equity on the property it would take 6-8 months to make my next acquisition of a 2-4 unit building in my market. If I look elsewhere I could most likely do it faster which is appealing. 

The 4plex is my only rental property currently and I own the home that I live in which has a mortgage on it. 

Here are the current details on the building:

1. 4.25% @ 30 year fixed. 39 months into the 30 year mortgage. Current balance is around $398k.
2. Broker price opinion of the value is $750-775k
3. Net Cash flow monthly after all expenses is $1350 (Self Managed)
4. Building is in good shape, repair costs will be low for the foreseeable future due to the renovations I've already completed.
5. Proceeds if sold would be around $320k-$330k after all fees/commissions

Fellow investors, what would you do in this situation? What am I missing or not thinking about? Any feedback, help or advice would be much appreciated! 

Erik